-----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, KS+RxuZK6zIZLA2iLkTqEQC57ZMbCp9xBaaZxbUpnWApJVIRd44Vt4bGr6tr+OkK Op3F3x5Qmp9WMmv6hWf4mw== 0001019687-03-001400.txt : 20030707 0001019687-03-001400.hdr.sgml : 20030704 20030707170301 ACCESSION NUMBER: 0001019687-03-001400 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20030707 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACACIA RESEARCH CORP CENTRAL INDEX KEY: 0000934549 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS & ACCESSORIES [3670] IRS NUMBER: 954405754 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-106857 FILM NUMBER: 03777368 BUSINESS ADDRESS: STREET 1: 500 NEWPORT CENTER DRIVE STREET 2: 7TH FLOOR CITY: NEWPORT BEACH STATE: CA ZIP: 92660 BUSINESS PHONE: 9494808300 MAIL ADDRESS: STREET 1: 500 NEWPORT CENTER DRIVE STREET 2: # CITY: NEWPORT BEACH STATE: CA ZIP: 92660 S-3 1 acacia_s3-070703.txt AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 7, 2003 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 (I.R.S. Employer Identification No.) of incorporation or organization) 500 NEWPORT CENTER DRIVE, 7TH FLOOR NEWPORT BEACH, CALIFORNIA 92660 TELEPHONE: (949) 480-8300 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) PAUL R. RYAN CHIEF EXECUTIVE OFFICER 500 NEWPORT CENTER DRIVE, 7TH FLOOR NEWPORT BEACH, CALIFORNIA 92660 (949) 480-8300 (Name, address, including zip code, and telephone number, including area code, of agent for service) ____________________ COPIES TO: MARK J. KELSON, ESQ. ALLEN MATKINS LECK GAMBLE & MALLORY LLP 1901 AVENUE OF THE STARS, 18TH FLOOR LOS ANGELES , CALIFORNIA 90067 (310) 788-2400 ____________________ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of this Registration Statement as the selling security holders shall 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, 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 ============================================================================================================================== PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE REGISTRATION FEE ------------------------------------------------------------------------------------------------------------------------------ Acacia Research-CombiMatrix Common Stock, 3,920,544(1)(2) $2.625(3) $10,291,428 $832.58 $0.001 par value ==============================================================================================================================
(1) Includes 1,208,252 shares issuable upon the exercise of outstanding warrants held by selling security holders. (2) Pursuant to Rule 416 under the Securities Act, such number of shares of Acacia Research-CombiMatrix Common Stock registered hereby shall include an indeterminate number of additional shares of Acacia Research-CombiMatrix Common Stock that may be issued from time to time upon exercise of warrants held by the selling security holders by reason of adjustment of the exercise price in certain circumstances. (3) Estimated solely for the purpose of computing the registration fee required by Section 6(b) of the Securities Act of 1933 and computed pursuant to Rule 457(c) under the Securities Act based upon the average of the high and low prices of our Acacia Research-CombiMatrix Common Stock on July 2, 2003, as reported on the Nasdaq SmallCap Market System. 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 OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE SELLING SECURITY HOLDERS MAY NOT SELL THESE SECURITIES 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. SUBJECT TO COMPLETION, DATED JULY 7, 2003 PROSPECTUS 3,920,544 SHARES ACACIA RESEARCH CORPORATION ACACIA RESEARCH-COMBIMATRIX COMMON STOCK -------------------------- This prospectus covers the sale of our Acacia Research-CombiMatrix common stock by the selling security holders identified in this prospectus. We will not receive any proceeds from the sale of our Acacia Research-CombiMatrix common stock by the selling security holders. Our Acacia Research-CombiMatrix common stock is traded on the Nasdaq SmallCap Market under the symbol "CBMX." On July 2, 2003, the last reported sale price of a share of our Acacia Research-CombiMatrix common stock on the Nasdaq SmallCap Market was $2.60. INVESTING IN OUR ACACIA RESEARCH-COMBIMATRIX COMMON STOCK INVOLVES RISKS, SOME OF WHICH ARE DESCRIBED IN THE "RISK FACTORS" SECTION BEGINNING ON PAGE 4 OF THIS PROSPECTUS. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this prospectus is July __, 2003 YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. THE SELLING SECURITY HOLDERS ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF ACACIA RESEARCH-COMBIMATRIX COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF THE SHARES. ---------------------------- TABLE OF CONTENTS Page ---- Summary................................................................... 1 Forward Looking Statements................................................ 3 Risk Factors.............................................................. 4 Use of Proceeds........................................................... 23 Selling Security Holders.................................................. 23 Plan of Distribution...................................................... 25 Experts................................................................... 25 Legal Matters............................................................. 25 Where to Find Additional Information...................................... 26 Information Incorporated by Reference..................................... 26 SUMMARY Acacia Research Corporation develops, acquires and licenses enabling technologies for the life sciences and media technologies sectors, which comprise our two business groups. Our life sciences business, referred to as the "CombiMatrix group," is comprised of our wholly-owned subsidiary, CombiMatrix Corporation and CombiMatrix Corporation's subsidiaries, Advanced Material Sciences, Inc., or Advanced Material Sciences, and CombiMatrix K.K. Our core technology opportunity in the life sciences sector has been developed by CombiMatrix Corporation. CombiMatrix Corporation is a life sciences technology company with a proprietary system for rapid, cost competitive creation of DNA and other compounds on a programmable semiconductor chip. This proprietary technology has significant applications relating to genomic and proteomic research. Advanced Material Sciences, a development stage company, holds the exclusive license for CombiMatrix Corporation's biological array processor technology in certain fields of material sciences. CombiMatrix K.K., an indirect majority-owned Japanese corporation located in Tokyo, is exploring opportunities for CombiMatrix Corporation's active biochip system with academic, pharmaceutical and biotechnology organizations in the Asian market. Our media technologies business, collectively referred to as the "Acacia Technologies group," owns patented intellectual property in the media technologies sector. The Acacia Technologies group owns patented digital media transmission, or DMT, technology enabling the digitization, encryption, storage, transmission, receipt and playback of digital content. The DMT technology is protected by five U.S. and seventeen international patents. The DMT technology is utilized by a variety of companies, including cable companies, hotel in-room entertainment companies, Internet movie companies, Internet music companies, on-line adult entertainment companies, on-line learning companies and other companies that stream audio or audio/video content. The Acacia Technologies group also owns patented technology known as the V-chip. The V-chip was adopted by manufacturers of televisions sold in the U.S. to provide blocking of certain programming based upon its content rating code, in compliance with the Telecommunications Act of 1996. The V-chip technology is protected by U.S. Patent No. 4,554,584, which expires in July 2003. Following is a summary of the principal wholly-owned companies that constitute our two business groups: GROUP / COMPANY DESCRIPTION OF BUSINESS --------------- ----------------------- COMBIMATRIX GROUP: CombiMatrix Corporation A life sciences technology company with a proprietary system for rapid, cost competitive creation of DNA and other compounds on a programmable semiconductor chip. This proprietary technology has significant applications relating to genomic and proteomic research, biological and chemical detection and combinatorial chemistry markets. Advanced Material Sciences, a development stage company and majority-owned subsidiary of CombiMatrix Corporation, holds the exclusive license for CombiMatrix Corporation's biological array processor technology in certain fields of material sciences. CombiMatrix K.K., an indirect majority-owned Japanese subsidiary of CombiMatrix Corporation, is exploring opportunities for CombiMatrix Corporation's active biochip system with pharmaceutical and biotechnology companies in the Asian market. -1- ACACIA TECHNOLOGIES GROUP: Acacia Media Technologies A media technology company that owns Corporation patented digital media transmission technology used to digitize, encrypt, store, transmit, receive and playback digitized content sent via pathways such as cable, satellite and the Internet, and covering a variety of services such as those commonly known as video-on-demand, audio-on-demand and streaming media. Soundview Technologies A media technology company that owns Incorporated intellectual property related to the telecommunications field, including a television blanking system, also known as "V-chip," which it licenses to television manufacturers. RECAPITALIZATION AND MERGER TRANSACTIONS On December 11, 2002, our stockholders voted in favor of a recapitalization transaction whereby we created two new classes of common stock called "Acacia Research-CombiMatrix stock," or AR-CombiMatrix stock, and "Acacia Research-Acacia Technologies stock," or AR-Acacia Technologies stock, and divided our then-existing Acacia Research common stock into shares of the two new classes of common stock. AR-CombiMatrix stock is intended to reflect separately the performance of our CombiMatrix group and to benefit from its licensing and research and development efforts. AR-Acacia Technologies stock is intended to reflect separately the performance of our Acacia Technologies group and to benefit from the licensing of its technologies. In the recapitalization, which became effective on December 13, 2002, Acacia Research Corporation stockholders received 0.5582 of a share of AR-CombiMatrix stock, and one share of AR-Acacia Technologies stock, for each share of Acacia Research common stock that they owned. Although our AR-CombiMatrix stock and our AR-Acacia Technologies stock are intended to reflect the performance of our different business groups, they are both classes of common stock of Acacia Research Corporation and are not stock issued by the respective groups. On December 11, 2002 our stockholders and CombiMatrix Corporation stockholders also voted in favor of a merger transaction pursuant to which we acquired the stockholder interests in CombiMatrix Corporation not already owned by us (52% of the total stockholder interests in CombiMatrix Corporation). The acquisition was accomplished through a merger, effective December 13, 2002, in which stockholders of CombiMatrix Corporation other than Acacia Research Corporation received one share of our new AR-CombiMatrix stock in exchange for each share of CombiMatrix Corporation common stock that they owned immediately prior to the merger. RECENT TRANSACTIONS In May 2003, we issued 2,416,502 shares, and warrants to purchase 1,208,252 shares (subject to adjustment under certain circumstances), of our AR-CombiMatrix stock to certain selling security holders in a private placement. In July 2003, we issued 295,790 shares of our AR-CombiMatrix stock to certain selling security holders pursuant to purchase agreements in which the consideration for the shares consisted of shares of common stock of CombiMatrix Corporation's Advanced Material Sciences, Inc. subsidiary. The shares described above, including the shares issuable upon the exercise of the warrants described above, are covered by this prospectus. We were incorporated in California in January 