-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FSGJDzrx+bcsdmrV/T0nrSQmZbbXMIfl3YZd943XXyaqFuPDGRx7muXp2EwPtjHE iK+dTfm7qfgW+OzxIUc41g== 0000912057-01-004129.txt : 20010207 0000912057-01-004129.hdr.sgml : 20010207 ACCESSION NUMBER: 0000912057-01-004129 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20010206 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACACIA RESEARCH CORP CENTRAL INDEX KEY: 0000934549 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 954405754 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-55086 FILM NUMBER: 1526430 BUSINESS ADDRESS: STREET 1: 55 SOUTH LAKE AVE STREET 2: STE B CITY: PASADENA STATE: CA ZIP: 91101 BUSINESS PHONE: 6264496431 MAIL ADDRESS: STREET 1: 12 S RAYMOND AVENUE STREET 2: SUITE B CITY: PASADENA STATE: CA ZIP: 91105 S-3 1 a2037106zs-3.txt FORM S-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 6, 2001 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------ ACACIA RESEARCH CORPORATION (Exact name of Registrant as specified in its charter) DELAWARE 95-4405754 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number)
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 ------------------------------ 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. ------------------------------ 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. / / ------------------------------ 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. ------------------------------ 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 ------------------ 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. --------------------- 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 -------- 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 - ------------ ------------------------------------ --------------------- 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 - ------------ ------------------------------------ ---------------------- 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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 - --------------------- ------------------------------------------------------------ 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)
- ------------------------ (1) Previously filed by Registrant with Amendment No. 2 on Form 8-A/A on December 30, 1999 (SEC File No. 000-26068). EX-4.1 2 a2037106zex-4_1.txt EXHIBIT 4.1 EXHIBIT 4.1 ACACIA RESEARCH CORPORATION SUBSCRIPTION AGREEMENT AND INSTRUCTIONS PLEASE READ THE SUBSCRIPTION AGREEMENT CAREFULLY. IN ORDER TO SUBSCRIBE YOU MUST: 1. Check the appropriate boxes in the Subscription Agreement on pages 9 through 10. 2. Sign and complete the APPROPRIATE signature page. 3. Sign and complete the Internal Revenue Service Form W-9. 4. If you are married, your spouse must sign the attached Consent of Spouse. 5. Sign and complete the enclosed Confidential Purchaser Questionnaire. 6. Return the above materials along with payment to: Acacia Research Corporation 55 S. Lake Avenue Pasadena, CA 91101 Certified or official bank checks for the amount subscribed (as indicated on the signature page of the Subscription Agreement) should be made payable to "ACACIA RESEARCH CORPORATION - SPECIAL ACCOUNT" Or payment can be made by wire transfer to: Imperial Bank 1100 Glendon Avenue Suite 220 Los Angeles, CA 90024 ABA # 122201444 Credit to Acacia Research Corporation Account # 38-057-863 Acacia Research Corporation (the "Company") will notify investors as to the date and time of the closing of the transaction. 7. Each prospective purchaser may be required to provide such additional information as the Company shall reasonably request. In this connection, please note: (a) A partnership may be required to provide a copy, among other items, of its partnership agreement, as amended, as well as all other documents that authorize the partnership to invest in the Company. (b) A corporation may be required to provide a copy, among other items, of its Articles of Incorporation and Bylaws, as amended, in effect, as well as all other documents that authorize the corporation to invest in the Company. (c) A limited liability company may be required to provide a copy, among other items, of its Certificate of Formation and Operating Agreement, as amended, in effect, as well as all other documents that authorize the limited liability company to invest in the Company. i (d) A trust may be required to provide a copy, among other items, of its Declaration of Trust or other governing instrument, as amended, as well as other documents that authorize the trust to invest in the Company. ii ACACIA RESEARCH CORPORATION SUBSCRIPTION AGREEMENT Ladies and Gentlemen: 1. SUBSCRIPTION; PAYMENT. The undersigned, intending to be legally bound, hereby irrevocably agrees to purchase from Acacia Research Corporation, a Delaware corporation (the "Company"), this subscription (the "Subscription") in the amount of $__________ (the "Capital Commitment") for __________ Units (each Unit consisting of one share of the Company's Common Stock, par value $0.001 per share, and one Common Stock Purchase Warrant) pursuant to the Company's Confidential Private Placement Memorandum dated January 17, 2001 (the "Memorandum"). This Subscription is submitted to you in accordance with and subject to the terms and conditions described in this Subscription Agreement. For a description of the Common Stock Purchase Warrant, please refer to Attachment 1 hereto "Form of Common Stock Purchase Warrant." The undersigned shall either: (i) enclose herewith a certified or official bank check payable to the Company, or (ii) transmit by wire transfer the amount of the Capital Commitment. 2. ACCEPTANCE OF SUBSCRIPTION. The undersigned understands and agrees that the Company in its sole discretion reserves the right to accept or reject this or any other subscription in whole or in part, notwithstanding prior receipt by the undersigned of notice of acceptance. If this Subscription is rejected by the Company in whole or in part, the Company shall promptly return all funds received from the undersigned, without interest, and this Subscription Agreement shall thereafter be of no further force or effect. 3. REPRESENTATIONS AND WARRANTIES. The undersigned hereby acknowledges, represents and warrants to, and agrees with, the Company as follows: (a) The undersigned understands that the offering and sale of the Units are intended to be exempt from registration under the Securities Act of 1933, as amended, (the "Securities Act"), by virtue of Section 4(2) and Rule 506 of Regulation D promulgated under the Securities Act, and in accordance therewith and in furtherance thereof, the undersigned represents and warrants and agrees as follows: (i) The undersigned and the undersigned's advisers have been afforded an opportunity to review and receive the Memorandum and reports filed by the Company under the Securities Exchange Act of 1934 (the "Exchange Act") and other publicly available information relating to the Company, the Company's business and finances (collectively, the "Information"), and any and all other information deemed relevant by the undersigned in order to make an informed investment decision regarding the Units, and have reviewed and received such Information and understand the Information and this Subscription Agreement; (ii) No written representations have been made other than as stated, or in addition to those stated, in the Information; (iii) The undersigned is not subscribing for the Units as a result of or subsequent to any advertisement, article, notice, other communication published in any newspaper, magazine, or similar media or broadcast over television or radio, or presented at any seminar or meeting, or any solicitation of a subscription by a person other than a representative of the Company; (iv) If the undersigned is a natural person, the undersigned has reached the age of majority in the state in which the undersigned resides; (v) The address set forth below is the undersigned's true and correct domicile; 1 (vi) The undersigned has adequate means of providing for the undersigned's current financial needs and contingencies, is able to bear the substantial economic risks of an investment in the Units for an indefinite period of time, has no need for liquidity in such investment, and, at the present time, could afford a complete loss of such investment; (vii) The undersigned has such knowledge and experience in financial, tax, and business matters so as to enable the undersigned to utilize the Information made available to the undersigned in connection with the offering of the Units to evaluate the merits and risks of an investment in the Company and to make an informed investment decision with respect thereto; (viii) The undersigned is not relying on the Company with respect to the legal, tax, and other economic considerations of an investment and has obtained, or had the opportunity to obtain the advice of the undersigned's own legal, tax, and other advisors; (ix) The undersigned will not sell or otherwise transfer the Units or the underlying shares of the Company's Common Stock thereof ("Shares") without registration under the Securities Act or applicable state securities laws or an exemption therefrom. The Units and the Shares have not been registered under the Securities Act or under the securities laws of any state. The undersigned represents that the undersigned is purchasing the Units for the undersigned's own account, for investment and not with a view to resale or distribution except in compliance with the Securities Act. The undersigned has not offered or sold any portion of the Units being acquired. The undersigned does not have any present intention of selling, distributing or otherwise disposing of any portion of the Units, which may be a violation of the Securities Act unless (i) a registration statement has been filed and declared effective by the Securities and Exchange Commission (the "SEC") covering such Shares to be resold or otherwise distributed; or (ii) the passage of a fixed or determinable period of time that makes such resale or distribution exempt from registration and is pursuant to Rule 144 promulgated under the Securities Act or upon the occurrence or nonoccurrence of any predetermined event or circumstance in violation of the Securities Act. The undersigned is aware that there is currently no public market for the Units, although a public market exists for the Company's Common Stock; (x) THE UNDERSIGNED UNDERSTANDS AND ACKNOWLEDGES THAT HIS OR HER INVESTMENT IN THE COMPANY INVOLVES A HIGH DEGREE OF RISK AND IS SUITABLE ONLY FOR INVESTORS OF SUBSTANTIAL MEANS WHO HAVE NO IMMEDIATE NEED FOR LIQUIDITY OF THE AMOUNT INVESTED, AND THAT SUCH INVESTMENT INVOLVES A RISK OF LOSS OF ALL OR A SUBSTANTIAL PART OF SUCH INVESTMENT; and (xi) The undersigned is an "accredited investor" within the meaning of Rule 501 of Regulation D promulgated under the Securities Act. (b) The undersigned's overall commitment to investments which are not readily marketable is reasonable in relation to the undersigned's net worth. (c) The undersigned hereby agrees to provide such information and to execute and deliver such documents as may reasonably be necessary to comply with any and all laws and ordinances to which the Company is subject, including, without limitation, such additional information as the Company may reasonably deem appropriate with regard to the undersigned's suitability. (d) The undersigned acknowledges: (i) In making an investment decision the undersigned has relied on the undersigned's own examination of the Company and the terms of the offering of the Units, including the merits and risks involved. THE UNITS OFFERED IN THIS SUBSCRIPTION AGREEMENT HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES 2 COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THE INFORMATION OR THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE; (ii) The undersigned, if executing this Subscription Agreement in a representative or fiduciary capacity, has full power and authority to execute and deliver this Subscription Agreement in such capacity and on behalf of the subscribing individual, ward, partnership, trust, estate, corporation, or other entity for whom the undersigned is executing this Subscription Agreement, and such individual, ward, partnership, trust, estate, corporation, or other entity has full right and power to perform pursuant to this Subscription Agreement and make an investment in the Company; and (iii) The representations, warranties, and agreements of the undersigned contained herein and in any other writing delivered in connection with the transactions contemplated hereby shall be true and correct in all respects on and as of the date of the sale of the Units as if made on and as of such date and shall survive the execution and delivery of this Subscription Agreement and the purchase of the Units. 4. REGISTRATION RIGHTS. (a) REGISTRATION RIGHTS (i) The undersigned understands that the Company will file a Registration Statement with the SEC for the resale of the Company's Common Stock included in the Units sold pursuant to the Memorandum ("Unit Shares") and the Company's Common Stock to be issued upon exercise of the Common Stock Purchase Warrants included in the Units sold pursuant to the Memorandum ("Warrant Shares") as soon as shall be reasonably practicable following the consummation of the sale of the Units pursuant to the terms of this Subscription Agreement, but in no event more than sixty (60) days after the final closing of the Offering (as defined in the Memorandum). Holders of the Units, the Unit Shares, and the Warrant Shares are collectively referred to as "Holders." Subject to the provisions of this Subscription Agreement, the Company shall use commercially reasonable efforts to have such Registration Statement declared effective by the SEC as promptly as shall be practicable, but in no event more than 120 days after the final closing of the Offering (as defined in the Memorandum). The Company shall keep such Registration Statement effective for a period of up to 120 days or until the distribution contemplated in such Registration Statement has been completed; PROVIDED, HOWEVER, that such 120-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such Registration Statement at the request of the Company or an underwriter of the Company's Common Stock (or other securities). For the purposes of this Subscription Agreement: (A) "Registrable Shares" means the Unit Shares and the Warrant Shares (and including any shares issued in connection with any split or dividend in respect of any such shares); provided, however, that any such share of Common Stock will cease to be a Registrable Share when (1) a Registration Statement covering a Registrable Share has been declared effective by the SEC and such share has been disposed of by the Holders pursuant to such effective Registration Statement, (2) the Registrable Share is transferred to another person, (3) such share (after initial issuance) is held by the Company or one of its subsidiaries or otherwise ceases to be outstanding, or (4) such share may be traded without restriction pursuant to paragraph (k) of Rule 144, if applicable; and (B) "Registration Statement" means any registration statement or comparable document under the Securities Act through which a public sale or disposition of the Registrable Shares may be registered, including the prospectus, amendments and supplements to such registration statement, all exhibits, and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. (ii) Upon the written request of a Holder to include all or any portion of such Holder's Registrable Shares in an underwritten offering, the Company shall have the right, in its sole 3 discretion, to determine whether any of such Registrable Shares are to be included in such underwritten offering, and if the Company so determines, the Company alone shall have the right to select the managing underwriter or underwriters to administer the offering. (iii) If the managing underwriter of an underwritten offering under this Section 4(a) advises the Company in writing that in its opinion the number of shares requested to be included in such registration exceeds the number which can be sold in such offering, the Company will include in such registration only the number of shares which in the opinion of such underwriter can be sold and may delay registering the balance of the shares in a non-underwritten offering for up to 120 days. This provision shall not relieve or modify the Company's obligations to file and have declared effective