1993, and we reincorporated in Delaware in December 1999. We maintain our executive offices at 500 Newport Center Drive, 7th Floor, Newport Beach, California 92660, and our telephone number is (949) 480-8300. -2- FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are statements that predict or describe future events or trends and that do not relate solely to historical matters. You can generally identify forward-looking statements as statements containing the words "may," "will," "expect," "believe," "estimate," "anticipate," "intend," "continue," and other similar expressions or the negative of these terms. You should be aware that the matters described in our forward-looking statements are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control. Statements regarding the following subjects are forward-looking by their nature: o our business strategies; o market trends and risks; o assumptions regarding economic conditions; o circumstances affecting anticipated revenues and costs; and o legislative, regulatory and competitive developments. These forward-looking statements are subject to various risks and uncertainties, including those related to: o the recent slowdown affecting technology companies; o our ability to successfully develop products; o rapid technological change in our markets; o anticipated sources of future revenues; o changes in demand for our future products; o our ability to raise capital in the future; and o the adequacy of our capital resources to fund our operations. Other risks, uncertainties and factors, including those discussed under "Risk Factors" in this prospectus or described in reports that we file from time to time with the Securities and Exchange Commission, such as our Form 10-K and 10-Q, could cause our actual results and those of our industries to differ materially from those projected in any forward-looking statements we make. We are not obligated to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. -3- RISK FACTORS AN INVESTMENT IN OUR STOCK INVOLVES A NUMBER OF RISKS. BEFORE MAKING A DECISION TO PURCHASE OUR STOCK, YOU SHOULD CAREFULLY CONSIDER ALL OF THE RISKS DESCRIBED IN THIS PROSPECTUS. IF ANY OF THE RISKS DISCUSSED IN THIS PROSPECTUS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE MATERIALLY AND ADVERSELY AFFECTED. IF THIS WERE TO OCCUR, THE TRADING PRICE OF OUR SECURITIES COULD DECLINE SIGNIFICANTLY AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. GENERAL RISKS THE CONTINUING WORLDWIDE ECONOMIC SLOWDOWN AND RELATED UNCERTAINTIES MAY CONTINUE TO ADVERSELY IMPACT OUR REVENUES AND OPERATING RESULTS. Slower economic activity, concerns about inflation, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions and liquidity concerns in the technology and biotechnology and related industries, and recent international conflicts and terrorist and military activity have resulted in a continuing downturn in worldwide economic conditions. We cannot predict the timing, strength and duration of any economic recovery in our industries. In addition, the events of September 11, 2001 and subsequent international conflicts and terrorist acts can be expected to place further pressure on economic conditions in the United States and worldwide. These conditions make it extremely difficult for us to accurately forecast and plan future business activities. If such conditions continue or worsen, our business, financial condition and results of operations will likely be materially and adversely affected. BECAUSE OUR BUSINESS OPERATIONS ARE SUBJECT TO MANY INHERENT AND UNCONTROLLABLE RISKS, WE MAY NOT SUCCEED. We have significant economic interests in our subsidiary companies. Our business operations are subject to numerous risks, challenges, expenses and uncertainties inherent in the establishment of new business enterprises. Many of these risks and challenges are subject to outside influences over which we have no control, including: o our subsidiary companies' products and services face uncertain market acceptance; o technological advances may make our subsidiary companies' products and services obsolete or less competitive; o competition is intense in the industries in which our subsidiaries do business; o increases in operating costs, including costs for supplies, personnel and equipment; o the availability and cost of capital; o general economic conditions; and o governmental regulation that excessively restricts our subsidiary companies' businesses. We cannot assure you that our subsidiary companies will be able to market any product or service on a large commercial scale, that our subsidiary companies will ever achieve or maintain profitable operations or that they, or we, will be able to remain in business. WE HAVE A HISTORY OF LOSSES AND EXPECT TO INCUR ADDITIONAL LOSSES IN THE FUTURE. We have sustained substantial losses since our inception resulting in an accumulated deficit, as of March 31, 2003, of $165.7 million (including a reclassification of accumulated deficit in the amount of $21.7 million to permanent capital representing the fair value of the ten percent (10%) stock dividend paid in 2001) on a consolidated basis. We may never become profitable or if we do, we may never be able to sustain profitability. We expect to incur significant research and development, marketing, general and administrative expenses. As a result, we expect to incur significant losses for the foreseeable future. -4- BECAUSE OUR OPERATING RESULTS HAVE FLUCTUATED SIGNIFICANTLY AND MAY CONTINUE TO DO SO IN THE FUTURE, OUR STOCK PRICES MAY BE VERY VOLATILE. Our operating results may vary significantly from quarter to quarter due to a variety of factors, including: o the operating results of our current and future subsidiary companies; o the nature and timing of our investments in new subsidiary companies; o our decisions to acquire or divest interests in our current and future subsidiaries, which may create changes in losses or income and amortization of goodwill; o changes in our methods of accounting for our current and future subsidiaries, which may cause us to recognize gains or losses under applicable accounting rules; o the timing of the sales of equity interests in our current and future subsidiary companies; o our ability to effectively manage our growth and the growth of our subsidiary companies; o general economic conditions; and o the cost of future acquisitions, which may increase due to intense competition from other potential acquirers of technology-related companies or ideas. We have incurred and expect to continue to incur significant expenses in pursuing and developing new business ventures. To date, we have lacked a consistent source of recurring revenue. Each of the factors we have described may cause our stock to be more volatile than the stock of other companies. BECAUSE CERTAIN OF OUR SUBSIDIARY COMPANIES MAY NOT GENERATE ANY SIGNIFICANT REVENUES, AND OPERATING RESULTS FROM OUR SUBSIDIARY COMPANIES MAY FLUCTUATE SIGNIFICANTLY, OUR OWN OPERATING RESULTS MAY BE NEGATIVELY AFFECTED. Our operating results may be materially impacted by the operating results of our subsidiary companies. We cannot assure that these companies will be able to meet their anticipated working capital needs to develop their products and services. If they fail to properly develop these products and services, they will be unable to generate meaningful product sales. We anticipate that our operating results are likely to vary significantly as a result of a number of factors, including: o the timing of new product introductions by each subsidiary company; o the stage of development of the business of each subsidiary company; o the technical feasibility of each subsidiary company's technologies and techniques; o the novelty of the technology owned by our subsidiary companies; o the accuracy, effectiveness and reliability of products developed by our subsidiary companies; o the level of product acceptance; o the strength of each subsidiary company's intellectual property rights; o the ability of each subsidiary company to avoid infringing the intellectual property rights of others; o each subsidiary company's ability to exploit and commercialize its technology; -5- o the volume and timing of orders received and product line maturation; o the impact of price competition; and o each subsidiary company's ability to access distribution channels. Many of these factors are beyond our subsidiary companies' control. We cannot provide any assurance that any subsidiary company will experience growth in the future or be profitable on an operating basis in any future period. IF WE, OR OUR SUBSIDIARIES, ENCOUNTER UNFORESEEN DIFFICULTIES AND CANNOT OBTAIN ADDITIONAL FUNDING ON FAVORABLE TERMS, OUR BUSINESS MAY SUFFER. As of March 31, 2003, we had cash and short-term investments of $49.7 million on our consolidated financial statements. To date, our subsidiary companies have relied primarily upon selling equity securities, including sales to and loans from us, to generate the funds needed to finance implementing their plans of operations. Our subsidiary companies may be required to obtain additional financing through bank borrowings, debt or equity financings or otherwise, which would require us to make additional investments or face a dilution of our equity interests. We cannot assure that we will not encounter unforeseen difficulties that may deplete our capital resources more rapidly than anticipated. Any efforts to seek additional funds could be made through equity, debt or other external financings. Nevertheless, we cannot assure that additional funding will be available on favorable terms, if at all. If we fail to obtain additional funding when needed for our subsidiary companies and ourselves, we may not be able to execute our business plans and our business may suffer. FAILURE TO EFFECTIVELY MANAGE OUR GROWTH COULD PLACE STRAINS ON OUR MANAGERIAL, OPERATIONAL AND FINANCIAL RESOURCES AND COULD ADVERSELY AFFECT OUR BUSINESS AND OPERATING RESULTS. Our growth has placed, and is expected to continue to place, a significant strain on our managerial, operational and financial resources. Further, as our subsidiary companies' businesses grow, we will be required to manage multiple relationships. Any further growth by us or our subsidiary companies or an increase in the number of our strategic relationships will increase this strain on our managerial, operational and financial resources. This strain may inhibit our ability to achieve the rapid execution necessary to successfully implement our business plan. In addition, our future success depends on our ability to expand our organization to match the growth of our subsidiaries. OUR FUTURE SUCCESS DEPENDS IN PART ON THE CONTINUED SERVICE OF OUR KEY EXECUTIVES, AND THE LOSS OF ANY OF THESE KEY EXECUTIVES COULD ADVERSELY AFFECT OUR BUSINESS AND OPERATING RESULTS. Our success depends in part upon the continued service of our executive officers, particularly Paul R. Ryan, our Chairman and Chief Executive Officer, Robert L. Harris, II, our President and Dr. Amit Kumar, President and Chief Executive Officer of CombiMatrix Corporation. Neither Messrs. Ryan or Harris nor Dr. Kumar has an employment or non-competition agreement with us. The loss of any of these key individuals would be detrimental to our ongoing operations and prospects. OUR FUTURE SUCCESS AND THE SUCCESS OF OUR SUBSIDIARY COMPANIES DEPENDS ON OUR AND THEIR ABILITIES TO ATTRACT AND RETAIN QUALIFIED TECHNICAL PERSONNEL AND QUALIFIED MANAGEMENT AND MARKETING TEAMS. FAILURE TO DO SO WOULD HARM OUR ONGOING OPERATIONS AND BUSINESS PROSPECTS. We believe that our success will depend on continued employment by us and our subsidiary companies of senior management and key technical personnel. Our subsidiary companies will need to attract, retain and motivate qualified management personnel to execute their current business plans and to successfully develop commercially viable products and services. Competition for qualified personnel is intense and we cannot assure you that we will successfully retain our existing key employees or attract and retain any additional personnel we may require. -6- Each of our subsidiary companies has key executives upon whom we significantly depend, and the success of those subsidiary companies depends