any Registration Statement under Section 4(a)(i). If the number of shares that can be sold is less than the number of shares proposed to be registered, the amount to be so registered shall be allocated pro rata among the Holders of Registrable Shares desiring to participate in such registration. (iv) If the Company fails to file a Registration Statement, or have such Registration Statement declared effective, within the time periods specified in this Section 4(a) (each an "Obligation"), the Company shall return to the undersigned an amount in cash equal to 1.5% of the Capital Commitment, net of any finder's fees, on any such date and on the monthly anniversary of each such date until the Company satisfies the applicable Obligation. (b) SUSPENSION OF EFFECTIVENESS. The Company's obligations under Section 4(a) above shall not restrict its ability to suspend the effectiveness of, or direct the Holders not to offer or sell securities under, any Registration Statement, at any time, for such reasonable period of time which the Company believes is necessary to prevent the premature disclosure of any events or information having a material effect on the Company. In addition, the Company shall not be required to keep any Registration Statement effective, or may, without suspending such effectiveness, instruct the Holders not to sell such securities, during any period during which the Company is instructed, directed, ordered or otherwise requested by any governmental agency or self-regulatory organization to stop or suspend such trading or sales. (c) HOLDBACK AGREEMENT. In the event of any filing of a prospectus supplement or the commencement of an underwritten public distribution of the Company's Common Stock under a Registration Statement, whether or not Registrable Shares are included, the Holders agree not to effect any public sale or distribution of Registrable Shares (except as part of such underwritten public distribution), including a sale pursuant to Rule 144 or Rule 144A under the Securities Act, during a period designated by the Company in a written notice duly given to the Holders, which period shall commence up to 14 days prior to the effective date of any such filing of such prospectus supplement or the commencement of such underwritten public distribution of such Common Stock under a Registration Statement and shall continue for up to 44 consecutive days in the case of a sale pursuant to Rule 144 and for up to 74 consecutive days otherwise. (d) REGISTRATION PROCEDURES. Except as otherwise expressly provided herein, in connection with any registration of Registrable Shares pursuant to this Agreement, the Company shall, as expeditiously as possible: (i) prepare and file with the SEC a Registration Statement with respect to such Registrable Shares and use its reasonable best efforts to cause such Registration Statement to become effective as soon as practicable thereafter; and before filing a Registration Statement or prospectus or any amendments or supplements thereto, furnish to the Holders copies of such Registration Statement and such other documents as proposed to be filed (including copies of any document to be incorporated by reference therein), and thereafter furnish to the Holders such number of copies as may be reasonably requested in writing by the Holders of such Registration Statement, each amendment and supplement thereto (including copies of any document to be incorporated by reference therein), including all exhibits thereto, the prospectus included in such Registration Statement (including each preliminary prospectus), and, promptly after the effectiveness of a Registration Statement, the definitive final prospectus filed with the SEC; 4 (ii) notify the Holders, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the occurrence of any event as a result of which the prospectus included in such Registration Statement (including any document to be incorporated by reference therein) contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading and, the Company shall prepare a supplement or amendment to such prospectus, as soon as practicable, so that, as thereafter delivered to the purchasers of such Registrable Shares, such prospectus will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading and promptly make available to the Holders any such supplement or amendment; (iii) notify the Holders and the managing underwriters, if any, promptly, and (if requested by any such Person) confirm such advice in writing, (i) when the Registration Statement, the prospectus or any prospectus supplement or post-effective amendment has been filed, and, with respect to the Registration Statement or any post-effective amendment, when the same has become effective, (ii) of the issuance by the SEC of any stop order suspending the effectiveness of a Registration Statement or of any order preventing or suspending the use of any preliminary prospectus or the initiation of any proceedings for that purpose and the Company shall promptly use its reasonable best efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued, and (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Registrable Shares for offer or sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose. The Company may require the Holders to furnish to the Company such information regarding themselves and the distribution of such Registrable Shares as the Company may from time to time reasonably request in writing and such other information as may be legally required in connection with such registration. The Holders agree, by their acquisition of Registrable Shares and their acceptance of the benefits provided to it hereunder, to furnish promptly to the Company all information required to be disclosed in order to make any previously furnished information not materially misleading. All Holders proposing to distribute their Registrable Shares through an underwritten offering shall (together with the Company) enter into an underwriting agreement in customary form with the underwriter or underwriters selected by the Company for such underwriting and shall provide to such underwriter or underwriters any opinions and certificates, and any indemnification with respect to such Holder as reasonably required by such underwriter or underwriters. The Holders agree that upon receipt of any notice from the Company of the happening of any event of the kind described herein requiring the cessation of the distribution of a prospectus or the distribution of a supplemented or amended prospectus, the Holders will forthwith discontinue disposition of Registrable Shares pursuant to the Registration Statement covering such Registrable Shares until the Holders' receipt of the copies of the supplemented or amended prospectus contemplated by this Subscription Agreement, or until it is advised in writing by the Company that the use of the prospectus may be resumed, and, if so directed by the Company, the Holders will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in the Holders' possession, of the prospectus covering such Registrable Shares current at the time of receipt of such notice. (e) REGISTRATION EXPENSES. All expenses incident to the Company's performance of or compliance with the registration of shares pursuant to this Subscription Agreement, including, without limitation, all registration and filing fees, fees and expenses of compliance with securities or blue sky laws (including reasonable fees and disbursements of counsel of the Company and counsel for the underwriters in connection with "blue sky" qualifications of the Registrable Shares), fees and expenses associated with filings required to be made with the National Association of Securities Dealers, Inc., and with listing on any national securities exchange or exchanges in which listing may be sought, printing expenses, messenger and delivery expenses, fees and expenses of counsel for the Company and its independent certified public accountants, securities acts liability insurance (if the Company elects to obtain such insurance), the fees and expenses of 5 any special experts retained by the Company in connection with such registration, and fees and expenses of other persons retained by the Company (all such expenses being herein called "Registration Expenses") will be borne by the Company; provided that in no event shall Registration Expenses payable by the Company include any (i) underwriting discounts, commissions, or fees attributable to the sale of Registrable Shares, (ii) fees and expenses of any counsel, accountants, or other persons retained or employed by the Holders or underwriters, or (iii) transfer taxes, if any. (f) INDEMNIFICATION. (i) To the extent permitted by law, the Company shall indemnify each Holder, each underwriter of the Registrable Shares and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which any registration, qualification or compliance has been sought pursuant to this Subscription Agreement, against all claims, losses, damages and liabilities (or action in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened (subject to Section 4(f)(iii) below), arising out of or based on (i) any untrue statement (or alleged untrue statement) of a material fact contained in any Registration Statement incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances in which they were made, or (ii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, or any rule or regulation promulgated under the Securities Act, or the Exchange Act, and shall reimburse each Holder, each underwriter of the Registrable Shares and each person controlling such Holder, for legal and other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action as incurred; provided that the Company shall not be liable in any such case to the extent that any untrue statement or omission or allegation thereof is made in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Holder and stated to be specifically for use in preparation of such Registration Statement; provided that the Company shall not be liable in any such case where the claim, loss, damage or liability arises out of or is related to the failure of the Holder to comply with the covenants and agreements contained in this Subscription Agreement respecting sales of Registrable Shares, and except that the foregoing indemnity agreement is subject to the condition that, insofar as it relates to any such untrue statement or alleged untrue statement or omission or alleged omission made in the preliminary prospectus but eliminated or remedied in the amended prospectus on file with the SEC at the time the Registration Statement becomes effective or in the amended prospectus filed with the SEC pursuant to Rule 424(b) of the Securities Act or in the prospectus subject to completion and term sheet under Rule 434 of the Act, which together meet the requirements of Section 10(a) of the Act (the "Final Prospectus"), such indemnity agreement shall not inure to the benefit of any such Holder, any such underwriter or any such controlling person, if a copy of the Final Prospectus furnished by the Company to the Holder for delivery was not furnished to the person or entity asserting the loss, liability, claim or damage at or prior to the time such furnishing is required by the Securities Act and the Final Prospectus would have cured the defect giving rise to such loss, liability, claim or damage. (ii) Each Holder will severally, if Registrable Shares held by such Holder are included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each underwriter of the Registrable Shares and each person who controls the Company within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened (subject to Section 4(f)(iii) below), arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any Registration Statement incident to any such registration, qualification or compliance or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances in which they were made, and will reimburse the Company, such directors and officers, each underwriter of the Registrable Shares and each person controlling the Company for reasonable legal and any other 6 expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action as incurred, in each case to the extent, but only to the extent, that such untrue statement or omission or allegation thereof is made in reliance upon, and in conformity with, written information furnished to the Company by or on behalf of the Holder and stated to be specifically for use in preparation of such Registration Statement; provided that the indemnity shall not apply to the extent that such claim, loss, damage or liability results from the fact that a current copy of the prospectus or offering circular was not made available to the Holder and such current copy the prospectus or offering circular would have cured the defect giving rise to such loss, claim, damage or liability. Notwithstanding the foregoing, in no event shall a Holder be liable for any such claims, losses, damages or liabilities in excess of the proceeds received by such Holder in the offering, except in the event of fraud by such Holder. (iii) Each party entitled to indemnification under this Section 4(f) (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense with its own counsel at such Indemnified Party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement, unless such failure is materially prejudicial to the Indemnifying Party in defending such claim or litigation. An Indemnifying Party shall not be liable for any settlement of an action or claim effected without its written consent (which consent shall not be unreasonably withheld). (iv) If the indemnification provided for in this Section 4(f) is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any loss, liability, claim, damage or expense referred to therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified Party thereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party on the one hand and of the Indemnified Party on the other in connection with the statements or omissions which resulted in such loss, liability, claim, damage or expense as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. (g) AGREEMENT TO SUSPEND EXERCISE OF WARRANT CALL RIGHTS. If for any reason, the Company suspends or otherwise prohibits the Holders from distributing any Registrable Shares pursuant to any provision of this Section 4, the Company shall not exercise its right to redeem any of the Common Stock Purchase Warrants included in the Units sold pursuant to the Memorandum until such suspension or prohibition is lifted. 5. LEGEND OF CERTIFICATES. Each stock certificate of the Company issued to represent a Share shall bear the following (or substantially equivalent) legend on the face or reverse side thereof: "THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR 7 ASSIGNED UNLESS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR EXEMPTION THEREFROM." Any stock certificate issued at any time in exchange or substitution for any certificate bearing such legend (except a new certificate issued upon the completion of a public distribution of shares represented thereby) shall also bear such legend, unless in the opinion of counsel satisfactory to the Company the securities represented thereby need no longer be subject to the restrictions contained herein. The provisions of this Subscription Agreement shall be binding upon, and shall inure to the benefit of, the undersigned and all subsequent holders of the Units who acquired such Units directly or indirectly from the undersigned in a transaction or series of transactions not involving any public offering. 6. NO UNTRUE STATEMENTS; INDEMNIFICATION. (a) The Company hereby warrants and represents that the Memorandum and other data provided by the Company to the undersigned in connection with this transaction, whether orally or in writing, is accurate, complete and correct, and does not contain an untrue statement of a material fact or omit a material fact necessary in order to make the Memorandum and other data not misleading. (b) Each party agrees to indemnify and hold harmless the other party, its officers, members, directors, employees, agents, and affiliates against any and all loss, liability, claim, damage, and expense whatsoever (including, without limitation, any and all expenses reasonably incurred in investigating, preparing, or defending against any litigation commenced or threatened or any claim whatsoever) arising out of or based upon any materially false representation or warranty or material breach or failure by the undersigned to comply with any covenant or agreement made by the undersigned herein or in any other document furnished by the undersigned to any of the foregoing in connection with this transaction. 