on their ability to retain and motivate those individuals. BECAUSE WE HAVE A LIMITED OPERATING HISTORY, WE CANNOT ASSURE THAT OUR OPERATIONS WILL BE PROFITABLE. We commenced operations in 1993 and, accordingly, have a limited operating history. In addition, certain of our subsidiary companies are in the early stages of development and or operations and have limited operating histories. You should consider our prospects in light of the risks, expenses and difficulties frequently encountered by companies with such limited operating histories. Since we have a limited operating history, we cannot assure you that our operations will be profitable or that we will generate sufficient revenues to meet our expenditures and support our activities. During the three months ended March 31, 2003 and the fiscal year ended December 31, 2002, we had operating losses of approximately $7.0 million and $80.3 million, respectively, and net losses of approximately $6.7 million and $59.0 million, respectively. If we continue to incur operating losses, we may not have enough money to expand our business and our subsidiary companies' businesses in the future. THE AVAILABILITY OF SHARES FOR SALE IN THE FUTURE COULD REDUCE THE MARKET PRICE OF OUR COMMON STOCK. In the future, we may issue securities to raise cash for acquisitions. We may also pay for interests in additional subsidiary companies by using a combination of cash and our common stock or just our common stock. We may also issue securities convertible into our common stock. Any of these events may dilute your ownership interest in us and have an adverse impact on the price of our common stock. In addition, sales of a substantial amount of our common stock in the public market, or the perception that these sales may occur, could reduce the market price of our common stock. This could also impair our ability to raise additional capital through the sale of our securities. DELAWARE LAW AND OUR CHARTER DOCUMENTS CONTAIN PROVISIONS THAT COULD DISCOURAGE OR PREVENT A POTENTIAL TAKEOVER OF ACACIA RESEARCH CORPORATION THAT MIGHT OTHERWISE RESULT IN OUR STOCKHOLDERS RECEIVING A PREMIUM OVER THE MARKET PRICE OF THEIR SHARES. Provisions of Delaware law and our certificate of incorporation and bylaws could make more difficult the acquisition of Acacia Research Corporation by means of a tender offer, proxy contest or otherwise, and the removal of incumbent officers and directors. These provisions include: o Section 203 of the Delaware General Corporation Law, which prohibits a merger with a 15%-or-greater stockholder, such as a party that has completed a successful tender offer, until three years after that party became a 15%-or-greater stockholder; o amendment of our bylaws by the stockholders requires a two-thirds approval of the outstanding shares; o the authorization in our certificate of incorporation of undesignated preferred stock, which could be issued without stockholder approval in a manner designed to prevent or discourage a takeover; o provisions in our bylaws eliminating stockholders' rights to call a special meeting of stockholders, which could make it more difficult for stockholders to wage a proxy contest for control of our board of directors or to vote to repeal any of the anti-takeover provisions contained in our certificate of incorporation and bylaws; and o the division of our board of directors into three classes with staggered terms for each class, which could make it more difficult for an outsider to gain control of our board of directors. Such potential obstacles to a takeover could adversely affect the ability of our stockholders to receive a premium price for their stock in the event another company wants to acquire us. -7- RISKS RELATING TO A CAPITAL STRUCTURE WITH TWO SEPARATE CLASSES OF COMMON STOCK HOLDERS OF BOTH CLASSES OF OUR STOCK ARE STOCKHOLDERS OF ONE COMPANY, AND THE FINANCIAL PERFORMANCE OF ONE GROUP COULD AFFECT THE OTHER, THUS EXPOSING THE HOLDERS OF EACH GROUP'S STOCK TO THE RISKS OF AN INVESTMENT IN THE ENTIRE COMPANY. Holders of AR-CombiMatrix stock and AR-Acacia Technologies stock are stockholders of a single company. The CombiMatrix group and the Acacia Technologies group are not separate legal entities. As a result, stockholders will continue to be subject to all of the risks of an investment in Acacia Research Corporation and all of our businesses, assets and liabilities. The issuance of our AR-CombiMatrix stock and our AR-Acacia Technologies stock and the allocation of assets and liabilities and stockholders' equity between the CombiMatrix group and the Acacia Technologies group did not result in a distribution or spin-off to stockholders of any of our assets or liabilities and did not affect ownership of our assets or responsibility for our liabilities or those of our subsidiaries. The assets we attribute to one group could be subject to the liabilities of the other group, whether such liabilities arise from lawsuits, contracts or indebtedness that we attribute to the other group. If we are unable to satisfy one group's liabilities out of the assets we attribute to it, we may be required to satisfy those liabilities with assets we have attributed to the other group. Financial effects from one group that affect our consolidated results of operations or financial condition could, if significant, affect the results of operations or financial condition of the other group and the market price of the common stock relating to the other group. In addition, net losses of either group and dividends or distributions on, or repurchases of, either class of common stock will reduce the funds we can pay as dividends on each class of common stock under Delaware law. For these reasons, you should read our consolidated financial information with the financial information we provide for each group. THE HOLDERS OF AR-COMBIMATRIX STOCK AND THE HOLDERS OF AR-ACACIA TECHNOLOGIES STOCK HAVE ONLY LIMITED SEPARATE STOCKHOLDER RIGHTS. Holders of AR-CombiMatrix stock and AR-Acacia Technologies stock have the rights customarily held by common stockholders. They also have these specific rights related to their corresponding group: o certain rights with regard to dividends and liquidation; o requirements for a mandatory dividend, redemption or conversion upon the disposition of all or substantially all of the assets of their corresponding group; and o a right to vote on matters as a separate voting class in the limited circumstances provided under Delaware law, by stock exchange rules or as determined by our board of directors (such as an amendment of our certificate of incorporation that changes the rights, privileges or preferences of the class of stock held by such stockholders). We will not hold separate stockholder meetings for holders of AR-CombiMatrix stock and AR-Acacia Technologies stock. THE HOLDERS OF AR-COMBIMATRIX STOCK AND THE HOLDERS OF AR-ACACIA TECHNOLOGIES STOCK WILL HAVE CERTAIN LIMITS ON THEIR RESPECTIVE VOTING POWERS. GROUP COMMON STOCK WITH A MAJORITY OF VOTING POWER CAN CONTROL VOTING OUTCOMES. The holders of AR-CombiMatrix stock and AR-Acacia Technologies stock will vote together as a single class, except in limited circumstances. If a separate vote on a matter by the holders of either our AR-CombiMatrix stock or our AR-Acacia Technologies stock is not required under Delaware law or by stock exchange rules, and if our board of directors does not require a separate vote, either class of common stock that is entitled to more than the number of votes required to approve such matter could control the outcome of such vote - even if the matter involves a divergence or conflict of the interests between the holders of our AR-CombiMatrix stock and our AR-Acacia Technologies stock. In addition, if the holders of common stock having a majority of the voting power of all shares of common stock outstanding approve a merger, the terms of which -8- did not require separate class voting under stock exchange rules, then the merger could be consummated - even if the holders of a majority of either class of common stock were to vote against the merger. GROUP COMMON STOCK WITH LESS THAN MAJORITY VOTING POWER CAN BLOCK ACTION IF A CLASS VOTE IS REQUIRED. If Delaware law, stock exchange rules or our board of directors requires a separate vote on a matter by the holders of either our AR-CombiMatrix stock or our AR-Acacia Technologies stock, such as a proposal to amend the terms of one class of stock, those holders could prevent approval of the matter, even if the holders of a majority of the total number of votes cast or entitled to be cast, voting together as a class, were to vote in favor of it. HOLDERS OF ONLY ONE CLASS OF COMMON STOCK CANNOT ENSURE THAT THEIR VOTING POWER WILL BE SUFFICIENT TO PROTECT THEIR INTERESTS. Since the relative voting power per share of AR-CombiMatrix stock and AR-Acacia Technologies stock will fluctuate based on the market values of the two classes of common stock, the relative voting power of a class of common stock could decrease. As a result, holders of shares of only one of the two classes of common stock cannot ensure that their voting power will be sufficient to protect their interests. OUR RESTATED CERTIFICATE OF INCORPORATION MAY BE AMENDED TO INCREASE OR DECREASE THE AUTHORIZED SHARES OF EITHER CLASS OF COMMON STOCK WITHOUT THE APPROVAL OF EACH CLASS VOTING SEPARATELY. Our restated certificate of incorporation provides that an amendment to our restated certificate to increase or decrease the number of authorized shares of either class of common stock will require the approval of the holders of a majority of the voting power of all shares of common stock, voting together as a single class, and will not require the approval of each class of stock voting as a separate class. Accordingly, if the holders of one class of common stock hold a majority of the voting power of all shares of common stock, then that majority could approve an amendment to our restated certificate to increase or decrease the authorized shares of stock of either class without the approval of the holders of the minority class of stock. STOCKHOLDERS MAY NOT HAVE ANY REMEDIES FOR BREACH OF FIDUCIARY DUTIES IF ANY ACTION BY OUR DIRECTORS OR OFFICERS HAS A DISADVANTAGEOUS EFFECT ON EITHER CLASS OF COMMON STOCK. Stockholders may not have any remedies if any action or decision of our directors and officers has a disadvantageous effect on either class of common stock compared to the other class of common stock. We are not aware of any legal precedent under Delaware law involving the fiduciary duties of directors and officers of corporations having two classes of common stock, or separate classes or series of capital stock, the rights of which, like our AR-CombiMatrix stock and AR-Acacia Technologies stock, are defined by reference to separate businesses of the corporation. Principles of Delaware law established in cases involving differing treatment of two classes of capital stock or two groups of holders of the same class of capital stock provide that a board of directors owes an equal duty to all stockholders regardless of class or series. Under these principles of Delaware law and the related principle known as the "business judgment rule," absent abuse of discretion, a good faith business decision made by a disinterested and adequately informed board of directors, board of directors' committee or officer with respect to any matter having different effects on holders of AR-CombiMatrix stock and holders of AR-Acacia Technologies stock would be a defense to any challenge to such determination made by or on behalf of the holders of either class of common stock. As of April 3, 2003, our executive officers, directors and their affiliates beneficially owned approximately 8.2% of the outstanding AR-CombiMatrix stock and 13.0% of the outstanding AR-Acacia Technologies stock. -9- NUMEROUS POTENTIAL CONFLICTS OF INTERESTS EXIST BETWEEN OUR AR-COMBIMATRIX STOCK AND OUR AR-ACACIA TECHNOLOGIES STOCK WHICH MAY BE DIFFICULT TO RESOLVE BY OUR BOARD OR WHICH MAY BE RESOLVED ADVERSELY TO ONE OF THE CLASSES. The existence of separate classes of common stock could give rise to occasions when the interests of the holders of AR-CombiMatrix stock and AR-Acacia Technologies stock diverge or conflict. Examples