7. IRREVOCABILITY; BINDING EFFECT; ENTIRE AGREEMENT. The undersigned hereby acknowledges and agrees that the Subscription hereunder is irrevocable by the undersigned, that, except as required by law, the undersigned is not entitled to cancel, terminate, or revoke this Subscription Agreement or any agreements of the undersigned hereunder, and that this Subscription Agreement and such other agreements shall survive the death or disability of the undersigned and shall be binding upon and inure to the benefit of the parties and their heirs, executors, administrators, successors, legal representatives, and permitted assigns. If the undersigned is more than one person, the obligations of the undersigned hereunder shall be joint and several and the agreements, representations, warranties, and acknowledgements herein contained shall be deemed to be made by and be binding upon each such person and his/her heirs, executors, administrators, successors, legal representatives, and permitted assigns. This Agreement sets forth the entire agreement and understanding among the parties hereto with respect to the transactions contemplated hereby and supersedes any and all prior agreements and understandings relating to the subject matter hereof. 8. MODIFICATION. Neither this Subscription Agreement nor any provisions hereof shall be waived, modified, discharged, or terminated except by an instrument in writing signed by the party against whom any such waiver, modification, discharge, or termination is sought. 9. NOTICES. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be mailed by certified mail, return receipt requested, or delivered against receipt to the party to whom it is to be given (a) if to the Company, at the address set forth above, or (b) if to the undersigned, at the address set forth on the signature page hereof (or, in either case, to such other address as the party shall have furnished in writing in accordance with the provisions of this Section 9). Any notice or other communication given by certified mail shall be deemed given at the time of certification thereof, except for a notice changing a party's address which shall be deemed given at the time of receipt thereof. 10. ASSIGNABILITY. This Subscription Agreement and the rights and obligations hereunder are not transferable or assignable by the undersigned. 8 11. APPLICABLE LAW. This Subscription Agreement shall be governed by and construed in accordance with the laws of the State of California as applied to residents of that state executing contracts wholly to be performed in that State. 12. NATURE OF SUBSCRIBER. The undersigned is (check one): [ ] (a) One or more individuals [ ] (b) A corporation [ ] (c) A partnership [ ] (d) A trust [ ] (e) Another entity or organization, namely _____________________(please specify) 13. INVESTMENT PURPOSE FOR NON-INDIVIDUALS. (a) If the undersigned is not an individual, indicate the approximate date the undersigned's entity was formed: ___________________. (b) If the undersigned is not an individual, initial the appropriate blank below which correctly describes the application of the following statement to your situation: the undersigned (i) was not organized or reorganized for the specific purpose of acquiring the Units, (ii) has made investments prior to the date hereof, and each beneficial owner thereof has and will share in the same proportion in each investment and (iii) the undersigned's investment in the Company will not constitute more than forty percent (40%) of the undersigned's total capital. [ ] True [ ] False If the "False" box is checked, the undersigned will as of the closing of the transaction (the "Closing") have ________ individual shareholders, partners or other record owners and ______ non-individual shareholders, partners or other record owners. Those non-individual shareholders, partners or other record owners to whom application of the above statement would be "False" have an aggregate of _________ ultimate beneficial owners who are either individuals or to whom application of the above statement and the statement in Section 14 would be "True." IF THE "FALSE" BOX IS CHECKED, EACH PARTICIPATING PERSON MAY BE REQUIRED TO FILL OUT A SUBSCRIPTION AGREEMENT, INCLUDING MAKING THE REPRESENTATIONS AS TO INVESTOR STATUS SET FORTH IN SECTIONS 3(c), 12, 13 AND 14. 14. LIMITATIONS ON INVESTMENT IN INVESTMENT COMPANIES. If the undersigned is not a individual, initial the box below which correctly describes the application of the following statement to your situation: the undersigned would not, upon acquiring the Units, have more than ten percent (10%) of its assets invested in one or more investment companies that rely solely on the exclusion from the definition of "investment company" provided in Section 3(c)(1)(A) of the Investment Company Act of 1940: [ ] True [ ] False If the "False" box is checked, the undersigned will as of the Closing have ________ individual shareholders, partners or other record owners and ______ non-individual shareholders, partners or other record owners. Those non-individual shareholders, partners or other record owners to whom application of the above statement would be "False" have an aggregate of _________ ultimate beneficial owners who are either individuals or to whom application of the above statement and the statement in Section 13 would be "True." 9 15. MATTERS RELATING TO THE UNDERSIGNED'S OWNERSHIP OF THE UNITS. (a) All correspondence relating to the undersigned's investment should be sent (check one): [ ] (i) to the address of the undersigned set forth on the signature page hereof [ ] (ii) to the following address: ---------------------------------------- ---------------------------------------- ---------------------------------------- (b) The undersigned may be contacted by telephone at the following telephone numbers: (i) Home telephone: ( )_____________________ (ii) Business telephone: ( )___________________ (iii) Facsimile telephone: ( )___________________ (iv) E-mail address: _____________________________ 10 SUBSCRIPTION AGREEMENT SIGNATURE PAGE FOR INDIVIDUALS AND LIVING OR REVOCABLE TRUSTS IN WITNESS WHEREOF, the undersigned executed this Agreement this _________ day of January __, 2001. No. of Units Purchased: _______________________________________ Print Name ______________________ _______________________________________ Signature of Investor _______________________________________ Social Security Number _______________________________________ _______________________________________ Residence Address If the purchaser has indicated that the Units will be held as JOINT TENANTS, as TENANTS IN COMMON, or as COMMUNITY PROPERTY, please complete the following: _______________________________________ Print Name of Spouse or Other Purchaser _______________________________________ Signature of Spouse or Other Purchaser _______________________________________ Social Security Number ACCEPTED AND AGREED: ACACIA RESEARCH CORPORATION By: ______________________________ Name: Title: Dated: January __, 2001 S-1 SUBSCRIPTION AGREEMENT SIGNATURE PAGE FOR PARTNERSHIPS, CORPORATIONS, TRUSTS, OR OTHER ENTITIES IN WITNESS WHEREOF, the undersigned has executed this Agreement this ______ day of January, 2001. No. of Units Purchased: _______________________________________ Print Name of Partnership, Corporation, ______________________ Trust or other Entity By: ___________________________________ (Signature of Authorized Signatory) Name: _________________________________ Title:_________________________________ Address:_______________________________ _______________________________ Jurisdiction where organized: ________________________________________ Taxpayer Identification Number: ________________________________________ Date of Formation:______________________ Address of Chief Executive Officer of Subscriber: ________________________________________ ________________________________________ ACCEPTED AND AGREED: ACACIA RESEARCH CORPORATION By:______________________________ Name: Title: Dated: January __, 2001 S-2 ATTACHMENT 1 NO. FORM OF COMMON STOCK PURCHASE WARRANT THIS SECURITY AND ANY SHARES ISSUED UPON EXERCISE OF THIS SECURITY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THE APPLICABLE SECURITY HAS BEEN REGISTERED UNDER THE ACT AND SUCH LAWS OR (1) REGISTRATION UNDER SUCH LAWS IS NOT REQUIRED AND (2) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS FURNISHED TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED. ACACIA RESEARCH CORPORATION WARRANT TO PURCHASE COMMON STOCK This certifies that, for value received, ________________________________ ("the Holder") is entitled to subscribe for and purchase up to [________] shares (subject to adjustment from time to time pursuant to the provisions of Section 5 hereof) of fully paid and nonassessable Common Stock of Acacia Research Corporation, a Delaware corporation (the "Company"), at the price specified in Section 2 hereof, as such price may be adjusted from time to time pursuant to Section 5 hereof (the "Warrant Price"), subject to the provisions and upon the terms and conditions hereinafter set forth and callable by the Company upon the terms and conditions set forth in Section 1 hereof. As used herein, the term "Common Stock" shall mean the Company's presently authorized Common Stock, par value $0.001 per share, and any stock into or for which such Common Stock may hereafter be converted or exchanged. This Warrant is issued pursuant to that certain Subscription Agreement between the Holder and the Company dated January __, 2001 (the "Subscription Agreement"). l. TERM OF WARRANT; CALLABILITY BY COMPANY. The purchase right represented by this Warrant is exercisable, in whole or in part, at any time during a period beginning on the date hereof and ending January __, 2004. However, during the three-year period, the Company will have the right to redeem all of the Warrants on 30 days prior written notice at a redemption price of $0.10 per Warrant if (a) the closing bid price of the Company's Common Stock averages $26.25 or above for 20 consecutive trading days after the Common Stock reaches a closing bid price of at least $26.25 on the Nasdaq National Market System and (b) the registration statement covering the resale of the shares of the Company's Common Stock underlying this Warrant has been declared effective by the Securities and Exchange Commission and remains in effect. If the Company elects to exercise its redemption right, the Holder of this Warrant may either exercise the Warrant, in whole or in part, or tender the Warrant to the Company for redemption, in whole or in part. Within five business days after the end of the 30-day period, the Company will mail a check for the redemption price to the Holder of this Warrant should this Warrant remain outstanding in whole or in part as of the end of the 30-day period, whether or not the Holder has surrendered this Warrant for redemption. This Warrant may not be exercised after the end of such 30-day period. Notwithstanding the provisions of this Section 1, if for any reason, the Company suspends or otherwise prohibits the Holder from distributing any shares of the Company's Common Stock issuable pursuant to this Warrant pursuant to any provision of Section 4 of the Subscription Agreement, the Company shall not exercise its right to redeem this Warrant until such suspension or prohibition is lifted. 2. WARRANT PRICE. A-1 The Warrant Price is $ 21.00 per share, subject to adjustment from time to time pursuant to the provisions of Section 5 hereof. 3. METHOD OF EXERCISE: PAYMENT; ISSUANCE OF NEW WARRANT. Subject to Section 1 hereof, the purchase right represented by this Warrant may be exercised by the Holder, in whole or in part, by the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit 1 duly executed) at the principal office of the Company and by the payment to the Company, by cashier's check or wire transfer, of an amount equal to the then applicable Warrant Price per share multiplied by the number of shares then being purchased. The Company agrees that the shares so purchased shall be deemed to be issued to the Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares as aforesaid. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be delivered to the Holder within 15 days thereafter and, unless this Warrant has been fully exercised or expired, a new Warrant representing the portion of the shares, if any, with respect to which this Warrant shall not then have been exercised, shall also be issued to the Holder within such 15 day period. 4. STOCK FULLY PAID; RESERVATION OF SHARES. All Common Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof. During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized, and reserved for the purpose of the issuance upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Common Stock to provide for the exercise of the rights represented by this Warrant. 5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The kind of securities purchasable upon the exercise of this Warrant, the Warrant Price and the number of shares purchasable upon exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of the following events: (a) RECLASSIFICATION, CONSOLIDATION, OR MERGER. In case of any reclassification or change of outstanding securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in case of any consolidation or merger of the Company with or into another corporation, other than a merger with another corporation in which the Company is a continuing corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant, the Company, or such successor, as the case may be, shall execute a new Warrant, providing that the Holder of this Warrant shall have the right to exercise such new Warrant and procure upon such exercise, in lieu of each share of Common Stock theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, consolidation, or merger by a Holder of one share of Common Stock. Such new Warrant shall provide for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 5. The provisions of this subparagraph (a) shall similarly apply to successive reclassification, changes, consolidations, and mergers. (b) SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its common stock, or distribute dividends on its common stock payable in Common Stock, the Warrant Price shall be proportionately decreased in the case of a subdivision or increased in the case of a combination or dividend. (c) ADJUSTMENT OF NUMBER OF SHARES. Upon each adjustment in the Warrant Price pursuant to any of subparagraphs (a) through (c) of this Section 5, the number of shares of Common Stock purchasable A-2 hereunder shall be adjusted, to the nearest whole share, to the product obtained by multiplying the number of shares purchasable immediately prior to such adjustment in the Warrant Price by a fraction, the numerator of which shall be the Warrant Price immediately prior to such adjustment and the denominator of which shall be the Warrant Price immediately thereafter. 6. NOTICE OF ADJUSTMENTS. Whenever any Warrant Price shall be adjusted pursuant to Section 5 hereof, the Company shall prepare a certificate signed by its chief financial officer setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, the Warrant Price after giving effect to such adjustment and the number of shares then purchasable upon exercise of this Warrant, and shall cause copies of such certificate to be mailed (by first class mail, postage prepaid) to the Holder of this Warrant at the address specified in Section 10(c) hereof, or at such other address as may be provided to the Company in writing by the Holder of this Warrant. 7. FRACTIONAL SHARES. No fractional shares of Common Stock will be issued in conjunction with any exercise hereunder, but in lieu of such fractional shares the Company shall make a cash payment therefor on the basis of the Warrant Price then in effect. 8. COMPLIANCE WITH SECURITIES ACT. The Holder of this Warrant, by acceptance hereof, agrees that this Warrant and the shares of Common Stock to be issued on exercise hereof are being acquired for investment and that it will not offer, sell or otherwise dispose of this Warrant or any shares of Common Stock to be issued upon exercise hereof except under circumstances which will not result in a violation of the Securities Act of 1933, as amended (the "Act"). This Warrant and all shares of Common Stock issued upon exercise of this Warrant (unless registered under the Act) shall be stamped and imprinted with a legend substantially in the following form: "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER THE ACT AND SUCH LAWS OR (1) REGISTRATION UNDER SUCH LAWS IS NOT REQUIRED AND (2) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS FURNISHED TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED." 9. TRANSFER AND EXCHANGE OF WARRANT. This Warrant is not transferable or exchangeable without the consent of the Company. 