include determinations by our directors or officers to: o pay or omit the payment of dividends on AR-CombiMatrix stock or AR-Acacia Technologies stock; o allocate consideration to be received by holders of each of the classes of common stock in connection with a merger or consolidation involving Acacia Research Corporation; o convert one class of common stock into shares of the other; o approve certain dispositions of the assets of either group; o allocate the proceeds of future issuances of our stock either to the Acacia Technologies group or the CombiMatrix group; o allocate corporate opportunities between the groups; and o make other operational and financial decisions with respect to one group that could be considered detrimental to the other group. When making decisions with regard to matters that create potential diverging or conflicting interests, our directors and officers will act in accordance with their fiduciary duties, the terms of our restated certificate of incorporation, and, to the extent applicable, our management and allocation policies. THE PERFORMANCE OF ONE GROUP OR THE DIVIDENDS PAID TO ONE GROUP MAY ADVERSELY AFFECT THE DIVIDENDS AVAILABLE FOR THE OTHER GROUP. Our board of directors currently has no intention to pay dividends on our AR-CombiMatrix stock or our AR-Acacia Technologies stock. Determinations as to future dividends on our AR-CombiMatrix stock and our AR-Acacia Technologies stock will be based primarily on the financial condition, results of operations and business requirements of the relevant group and Acacia Research Corporation as a whole. Subject to the limitations referred to below, our board of directors has the authority to declare and pay dividends on our AR-CombiMatrix stock and our AR-Acacia Technologies stock in any amount and could, in its sole discretion, declare and pay dividends exclusively on our AR-CombiMatrix stock, exclusively on our AR-Acacia Technologies stock, or on both, in equal or unequal amounts. Our board of directors will not be required to consider the amount of dividends previously declared on each class, the respective voting or liquidation rights of each class or any other factor. The performance of one group may cause our board of directors to pay more or less dividends on the common stock relating to the other group than if that other group was a stand-alone company. In addition, Delaware law and our restated certificate of incorporation impose limitations on the amount of dividends which may be paid on each class of common stock. PROCEEDS OF MERGERS OR CONSOLIDATIONS MAY BE ALLOCATED UNFAVORABLY. Our restated certificate of incorporation does not contain any provisions governing how consideration to be received by holders of common stock in connection with a merger or consolidation involving Acacia Research Corporation is to be allocated among holders of each class of common stock. Our board of directors will determine the percentage of the consideration to be allocated to holders of each class of common stock in any such transaction. Such percentage may be materially more or less than that which might have been allocated to such holders had our board of directors chosen a different method of allocation. -10- HOLDERS OF EITHER CLASS OF COMMON STOCK MAY BE ADVERSELY AFFECTED BY A CONVERSION OF GROUP COMMON STOCK. Our board of directors could, in its sole discretion and without stockholder approval, determine to convert shares of AR-Acacia Technologies stock into shares of AR-CombiMatrix stock, or vice versa, at a time when either or both classes of common stock may be considered to be overvalued or undervalued. Any such conversion would dilute the interests in Acacia Research Corporation of the holders of the class of common stock being issued in the conversion. It could also give holders of shares of the class of common stock converted a greater or lesser premium than any premium that might be paid by a third-party buyer of all or substantially all of the assets of the group whose stock is converted. HOLDERS OF EITHER CLASS OF COMMON STOCK COULD BE ADVERSELY AFFECTED BY A DISPOSITION OF THE ASSETS ALLOCATED TO THEIR RESPECTIVE GROUPS. Our board of directors could, in its sole discretion and without stockholder approval, determine to dispose of all or substantially all the assets of a group. If a disposition of group assets occurs at a time when those assets are considered undervalued, then holders of that group's stock would receive less consideration than they could have received had the assets been disposed of at a time when they had a higher value. PROCEEDS OF FUTURE ISSUANCES OF OUR STOCK COULD BE ALLOCATED UNFAVORABLY. We may in the future issue a new class of stock, such as a class of preferred stock, or additional shares of AR-CombiMatrix stock or AR-Acacia Technologies stock. Proceeds from any future issuance of any class of stock would be allocated among the CombiMatrix group or the Acacia Technologies group as determined by our board of directors. There is no requirement that the proceeds from an issuance of AR-CombiMatrix stock or AR-Acacia Technologies stock be allocated to the corresponding group. Such allocations might be materially more or less for the respective groups than what might have been allocated had our board of directors chosen a different allocation method. Also, any designated preferred class may be designed to reflect the performance of Acacia Research Corporation as a whole, rather than the performance of the CombiMatrix group or the Acacia Technologies group. ALLOCATION OF CORPORATE OPPORTUNITIES COULD FAVOR ONE GROUP OVER ANOTHER. Our board of directors may be required to allocate corporate opportunities between the groups. In some cases, our directors could determine that a corporate opportunity, such as a business that we are acquiring, should be shared by the groups. Any such decisions could favor one group at the expense of the other. OTHER OPERATIONAL AND FINANCIAL DECISIONS WHICH MAY FAVOR ONE GROUP OVER THE OTHER. Our board of directors or our senior officers will review other operational and financial matters affecting the CombiMatrix group and the Acacia Technologies group, including the allocation of financing resources and capital, technology and know-how and corporate overhead, taxes, debt, interest and other matters. Any decision of our board of directors or our senior officers in these matters could favor one group at the expense of the other. OUR BOARD OF DIRECTORS MAY CHANGE OUR MANAGEMENT AND ALLOCATION POLICIES WITHOUT STOCKHOLDER APPROVAL TO THE DETRIMENT OF EITHER GROUP. Our board of directors may modify or rescind our policies with respect to the allocation of corporate overhead, taxes, debt, interest and other matters, or may adopt additional policies, in its sole discretion without stockholder approval. A decision to modify or rescind these policies, or adopt additional policies could have different effects on holders of either class of common stock or could result in a benefit or detriment to one class of stockholders compared to the other class. Our board of directors will make any such decision in accordance with its good faith business judgment that the decision is in the best interests of Acacia Research Corporation and all of our stockholders as a whole. EITHER GROUP MAY FINANCE THE OTHER GROUP ON TERMS UNFAVORABLE TO ONE OF THE GROUPS. We may transfer cash and other property between groups to finance their business activities. The group providing the financing will be subject to the risks relating to the group receiving the financing. We will account for those transfers generally as a short-term or long-term loan between groups or as a repayment of a previous borrowing. -11- THERE ARE LIMITS ON THE CONSIDERATION WHICH MAY BE RECEIVED BY THE STOCKHOLDERS IN THE EVENT OF THE DISPOSITION OF ASSETS OF A GROUP. Our restated certificate of incorporation provides that if a disposition of all or substantially all of the properties and assets of either group occurs, we must, subject to certain exceptions: o distribute through a dividend or redemption to holders of the class of common stock relating to such group an amount equal to the net proceeds of such disposition; or o convert at a 10% premium such common stock into shares of the class of common stock relating to the other group. If the group subject to the disposition were a separate, independent company and its shares were acquired by another person, certain costs of that disposition, including corporate level taxes, might not be payable in connection with that acquisition. As a result, stockholders of the separate, independent company might receive a greater amount than the net proceeds that would be received by holders of the class of common stock relating to that group if the assets of such group were sold. In addition, we cannot assure you that the net proceeds per share of the common stock relating to that group will be equal to or more than the market value per share of such common stock prior to or after announcement of a disposition. The term "substantially all of the properties and assets" of a group is subject to potentially conflicting interpretations. Resolution of such a dispute could adversely impact the holders of either the class of common stock related to the assets being disposed or the holders of the other class because the consideration, if any, to be received by the holders of the class related to the disposed assets may depend on whether the disposition involved "substantially all" of the properties and assets of that class. HOLDERS OF EITHER CLASS OF COMMON STOCK MAY BE ADVERSELY AFFECTED BY A REDEMPTION OF THEIR COMMON STOCK. We are entitled to redeem the outstanding common stock relating to a group when all or substantially all of that group's assets are sold. We can redeem the assets for cash, securities, a combination of cash and securities or other property at fair value. A disposition-related redemption could occur when the assets being disposed of are considered undervalued. If that were the case, the holders of our common stock related to that group would receive less consideration for their shares than they may deem reasonable. We can also redeem on a pro rata basis all of the outstanding shares of a group's common stock for shares of the common stock of one or more of our wholly owned subsidiaries. If this were to occur, the holders of the redeemed class of common stock would no longer have stockholder voting rights in Acacia Research Corporation or any other benefits to be derived from holding a class of stock in Acacia Research Corporation. In addition, if the outstanding shares of a class of our common stock are redeemed for shares that are not publicly traded, the holders of such redeemed stock will no longer be able to publicly trade their shares and accordingly their investment will be substantially less liquid. OUR CAPITAL STRUCTURE AND THE VARIABLE VOTE PER SHARE COULD ENABLE A POTENTIAL ACQUIRER TO TAKE CONTROL OF OUR COMPANY THROUGH THE ACQUISITION OF ONLY ONE OF THE CLASSES OF OUR COMMON STOCK. A potential acquirer could acquire control of Acacia Research Corporation by acquiring shares of common stock having a majority of the voting power of all shares of common stock outstanding. Such a majority could be obtained by acquiring a sufficient number of shares of both classes of common stock or, if one class of common stock has a majority of such voting power, only shares of that class. Currently, our AR-CombiMatrix stock has a majority of the voting power. As a result, currently, it might be possible for an acquiror to obtain control of Acacia Research Corporation by purchasing only shares of AR-CombiMatrix stock. -12- DECISIONS BY DIRECTORS AND OFFICERS THAT AFFECT DIFFERENTLY ONE CLASS OF OUR COMMON STOCK COMPARED TO THE OTHER COULD ADVERSELY AFFECT THE MARKET VALUE OF EITHER OR BOTH OF THE CLASSES OF OUR COMMON STOCK. The relative voting power per share of our AR-CombiMatrix stock and our AR-Acacia Technologies stock and the number of shares of one class of common stock issuable upon the conversion of the other class of common stock will vary depending upon the relative market values of our AR-CombiMatrix stock and our AR-Acacia Technologies stock. The market value of either or both classes of common stock could be affected by market reaction to decisions by our board of directors or our management that investors perceive to affect differently one class of common stock compared to the other. These decisions could involve changes to our management and allocation policies, allocations of corporate opportunities and financing resources between groups, and changes in dividend policies. INVESTORS MAY NOT VALUE OUR AR-COMBIMATRIX STOCK AND OUR AR-ACACIA TECHNOLOGIES STOCK BASED ON GROUP FINANCIAL INFORMATION AND POLICIES. We cannot assure you that investors will value our AR-CombiMatrix stock and our AR-Acacia Technologies stock based on the reported financial results and prospects of the separate groups or the dividend policies established by our board of directors with respect to those groups. Holders of AR-CombiMatrix stock and AR-Acacia Technologies stock will continue to be common stockholders of Acacia Research Corporation subject to all the risks associated with an investment in Acacia Research Corporation as a whole. Additionally, the separate stockholder rights related to each group are limited and relate to events that may never occur such as dividend and liquidation rights and the disposition of all or substantially all of the assets of a group. Accordingly, investors may discount the value of AR-CombiMatrix stock and AR-Acacia Technologies stock because both groups are part of a common enterprise rather than a stand-alone entity and each class of stock has limited separate stockholder rights. HOLDERS OF AR-COMBIMATRIX STOCK AND AR-ACACIA TECHNOLOGIES STOCK MAY NOT RECEIVE A PREMIUM FROM AN INVESTOR ACQUIRING CONTROL OF THEIR RESPECTIVE CLASSES OF STOCK. Control of AR-CombiMatrix stock or AR-Acacia Technologies stock may not provide control of Acacia Research Corporation as a whole. Accordingly, unlike many acquisition transactions, holders of AR-CombiMatrix stock and AR-Technologies stock may not receive a controlling interest premium from an investor acquiring control of their respective classes of stock. THERE ARE CERTAIN PROVISIONS IN OUR TWO-CLASS CAPITAL STRUCTURE THAT COULD HAVE ANTITAKEOVER EFFECTS. The existence of the two classes of common stock could, under certain circumstances, prevent stockholders from profiting from an increase in the market value of their shares as a result of a change in control of Acacia Research Corporation by delaying or preventing such change in control. The existence of two classes of common stock could present complexities and could, in certain circumstances, pose obstacles, financial and otherwise, to an acquiring person. We could, in the sole discretion of our board of directors and without stockholder approval, exercise the right to convert the shares of one class of common stock into shares of the other at a 10% premium over their respective average market values. This conversion could result in additional dilution to persons seeking control of Acacia Research Corporation. Our board of directors could issue shares of preferred stock or common stock that could be used to create voting or other impediments to discourage persons seeking to gain control of Acacia Research Corporation, and preferred stock could also be privately placed with purchasers favorable to our board of directors in opposing such action. -13- RISKS RELATING TO THE COMBIMATRIX GROUP The risk factors beginning on this page discuss risks relating to the CombiMatrix group. Because each holder of AR-CombiMatrix stock is a holder of the common stock of one company, Acacia Research Corporation, the risks associated with the Acacia Technologies group could affect our AR-CombiMatrix stock. As such, we also urge you to read carefully the section "Risks Relating to the Acacia Technologies Group" below. THE COMBIMATRIX GROUP HAS A HISTORY OF LOSSES AND EXPECTS TO INCUR ADDITIONAL LOSSES IN THE FUTURE. The CombiMatrix group has sustained substantial losses since its inception. The CombiMatrix group may never become profitable or if it does, it may never be able to sustain profitability. We expect the CombiMatrix group to incur significant research and development, marketing, general and administrative expenses. As a result, we expect the CombiMatrix group to incur significant losses for the foreseeable future. THE COMBIMATRIX GROUP MAY FAIL TO MEET MARKET EXPECTATIONS BECAUSE OF FLUCTUATIONS IN ITS QUARTERLY OPERATING RESULTS, WHICH COULD CAUSE ITS STOCK PRICE TO DECLINE. The CombiMatrix group's revenues and operating results have fluctuated in the past and may continue to fluctuate significantly from quarter to quarter in the future. It is possible that in future periods the CombiMatrix group's revenues could fall below the expectations of securities analysts or investors, which could cause the market price of our AR-CombiMatrix stock to decline. The following are among the factors that could cause the CombiMatrix group's operating results to fluctuate significantly from period to period: o its unpredictable revenue sources, as described below; o the nature, pricing and timing of the CombiMatrix group's and its competitors' products; o changes in the CombiMatrix group's and its competitors' research and development budgets; o expenses related to, and the CombiMatrix group's ability to comply with, governmental regulations of its products and processes; and o expenses related to, and the results of, patent filings and other proceedings relating to intellectual property rights. The CombiMatrix group anticipates significant fixed expenses due in part to its need to continue to invest in product development. It may be unable to adjust its expenditures if revenues in a particular period fail to meet its expectations, which would harm its operating results for that period. As a result of these fluctuations, the CombiMatrix group believes that period-to-period comparisons of the CombiMatrix group's financial results will not necessarily be meaningful, and you should not rely on these comparisons as an indication of its future performance. THE COMBIMATRIX GROUP'S REVENUES WILL BE UNPREDICTABLE, AND THIS MAY HARM ITS FINANCIAL CONDITION. The amount and timing of revenues that the CombiMatrix group may realize from its business will be unpredictable because: o whether products are commercialized and generate revenues depends, in part, on the efforts and timing of its potential customers; o its sales cycles may be lengthy; and o it cannot be sure as to the timing of receipt of payment for its products. As a result, the CombiMatrix group's revenues may vary significantly from quarter to quarter, which could make its business difficult to manage and cause its quarterly results to be below market expectations. If this happens, the price of the CombiMatrix group's common stock may decline significantly. -14- TECHNOLOGY COMPANY STOCK PRICES ARE ESPECIALLY VOLATILE, AND THIS VOLATILITY MAY DEPRESS THE PRICE OF OUR AR-COMBIMATRIX STOCK. The stock market has experienced significant price and volume fluctuations, and the market prices of technology companies, particularly biotechnology companies, has been highly volatile. We believe that various factors may cause the market price of our AR-CombiMatrix stock to fluctuate, perhaps substantially, including, among others, announcements of: o its or its competitors' technological innovations; o developments or disputes concerning patents or proprietary rights; o supply, manufacturing or distribution disruptions or other similar problems; o proposed laws regulating participants in the biotechnology industry; o developments in relationships with collaborative partners or customers; o its failure to meet or exceed securities analysts' expectations of its financial results; or o a change in financial estimates or securities analysts' recommendations. In the past, companies that have experienced volatility in the market price of their stock have been the objects of securities class action litigation. If our AR-CombiMatrix stock was the object of securities class action litigation, it could result in substantial costs and a diversion of management's attention and resources, which could materially harm the business and financial results of the CombiMatrix group. THE COMBIMATRIX GROUP IS DEPLOYING NEW AND UNPROVEN TECHNOLOGIES WHICH MAKES EVALUATION OF ITS BUSINESS AND PROSPECTS DIFFICULT AND IT MAY BE FORCED TO CEASE OPERATIONS IF IT DOES NOT DEVELOP COMMERCIALLY SUCCESSFUL PRODUCTS. The CombiMatrix group has not proven its ability to commercialize products on a large scale. In order to successfully commercialize products on a large scale, it will have to make significant investments, including investments in research and development and testing, to demonstrate their technical benefits and cost-effectiveness. Problems frequently encountered in connection with the commercialization of products using new and unproven technologies might limit its ability to develop and commercialize its products. For example, the CombiMatrix group's products may be found to be ineffective, unreliable or otherwise unsatisfactory to potential customers. The CombiMatrix group may experience unforeseen technical complications in the processes it uses to develop, manufacture, customize or receive orders for its products. These complications could materially delay or limit the use of products the CombiMatrix group attempts to commercialize, substantially increase the anticipated cost of its products or prevent it from implementing its processes at appropriate quality and scale levels, thereby causing its business to suffer. THE COMBIMATRIX GROUP MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE FUTURE, AND IF ADDITIONAL CAPITAL IS NOT AVAILABLE ON ACCEPTABLE TERMS, THE COMBIMATRIX GROUP MAY HAVE TO CURTAIL OR CEASE OPERATIONS. The CombiMatrix group's future capital requirements will be substantial and will depend on many factors including how quickly it commercializes its products, the progress and scope of its collaborative and independent research and development projects, the filing, prosecution, enforcement and defense of patent claims and the need to obtain regulatory approval for certain products in the United States or elsewhere. Changes may occur that would cause the CombiMatrix group's available capital resources to be consumed significantly sooner than it expects. The CombiMatrix group may be unable to raise sufficient additional capital on favorable terms or at all. If it fails to do so, it may have to curtail or cease operations or enter into agreements requiring it to relinquish rights to certain technologies, products or markets because it will not have the capital necessary to exploit them. -15- IF THE COMBIMATRIX GROUP DOES NOT ENTER INTO SUCCESSFUL PARTNERSHIPS AND COLLABORATIONS WITH OTHER COMPANIES, IT MAY NOT BE ABLE TO FULLY DEVELOP ITS TECHNOLOGIES OR PRODUCTS, AND ITS BUSINESS WOULD BE HARMED. Since the CombiMatrix group does not possess all of the resources necessary to develop and commercialize products that may result from its technologies on a mass scale, it will need either to grow its sales, marketing and support group or make appropriate arrangements with strategic partners to market, sell and support its products. The CombiMatrix group believes that it will have to enter into additional strategic partnerships to develop and commercialize future products. If it does not enter into adequate agreements, or if its existing arrangements or future agreements are not successful, its ability to develop and commercialize products will be impacted negatively, and its revenues will be adversely affected. The current business of the CombiMatrix group is substantially dependent on its existing arrangement with Roche. The CombiMatrix group currently relies upon payments by Roche for a majority of its future revenues and expends a majority of its resources toward fulfilling its contractual obligations to Roche. Roche's primary service to the CombiMatrix group is to distribute and proliferate its technology platform. If the CombiMatrix group were to lose its relationship with Roche, the CombiMatrix group would be required to establish a distribution agreement with another partner or distribute its technology platform itself. This could prove difficult, time-consuming and expensive, and the