10. MISCELLANEOUS. (a) NO RIGHTS AS SHAREHOLDER. The Holder of this Warrant shall not be entitled to vote or receive dividends or be deemed the Holder of Common Stock or any other securities of the Company that may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the Holder of this Warrant, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value or change of stock to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Warrant shall have been exercised and the shares purchasable upon the exercise hereof shall have become deliverable, as provided herein. A-3 (b) REPLACEMENT. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of mutilation, on surrender and cancellation of this Warrant, the Company, at its expense, will execute and deliver, in lieu of this Warrant, a new Warrant of like tenor. (c) NOTICE. Any notice given to either party under this Warrant shall be in writing, and any notice hereunder shall be deemed to have been given upon the earlier of delivery thereof by hand delivery, by courier, or by standard form of telecommunication or three (3) business days after the mailing thereof in the U.S. mail if sent registered mail with postage prepaid, addressed to the Company at its principal executive offices and to the Holder at its address set forth in the Company's books and records or at such other address as the Holder may have provided to the Company in writing. (d) GOVERNING LAW. This Warrant shall be governed and construed under the laws of the State of California. This Warrant is executed as of this _______ day of January, 2001. ACACIA RESEARCH CORPORATION By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- A-4 EXHIBIT 1 NOTICE OF EXERCISE TO: ACACIA RESEARCH CORPORATION 1. The undersigned hereby elects to purchase _________ shares of Common Stock of Acacia Research Corporation pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full. 2. Please issue a certificate or certificates representing said shares of Common Stock in the name of the Holder at the address specified below: ------------------------------------- (Name) ------------------------------------- (Address) ------------------------------------- (Address) 3. The undersigned represents that any of the aforesaid shares of Common Stock not subject to an effective Registration Statement under the Securities Act of 1933 are being acquired for the account of the undersigned for investment and not with a view to, or for resale in connection with, the distribution thereof and that the undersigned has no present intention of distributing or reselling such shares. 4. The undersigned represents that each of the representations and warranties and each of the responses in the confidential purchaser questionnaire given with the Subscription Agreement are true, correct and complete as of the date hereof. ------------------------------------- (Signature of Holder) ------------------------------------- (Print Name of Holder) A-5 CONFIDENTIAL PURCHASER QUESTIONNAIRE ACACIA RESEARCH CORPORATION (ALL INFORMATION FURNISHED IN COMPLETING THIS QUESTIONNAIRE WILL BE TREATED CONFIDENTIALLY) ACACIA RESEARCH CORPORATION (the "Company") will use the responses to this questionnaire to qualify prospective investors for purposes of federal and state securities laws. If the answer to any question below is "none" or "not applicable," please indicate. Your answers will be kept confidential at all times. However, by signing this questionnaire, you agree that the Company may present this questionnaire to such parties as it deems appropriate to establish the availability of exemptions from registration under state and federal securities laws. I. INDIVIDUAL INVESTORS INVESTORS THAT ARE NOT INDIVIDUALS (CORPORATIONS, PARTNERSHIPS, TRUSTS, ETC.) SHOULD TURN TO PAGE 6 1. PERSONAL Name_________________________________________________ (Exact name as it should appear on stock certificate) Residence Address_______________________________________ Home Telephone________________________________________ Date of Birth__________________________ Social Security Number_________________ 2. BUSINESS Occupation_____________________________________________ Number of Years________ Present Employer__________________________________________ Position/Title_____________________________________________ Business Address__________________________________________ Business Telephone_________________________________ 1 Business Facsimile_________________________________ 3. RESIDENCE INFORMATION (a) Set forth in the space provided below the state(s)/countries in which you have maintained your principal residence during the past three years and the dates during which you resided in each state/country. -------------------------------------------------- -------------------------------------------------- (b) Are you registered to vote in, or do you have a driver's license issued by, or do you maintain a residence in any other state/country? If yes, in which state(s)/ country(ies)? -------------------------------------------------- 4. INCOME (a) Do you reasonably expect EITHER your own income from all sources during the current year to exceed $200,000 OR the joint income of you and your spouse (if married) from all sources during the current year to exceed $300,000? Yes ___ No ___ If not, please specify amount ______________ (b) What percentage of your income as shown above is anticipated to be derived from sources other than salary? -------------------------------------------------- (c) Was EITHER your yearly income from all sources during each of the last two years in excess of $200,000 OR was the joint income of you and your spouse (if married) from all sources during each of such years in excess of $300,000? Yes__ No__ If no, please specify amount for: Last Year:__________________ Year Before Last:___________ 5. NET WORTH Will your net worth as of the date you purchase the securities offered, together with the net worth of your spouse, be in excess of $1,000,000? Yes ___ No ___ If not, please specify amount ______________ 2 6. EDUCATION Please describe your educational background and degrees obtained, if any. ----------------------------------------------------------- ----------------------------------------------------------- 7. AFFILIATION If you have any pre-existing personal or business relationship with the Company or any of its officers, directors or controlling persons, please describe the nature and duration of such relationship. ----------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------- 8. BUSINESS AND FINANCIAL EXPERIENCE (a) Please describe in reasonable detail the nature and extent of your business, financial and investment experience which you believe gives you the capacity to evaluate the merits and risks of the proposed investment and the capacity to protect your interests. ----------------------------------------------------------- ----------------------------------------------------------- ----------------------------------------------------------- (b) Are you purchasing the securities offered for your own account and for investment purposes only? Yes__ No__ If no, please state for whom you are investing and/or the reason for investing. ----------------------------------------------------------- ----------------------------------------------------------- 9. FINANCIAL ADVISORS In evaluating this investment, will you use the services of any of the following advisors? (If so, please identity, providing address and telephone number.) 