CombiMatrix group may not be successful in achieving this objective. THE COMBIMATRIX GROUP HAS LIMITED EXPERIENCE COMMERCIALLY MANUFACTURING, MARKETING OR SELLING ANY OF ITS POTENTIAL PRODUCTS, AND UNLESS IT DEVELOPS THESE CAPABILITIES, IT MAY NOT BE SUCCESSFUL. Even if the CombiMatrix group is able to develop its products for commercial release on a large-scale, it has limited experience in manufacturing its products in the volumes that will be necessary for it to achieve commercial sales and in marketing or selling its products to potential customers. We cannot assure you that the CombiMatrix group will be able to commercially produce its products on a timely basis, in sufficient quantities or on commercially reasonable terms. THE COMBIMATRIX GROUP FACES INTENSE COMPETITION AND WE CANNOT ASSURE YOU THAT IT WILL BE SUCCESSFUL. The CombiMatrix group expects to compete with companies that design, manufacture and market instruments for analysis of genetic variation and function and other applications using established sequential and parallel testing technologies. The CombiMatrix group is also aware of other biotechnology companies that have or are developing testing technologies for the SNP genotyping, gene expression profiling and proteomic markets. The CombiMatrix group anticipates that it will face increased competition in the future as new companies enter the market with new technologies and its competitors improve their current products. The markets for the CombiMatrix group's products are characterized by rapidly changing technology, evolving industry standards, changes in customer needs, emerging competition and new product introductions. One or more of the CombiMatrix group's competitors may offer technology superior to those of the CombiMatrix group and render its technology obsolete or uneconomical. Many of its competitors have greater financial and personnel resources and more experience in marketing, sales and research and development than it has. Some of its competitors currently offer arrays with greater density than it does and have rights to intellectual property, such as genomic information or proprietary technology, which provides them with a competitive advantage. If the CombiMatrix group were not able to compete successfully, its business and financial condition would be materially harmed. -16- IF THE COMBIMATRIX GROUP'S NEW AND UNPROVEN TECHNOLOGY IS NOT USED BY RESEARCHERS IN THE PHARMACEUTICAL, BIOTECHNOLOGY AND ACADEMIC COMMUNITIES, ITS BUSINESS WILL SUFFER. The CombiMatrix group's products may not gain market acceptance. In that event, it is unlikely that its business will succeed. Biotechnology and pharmaceutical companies and academic research centers have historically analyzed genetic variation and function using a variety of technologies, and many of them have made significant capital investments in existing technologies. Compared to existing technologies, the CombiMatrix group's technologies are new and unproven. In order to be successful, its products must meet the commercial requirements of the biotechnology, pharmaceutical and academic communities as tools for the large-scale analysis of genetic variation and function. Market acceptance will depend on many factors, including: o the development of a market for its tools for the analysis of genetic variation and function, the study of proteins and other purposes; o the benefits and cost-effectiveness of its products relative to others available in the market; o its ability to manufacture products in sufficient quantities with acceptable quality and reliability and at an acceptable cost; o its ability to develop and market additional products and enhancements to existing products that are responsive to the changing needs of its customers; o the willingness and ability of customers to adopt new technologies requiring capital investments or the reluctance of customers to change technologies in which they have made a significant investment; and o the willingness of customers to transmit test data and permit the CombiMatrix group to transmit test results over the Internet, which will be a necessary component of its product and services packages unless customers purchase or license its equipment for use in their own facilities. IF THE MARKET FOR ANALYSIS OF GENOMIC INFORMATION DOES NOT DEVELOP OR IF GENOMIC INFORMATION IS NOT AVAILABLE TO THE COMBIMATRIX GROUP'S POTENTIAL CUSTOMERS, ITS BUSINESS WILL NOT SUCCEED. The CombiMatrix group is designing its technology primarily for applications in the biotechnology, pharmaceutical and academic communities. The usefulness of the CombiMatrix group's technology depends in part upon the availability of genomic data. The CombiMatrix group is initially focusing on markets for analysis of genetic variation and function, namely SNP genotyping and gene expression profiling. These markets are new and emerging, and they may not develop as the CombiMatrix group anticipates, or at all. Also, researchers may not seek or be able to convert raw genomic data into medically valuable information through the analysis of genetic variation and function. If genomic data is not available for use by the CombiMatrix group's customers or if its target markets do not emerge in a timely manner, or at all, demand for its products will not develop as it expects, and it may never become profitable. THE COMBIMATRIX GROUP'S FUTURE SUCCESS DEPENDS ON THE CONTINUED SERVICE OF ITS ENGINEERING, TECHNICAL AND KEY MANAGEMENT PERSONNEL AND ITS ABILITY TO IDENTIFY, HIRE AND RETAIN ADDITIONAL ENGINEERING, TECHNICAL AND KEY MANAGEMENT PERSONNEL. There is intense competition for qualified personnel in the CombiMatrix group's industry, particularly for engineers and senior level management. Loss of the services of, or failure to recruit, engineers or other technical and key management personnel could be significantly detrimental to the group and could adversely affect its business and operating results. The CombiMatrix group may not be able to continue to attract and retain engineers or other qualified personnel necessary for the development of its products and business or to replace engineers or other qualified personnel who may leave the group in the future. The CombiMatrix group's anticipated growth is expected to place increased demands on its resources and likely will require the addition of new management personnel. -17- THE EXPANSION OF THE COMBIMATRIX GROUP'S PRODUCT LINES MAY SUBJECT IT TO REGULATION BY THE UNITED STATES FOOD AND DRUG ADMINISTRATION AND FOREIGN REGULATORY AUTHORITIES, WHICH COULD PREVENT OR DELAY ITS INTRODUCTION OF NEW PRODUCTS. If the CombiMatrix group manufactures, markets or sells any products for any regulated clinical or diagnostic applications, those products will be subject to extensive governmental regulation as medical devices in the United States by the FDA and in other countries by corresponding foreign regulatory authorities. The process of obtaining and maintaining required regulatory clearances and approvals is lengthy, expensive and uncertain. Products that CombiMatrix Corporation manufactures, markets or sells for research purposes only are not subject to governmental regulations as medical devices or as analyte specific reagents to aid in disease diagnosis. We believe that the CombiMatrix group's success will depend upon commercial sales of improved versions of products, certain of which cannot be marketed in the United States and other regulated markets unless and until the CombiMatrix group obtains clearance or approval from the FDA and its foreign counterparts, as the case may be. Delays or failures in receiving these approvals may limit our ability to benefit from new CombiMatrix group products. AS THE COMBIMATRIX GROUP'S OPERATIONS EXPAND, ITS COSTS TO COMPLY WITH ENVIRONMENTAL LAWS AND REGULATIONS WILL INCREASE, AND FAILURE TO COMPLY WITH THESE LAWS AND REGULATIONS COULD HARM ITS FINANCIAL RESULTS. The CombiMatrix group's operations involve the use, transportation, storage and disposal of hazardous substances, and as a result it is subject to environmental and health and safety laws and regulations. As the CombiMatrix group expands its operations, its use of hazardous substances will increase and lead to additional and more stringent requirements. The cost to comply with these and any future environmental and health and safety regulations could be substantial. In addition, the CombiMatrix group's failure to comply with laws and regulations, and any releases of hazardous substances into the environment or at its disposal sites, could expose the CombiMatrix group to substantial liability in the form of fines, penalties, remediation costs and other damages, or could lead to a curtailment or shut down of its operations. These types of events, if they occur, would adversely impact the group's financial results. THE COMBIMATRIX GROUP'S BUSINESS DEPENDS ON ISSUED AND PENDING PATENTS, AND THE LOSS OF ANY PATENTS OR THE GROUP'S FAILURE TO SECURE THE ISSUANCE OF PATENTS COVERING ELEMENTS OF ITS BUSINESS PROCESSES WOULD MATERIALLY HARM ITS BUSINESS AND FINANCIAL CONDITION. The CombiMatrix group's success depends on its ability to protect and exploit its intellectual property. The CombiMatrix group currently has two patents issued in the United States, one patent issued in Europe and more than 44 patent applications pending in the United States, Europe and elsewhere. The patent application process before the Unites States Patent and Trademark Office and other similar agencies in other countries is initially confidential in nature. Patents that are filed outside the United States, however, are published approximately eighteen months after filing. The CombiMatrix group cannot determine in a timely manner whether patent applications covering technology that competes with its technology have been filed in the United States or other foreign countries or which, if any, will ultimately issue or be granted as enforceable patents. Some of the CombiMatrix group's patent applications may claim compositions, methods or uses that may also be claimed in patent applications filed by others. In some or all of these applications, a determination of priority of inventorship may need to be decided in a proceeding before the United States Patent and Trademark Office or a foreign regulatory body or a court. If the CombiMatrix group is unsuccessful in these proceedings, it could be blocked from further developing, commercializing or selling products. Regardless of the ultimate outcome, this process is time-consuming and expensive. ANY INABILITY TO ADEQUATELY PROTECT THE COMBIMATRIX GROUP'S PROPRIETARY TECHNOLOGIES COULD MATERIALLY HARM THE COMBIMATRIX GROUP'S COMPETITIVE POSITION AND FINANCIAL RESULTS. If the CombiMatrix group does not protect its intellectual property adequately, competitors may be able to use its technologies and erode any competitive advantage that it may have. The laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States, and many companies have encountered significant problems in protecting their proprietary rights abroad. These problems can be caused by the absence of rules and methods for defending intellectual property rights. The patent positions of companies developing tools for the biotechnology, pharmaceutical and academic communities, including the CombiMatrix group's patent position, generally are uncertain and involve complex -18- legal and factual questions. The CombiMatrix group will be able to protect its proprietary rights from unauthorized use by third parties only to the extent that its proprietary technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets. The CombiMatrix group's existing patents and any future issued or granted patents it obtains may not be sufficiently broad in scope to prevent others from practicing its technologies or from developing competing products. There also is a risk that others may independently develop similar or alternative technologies or designs around the CombiMatrix group's patented technologies. In addition, others may oppose or invalidate its patents, or its patents may fail to provide it with any competitive advantage. Enforcing the CombiMatrix group's intellectual property rights may be difficult, costly and time-consuming and ultimately may not be successful. The CombiMatrix group also relies upon trade secret protection for its confidential and proprietary information. While it has taken security measures to protect its proprietary information, these measures may not provide adequate protection for its trade secrets or other proprietary information. The CombiMatrix group seeks to protect its proprietary information by entering into confidentiality and invention disclosure and transfer agreements with employees, collaborators and consultants. Nevertheless, employees, collaborators or consultants may still disclose its proprietary information, and the CombiMatrix group may not be able to meaningfully protect its trade secrets. In addition, others may independently develop substantially equivalent proprietary information or techniques or otherwise gain access to its trade secrets. ANY LITIGATION TO PROTECT THE COMBIMATRIX GROUP'S INTELLECTUAL PROPERTY OR ANY THIRD-PARTY CLAIMS OF INFRINGEMENT, COULD DIVERT SUBSTANTIAL TIME AND MONEY FROM THE COMBIMATRIX GROUP'S BUSINESS AND COULD SHUT DOWN SOME OF ITS OPERATIONS. The CombiMatrix group's commercial success depends in part on its non-infringement of the patents or proprietary rights of third parties. Many companies developing tools for the biotechnology and pharmaceutical industries use litigation aggressively as a strategy to protect and expand the scope of their intellectual property rights. Accordingly, third parties may assert that the CombiMatrix group is employing their proprietary technology without authorization. In addition, third parties may claim that use of the CombiMatrix group's technologies infringes their current or future patents. The CombiMatrix group could incur substantial costs and the attention of its management and technical personnel could be diverted while defending ourselves against any of these claims. The CombiMatrix group may incur the same liabilities in enforcing its patents against others. The CombiMatrix group has not made any provision in its financial plans for potential intellectual property related litigation, and it may not be able to pursue litigation as aggressively as competitors with substantially greater financial resources. If parties making infringement claims against the CombiMatrix group are successful, they may be able to obtain injunctive or other equitable relief, which effectively could block the CombiMatrix group's ability to further develop, commercialize and sell products, and could result in the award of substantial damages against us. If the CombiMatrix group is unsuccessful in protecting and expanding the scope of its intellectual property rights, its competitors may be able to develop, commercialize and sell products that compete with it using similar technologies or obtain patents that could effectively block its ability to further develop, commercialize and sell its products. In the event of a successful claim of infringement against CombiMatrix group, we may be required to pay substantial damages and either discontinue those aspects of its business involving the technology upon which it infringed or obtain one or more licenses from third parties. While the CombiMatrix group may license additional technology in the future, it may not be able to obtain these licenses at a reasonable cost, or at all. In that event, it could encounter delays in product introductions while it attempts to develop alternative methods or products, which may not be successful. Defense of any lawsuit or failure to obtain any of these licenses could prevent it from commercializing available products. -19- RISKS RELATING TO THE ACACIA TECHNOLOGIES GROUP The risk factors beginning on this page discuss risks relating to the Acacia Technologies group. Because each holder of AR-Acacia Technologies stock is a holder of the common stock of one company, Acacia Research Corporation, and the risks associated with the CombiMatrix group could affect our AR-Acacia Technologies stock. As such, we also urge you to read carefully the section "Risks Relating to the CombiMatrix Group" above. THE ACACIA TECHNOLOGIES GROUP HAS INCURRED LOSSES IN THE PAST AND EXPECTS TO INCUR ADDITIONAL LOSSES IN THE FUTURE. The Acacia Technologies group has sustained substantial losses in the past. We expect the Acacia Technologies group to incur significant research and development, marketing, general and administrative expenses. As a result, we expect the Acacia Technologies group to incur significant losses for the foreseeable future. THE V-CHIP TECHNOLOGY PATENT HELD BY THE ACACIA TECHNOLOGIES GROUP WILL EXPIRE IN JULY 2003, AND IF THE GROUP DOES NOT DEVELOP OTHER RECURRING SOURCES OF REVENUE, ITS FINANCIAL CONDITION WILL BE ADVERSELY IMPACTED. The Acacia Technologies group, and Acacia Research Corporation as a whole, has generated substantially all of its revenues from licensing the patented V-chip technology to television manufacturers. The Acacia Technologies group's patent on the V-chip technology will expire in July 2003. The Acacia Technologies group will not be able to collect royalties for televisions containing V-chip technology sold after the expiration of that patent, but it may still collect revenues from the sale of such televisions in the U.S. before that date. The Acacia Technologies group is beginning to market its digital media transmission technology and is developing other technologies and products. The eventual licensing and sale of these technologies is intended to replace the revenue currently being generated by licensing its V-chip technology. If the Acacia Technologies group does not succeed in developing such technologies or is unable to commercially license its existing and future technologies, its financial condition will be adversely impacted. THE ACACIA TECHNOLOGIES GROUP MAY FAIL TO MEET MARKET EXPECTATIONS BECAUSE OF FLUCTUATIONS IN ITS QUARTERLY OPERATING RESULTS, WHICH COULD CAUSE THE PRICE OF AR-ACACIA TECHNOLOGIES STOCK TO DECLINE. The Acacia Technologies group revenues and operating results have fluctuated in the past and may continue to fluctuate significantly from quarter to quarter in the future. It is possible that in future periods the Acacia Technologies group's revenues could fall below the expectations of securities analysts or investors, which could cause the market price of our AR-Acacia Technologies stock to decline. The following are among the factors that could cause the Acacia Technologies group's operating results to fluctuate significantly from period to period: o its unpredictable revenue sources, as described below; o costs related to acquisitions, alliances, licenses and other efforts to expand its operations; o the timing of payments under the terms of any customer or license agreements into which the Acacia Technologies group may enter; and o expenses related to, and the results of, patent filings and other proceedings relating to intellectual property rights. THE ACACIA TECHNOLOGIES GROUP'S REVENUES WILL BE UNPREDICTABLE, AND THIS MAY HARM ITS FINANCIAL CONDITION. The amount and timing of revenues that the Acacia Technologies group may realize from its business will be unpredictable because: o whether the Acacia Technologies group generates revenues depends, in part, on the success of its licensing efforts; o its cycle of obtaining licensees may be lengthy; and o it cannot be sure as to the timing of receipt of payment. -20- As a result, the Acacia Technologies group's revenues may vary significantly from quarter to quarter, which could make its business difficult to manage and cause its quarterly results to be below market expectations. If this happens, the price of our AR-Acacia Technologies stock may decline significantly. TECHNOLOGY COMPANY STOCK PRICES ARE ESPECIALLY VOLATILE, AND THIS VOLATILITY MAY DEPRESS THE PRICE OF OUR AR-ACACIA TECHNOLOGIES STOCK. The stock market has experienced significant price and volume fluctuations, and the market prices of technology companies have been highly volatile. We believe that various factors may cause the market price of our AR-Acacia Technologies stock to fluctuate, perhaps substantially, including, among others, announcements of: o its or its competitors' technological innovations; o developments or disputes concerning patents or proprietary rights; o developments in relationships with licensees; o failure to meet or exceed securities analysts' expectations of financial results; or o a change in financial estimates or securities analysts' recommendations. In the past, companies that have experienced volatility in the market price of their stock have been the objects of securities class action litigation. If our AR-Acacia Technologies stock was the object of securities class action litigation, it could result in substantial costs and a diversion of management's attention and resources, which could materially harm the business and financial results of the Acacia Technologies group. THE ACACIA TECHNOLOGIES GROUP FACES INTENSE COMPETITION, AND WE CANNOT ASSURE YOU THAT IT WILL BE SUCCESSFUL. Although the Acacia Technologies group believes that Acacia Media Technologies has marketing and licensing rights to enforceable patents and other intellectual property relating to video and audio on demand, the Acacia Technologies group cannot assure you that other companies will not develop competing technologies that offer better or less expensive alternatives to those offered by Acacia Media Technologies. In the event a competing technology emerges, Acacia Media Technologies would expect substantial additional competition. The Acacia Technologies group believes that Soundview Technologies' V-chip technology is protected by enforceable patent rights. Other companies, however, 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. THE MARKETS SERVED BY THE ACACIA TECHNOLOGIES GROUP ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE, AND IF THE ACACIA TECHNOLOGIES GROUP IS UNABLE TO DEVELOP AND INTRODUCE NEW PRODUCTS, ITS REVENUES COULD STOP GROWING OR COULD DECLINE. The markets served by the Acacia Technologies group frequently undergo transitions in which products rapidly incorporate new features and performance standards on an industry-wide basis. Products for communications applications, as well as for high-speed computing applications, are based on continually evolving industry standards. A significant portion of the Acacia Technologies group's revenues in recent periods has been, and is expected to continue to be, derived from licensing of technologies based on existing transmission standards. The Acacia Technologies group's ability to compete in the future will, however, depend on its ability to identify and ensure compliance with evolving industry standards. -21- THE ACACIA TECHNOLOGIES GROUP'S SUCCESS IS BASED ON ITS ABILITY TO PROTECT ITS PROPRIETARY TECHNOLOGY AND ITS ABILITY TO DEFEND ITSELF AGAINST INFRINGEMENT CLAIMS. The success of the Acacia Technologies group relies, to varying degrees, on its proprietary rights and their protection or exclusivity. Although reasonable efforts will be taken to protect the Acacia Technologies group's proprietary rights, the complexity of international trade secret, copyright, trademark and patent law, and common law, coupled with limited resources and the demands of quick delivery of products and services to market, create risk that these efforts will prove inadequate. For example, in our pending litigation against certain television manufacturers alleging their infringement of Soundview Technologies' V-chip patent, a motion for summary judgment filed by the defendants was granted in September 2002. The court ruled that the defendants have not infringed on Soundview Technologies' patent. If we are unsuccessful in our intended appeal of this ruling, legal principles will preclude us from claiming infringement of our patents by other parties. Accordingly, if we are unsuccessful in this or other litigation to protect our intellectual property rights, the future revenues of the Acacia Technologies group could be adversely affected. From time to time, the Acacia Technologies group may be subject to third-party claims in the ordinary course of business, including claims of alleged infringement of proprietary rights. Any such claims may harm the Acacia Technologies group by subjecting