3 Accountant: ________________________________ ________________________________ ________________________________ Attorney: ________________________________ ________________________________ ________________________________ Other: ________________________________ ________________________________ ________________________________ PLEASE CONTINUE ON PAGE 5 4 II. NON-INDIVIDUAL INVESTORS (please answer this Part II only if the proposed purchase is to be made by a corporation, partnership, trust or other entity.) IF INVESTMENT WILL BE MADE BY MORE THAN ONE AFFILIATED ENTITY, PLEASE COMPLETE A COPY OF THIS QUESTIONNAIRE FOR EACH ENTITY. 1. IDENTIFICATION Name_______________________________________________________ (Exact name as it will appear on stock certificate) Address of Principal Place of Business _______________________________________ Jurisdiction of Formation or Incorporation ________________________________________ Contact Person ____________________________________________ Telephone Number ____________________ Facsimile Number____________________________ Type of Entity (corporation, partnership, trust, etc.)__________________________ Was entity formed for the purpose of this investment? Yes ____ No ____ If the answer is yes, all shareholders, partners or other equity owners must answer Part I of this Questionnaire. If the above answer is no, please continue completing this form. 2. PROPOSED INVESTMENT Please indicate the amount of your proposed investment: $________________ Please state the investing entity's net worth at the time the securities will be purchased: $______________ 3. BUSINESS Please check the appropriate box to indicate which of the following accurately describes the nature of the business conducted by the investing entity: [ ] private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940 [a U.S. venture capital fund which invests primarily through private placements in non-publicly traded securities and makes available (either directly or through co-investors) to the portfolio companies significant guidance concerning management, operations or business objectives]; 5 17 [ ] a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; [ ] an investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act; [ ] a bank as defined in Section 3(a)(2) or a savings and loan association or other institution defined in Section 3(a)(5)(A) of the Securities Act of 1933 acting in either an individual or fiduciary capacity; [ ] an insurance company as defined in Section 2(13) of the Securities Act of 1933; [ ] an employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974 whose investment decision is made by a fiduciary which is either a bank, savings and loan association, insurance company, or registered investment advisor, OR whose total assets exceed US$5,000,000, or, if a self-directed plan, a plan whose investment decisions are made solely by persons who accredited investors; [ ] an organization described in Section 501(c)(3) of the Internal Revenue Code, a corporation, a Massachusetts or similar business trust or a partnership, in each case, not formed for the purpose of this investment, with total assets in excess of US$5,000,000; [ ] an entity not located in the U.S. and whose equity owners are neither U.S. citizens nor U.S. residents; [ ] a trust with total assets in excess of US$5,000,000 whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of the Securities Act of 1933. [ ] Other. Please describe: _____________________________________________ ______________________________________________________________________ ______________________________________________________________________ 4. INVESTMENT EXPERIENCE Please provide information detailing the business, financial and investment experience of the entity and investment manager of such entity. --------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- PLEASE CONTINUE ON THE NEXT PAGE 6 III. BENEFICIAL OWNERSHIP (For purposes of filing Registration Statement) As of the date below, undersigned is the beneficial owner of the following number of shares of Acacia Research Corporation common stock: Shares purchased pursuant to the Private Placement Memorandum dated January 17, 2001: __________________ Other shares of common stock beneficially owned by undersigned: ___________________ Total: ___________________ As of the date below, undersigned agrees to keep Acacia Research Corporation informed of any changes to the total number of shares beneficially owned by undersigned until such time as undersigned is notified that a Registration Statement is declared effective or the Company informs undersigned that the information is no longer needed. Signed: ____________________________ Print Name: Date: ______________________________ 7 IV. SIGNATURE The above information is true and correct in all material respects and the undersigned recognizes that the Company and its counsel are relying on the truth and accuracy of such information in reliance on the exemption contained in Subsection 4(2) of the Securities Act of 1933, as amended, and Regulation D promulgated thereunder. The undersigned agrees to notify the Company promptly of any changes in the foregoing information which may occur prior to the investment. Executed at _________________, on January ___, 2001. IF INVESTOR IS AN INDIVIDUAL: --------------------------------- (Signature) --------------------------------- (Print or type name) IF INVESTOR IS AN ENTITY: --------------------------------- (Print or type name of entity) By:______________________________ Title:___________________________ 8 [ATTACH IRS FORM W-9] 1 ACKNOWLEDGEMENT AND AGREEMENT OF SPOUSE The undersigned spouse of ___________________________ acknowledges that he or she has read the attached Subscription Agreement of even date herewith and agrees to be bound thereby. Dated: ------------------------------------ Print Name:_________________________ 2 EX-5.1 3 a2037106zex-5_1.txt EXHIBIT 5.1 EXHIBIT 5.1 O'MELVNEY & MYERS LLP 400 SOUTH HOPE STREET CENTURY CITY LOS ANGELES, CALIFORNIA 90071-2899 WASHINGTON, D.C. IRVINE SPECTRUM TELEPHONE (213) 430-6000 HONG KONG FACSIMILE (213) 430-6407 NEWPORT BEACH INTERNET: www.omm.com LONDON NEW YORK SHANGHAI SAN FRANCISCO TOKYO TYSONS CORNER OUR FILE NUMBER February 5, 2001 003,863-999 WRITER'S DIRECT DIAL WRITER'S E-MAIL ADDRESS Acacia Research Corporation 55 South Lake Avenue Pasadena, California 91101 RE: REGISTRATION STATEMENT ON FORM S-3 Ladies and Gentlemen: At your request, we have examined the Registration Statement on Form S-3 (the "Registration Statement") to be filed by you with the Securities and Exchange Commission on February 6, 2001 in connection with the registration under the Securities Act of 1933, as amended, of (i) 1,127,274 shares of your Common Stock, $0.001 par value (the "Common Shares"), and (ii) 1,127,274 shares of your Common Stock that are issuable upon exercise of common stock purchase warrants (the "Warrant Shares"). We are familiar with the proceedings heretofore taken, and with the additional proceedings proposed to be taken, by you in connection with the authorization and proposed issuance and sale of the shares. It is our opinion that the issuance and sale of the Common Shares have been duly authorized by all necessary corporate action on the part of the Company and the Common Shares are validly issued, fully paid and non-assessable. It is further our opinion that the Warrant Shares have been duly authorized by all necessary corporate action on the part of the Company and, upon payment of the exercise price for and delivery of the Warrant Shares in accordance with the common stock purchase warrants and the countersigning of the certificate or certificates representing the Warrant Shares by a duly authorized signatory of the registrar for the common stock, the Warrant Shares will be validly issued, fully paid and non-assessable. We consent to the use of this opinion as an exhibit to the Registration Statement. Respectfully submitted, /s/ O'MELVENY & MYERS LLP EX-23.1 4 a2037106zex-23_1.txt EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form S-3 of our report dated February 25, 2000, except for Note 10, as to which the date is March 20, 2000 relating to the financial statements and financial statement schedules, which appears in Acacia Research Corporation's Annual Report on Form 10-K, as amended, for the year ended December 31, 1999. We also consent to the reference to us under the heading "Experts" in such Registration Statement. PricewaterhouseCoopers LLP Los Angeles, California February 2, 2001 -----END PRIVACY-ENHANCED MESSAGE-----