it to significant liability for damage and invalidating its proprietary rights. These types of claims, with or without merit, could subject the Acacia Technologies group to costly litigation and diversion of its technical and management personnel. The Acacia Technologies group depends largely on the protection of enforceable patent rights. The Acacia Technologies group has applications on file with the U.S. Patent and Trademark Office seeking patents on its core technologies and has patents or rights to patents that have been issued. We cannot assure you that the pending patent applications of the Acacia Technologies group will be issued, that third parties will not violate, or attempt to invalidate these intellectual property rights, or that certain aspects of those intellectual property will not be reverse-engineered by third parties without violating the patent rights of the Acacia Technologies group. For Acacia Media Technologies and Soundview Technologies, proprietary rights constitute their only significant assets. The Acacia Technologies group also owns licenses from third parties and it is possible that it could become subject to infringement actions based upon such licenses. The Acacia Technologies group generally obtains representations as to the origin and ownership of such licensed content. However, this may not adequately protect the Acacia Technologies group. The Acacia Technologies group enters into confidentiality agreements with third parties and generally limits access to information relating to its proprietary rights. Despite these precautions, third parties may be able to gain access to and use the Acacia Technologies group's proprietary rights to develop competing technologies and products with similar or better features and prices. Any substantial unauthorized use of the Acacia Technologies group's proprietary rights could materially and adversely affect its business and operational results. -22- USE OF PROCEEDS We will not receive any proceeds from the sale of the shares by the selling security holders except to the extent that we will receive proceeds upon the exercise of the warrants held by certain of the selling security holders for an amount equal to the product of the number of shares purchased and the per share exercise price of $2.75. We intend to use any proceeds received from the exercise of warrants for general corporate purposes. All proceeds from the sale of the shares will go to the selling security holder who offers and sells the shares. SELLING SECURITY HOLDERS The shares of AR-CombiMatrix stock offered by this prospectus have been or will be issued to the selling security holders (or their assignees) directly by us. Of the shares of AR-CombiMatrix stock covered by this prospectus: (i) 2,416,502 shares were issued to certain selling security holders in a private placement completed in May 2003, and 1,208,252 shares are issuable upon the exercise of warrants (subject to adjustment under certain circumstances) that were issued to the selling security holders in the private placement; and (ii) 295,790 shares were issued to certain selling security holders pursuant to common stock purchase agreements in which the consideration for the shares consisted of shares of common stock of the CombiMatrix Corporation's Advanced Material Sciences, Inc. subsidiary. The following table sets forth (i) the names of the selling security holders; (ii) the number of outstanding shares of AR-CombiMatrix stock beneficially owned, including shares issuable pursuant to warrants within 60 days of July 1, 2003, and the percentage ownership of the selling security holders prior to the offering, (iii) the aggregate number of shares of AR-CombiMatrix stock offered by the selling security holders pursuant to this prospectus, and (iv) the number of shares of AR-CombiMatrix stock beneficially owned by the selling security holders and the percentage ownership assuming the sale of all of the shares offered by the selling security holders pursuant to this prospectus. The information in the table below is current as of the date of this prospectus. The shares are being registered to permit public secondary trading of the shares, and the selling security holders may offer the shares for resale from time to time. -23-
NUMBER OF AR-COMBIMATRIX SHARES SHARES AR-COMBIMATRIX SHARES BENEFICIALLY OWNED PRIOR BEING BENEFICIALLY OWNED AFTER NAME TO OFFERING OFFERED OFFERING(1) ------------------------------------------------------ ------------------------ --------- ------------------------- NUMBER PERCENTAGE(2) NUMBER PERCENTAGE(2) ------ ------------- ------ ------------- Leonard Greenbaum 32,253 * 32,253(3) 0 * David Lasco 120,000 * 120,000(3) 0 * Virginia Dadey 45,000 * 45,000(3) 0 * Heritage Finance & Trust Company 150,000 * 150,000(3) 0 * Visana 750,000 2.9% 750,000(3) 0 * Philip M. Damashek & Judith E. Damashek as Jt. Tenants 204,546 * 204,546(3) 0 * PTJP Partners, L.P. 150,000 * 150,000(3) 0 * Arthur Rabin 150,000 * 150,000(3) 0 * Mainfield Enterprises Inc. 270,000 1.1% 202,500(3) 67,500 * Crescent International Ltd. 161,052 * 150,000(3) 11,052 * Bay Star Capital II, L.P. 340,908 1.3% 340,908(3) 0 * OTAPE Investments LLC 136,365 * 136,365(3) 0 * Xmark Fund, L.P. 102,273 * 102,273(3) 0 * Xmark Fund, LTD. 238,637 * 238,637(3) 0 * SDS Merchant Fund, LP 340,908 1.3% 340,908(3) 0 * Vertical Ventures Investments, LLC 511,364 2.0% 511,364(3) 0 * Milton Aronowitz Jr. 71,000 * 5,000 66,000 * Philip J. Chelsvig 31,837 * 20,833 11,004 * Dominic F. Mortellaro 36,454 * 8,333 28,121 * Carl D. Selkirk & Margaret L. Selkirk 33,698 * 8,333 25,365 * David M. Lackey 96,667 * 6,667 90,000 * Donald F. Richey 34,167 * 4,167 30,000 * Calvin C. Layland DPM Inc. Pension & Profit Sharing Plan 38,183 * 8,333 29,850 * Alan Lynne Family Limited Partnership 8,333 * 8,333 0 * Drake Revocable Trust 2001, Virginia L. Drake, Trustee 262,638 1.0% 41,667 220,971 * Kevin Kennelly 33,333 * 33,333 0 * Farmer Children's Trust 48,590 * 4,167 44,423 * Philip T. Ching and/or Beverly S. Ching, Trustees to The Ching Family Living Trust, dated June 28, 1988 42,248 * 16,667 25,581 * Joseph C. Tsai Living Trust dated 2/2/00 8,250 * 2,000 6,250 * Priscilla K. Chu, Trustee Chu Living Trust dated October 02, 2000 6,661 * 4,167 2,494 * Brian T. Ching 36,667 * 6,667 30,000 * Brent D. Ching 35,667 * 5,667 30,000 * Bradley T. Ching 35,667 * 5,667 30,000 * M. Robert Ching M.D. Inc. Defined Benefit Pension Plan 384,872 1.5% 10,750 374,122 * Ching Revocable Trust Agreement 458,785 1.8% 84,663 374,122 * Frederick L. Simmons 4,446 * 4,167 279 * Patsy Ziegler Dewey 35,482 * 4,167 31,315 * Fred F. Finocchiaro 2,042 * 2,042 0 * -------------------------------------------------------------------------------------------------------------------------- TOTAL................................................... 5,074,871 18.9% 3,920,544 1,154,327 4.7% ----------- ---------- ------------ ----------- -------
* Less than 1%. (1) The information provided in the table with respect to a selling security holder has been obtained from that selling security holder. Because the selling security holders may sell all or some portion of the shares of our AR-CombiMatrix stock beneficially owned by them and because we cannot estimate the number of shares of our AR-CombiMatrix stock that will be beneficially owned by the selling security holders after this offering, we have assumed for purposes of this table that all of the shares offered by the selling security holders have been sold pursuant to this prospectus. (2) Percentages are based upon the assumption that upon the completion of this offering the selling security holders have sold the shares of our AR-CombiMatrix stock listed as "Number of Shares Being Offered" and are computed on the basis of 25,697,478 shares of AR-CombiMatrix stock outstanding as of July 1, 2003. (3) Includes a number of shares, equal to one-third (1/3) the number listed herein, issuable upon exercise of a warrant dated May 20, 2003 at an exercise price of $2.75 per share and an expiration date of May 19, 2008. -24- PLAN OF DISTRIBUTION The shares of AR-CombiMatrix stock offered by this prospectus may be sold by the selling security holders or by their respective pledgees, donees, transferees or other successors in interest. Such sales may be made at fixed prices that may be changed, at market prices prevailing at the time of sale, at prices related to such prevailing market prices, or at negotiated prices, and may be made on the Nasdaq SmallCap Market, or any exchange on which our AR-CombiMatrix stock may then be listed. The shares may be sold by one or more of the following: o one or more block trades in which a broker or dealer so engaged will attempt to sell all or a portion of the shares held by the selling security holders as agent but may position and resell a portion of the block as principal to facilitate the transaction; o purchase by a broker or dealer as principal and resale by such broker or dealer as principal and resale by such broker or dealer for its account under this prospectus; o ordinary brokerage transactions and transactions in which the broker solicits purchasers; and o privately negotiated transactions between the selling security holders and purchasers without a broker-dealer. The selling security holders may effect such transactions by selling shares to or through broker dealers, and such broker-dealers will receive compensation in negotiated amounts in the form of discounts, concessions, commissions or fees from the selling security holders and/or the purchasers of the shares for whom such broker-dealers may act as agent or to whom they sell as principal, or both (which compensation to a particular broker-dealer might be in excess of customary commissions). Such brokers or dealers or other participating brokers or dealers and the selling security holders may be deemed to be "underwriters" within the meaning of the Securities Act, in connection with such sales. Except for customary selling commissions in ordinary brokerage transactions, any such underwriter or agent will be identified, and any compensation paid to such persons will be described, in a prospectus supplement. In addition, any securities covered by this prospectus that qualify for sale under Rule 144 might be sold under Rule 144 rather than under this prospectus. EXPERTS Our financial statements incorporated in the prospectus by reference to the Annual Report on Form 10-K, for the year ended December 31, 2002 have been incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. LEGAL MATTERS The validity of the shares of our AR-CombiMatrix stock offered hereby has been passed upon for us by Allen Matkins Leck Gamble & Mallory LLP, Century City, California. -25- WHERE TO FIND ADDITIONAL INFORMATION We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission, referred to as the SEC. You may read and copy any document we file at the SEC's Public Reference Room 1034, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Our SEC filings are also available to the public at the SEC's web site at HTTP://WWW.SEC.GOV. You may also read and copy this information at the National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. We maintain a site on the Internet at HTTP://WWW.ACACIARESEARCH.COM. The information contained in our website is not part of this prospectus and you should not rely on it in deciding whether or not to purchase our securities. We have filed a registration statement, of which this prospectus is a part, covering the offered securities. As allowed by SEC rules, this prospectus does not include all of the information contained in the registration statement and the included exhibits, financial statements and schedules. We refer you to the registration statement, the included exhibits, financial statements and schedules for further information. This prospectus is qualified in its entirety by such other information INFORMATION INCORPORATED BY REFERENCE The SEC allows us to "incorporate by reference" the information we file with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be a part of this prospectus, and later information that we file with the SEC will automatically update and supersede this information. This prospectus incorporates by reference the documents listed below, and any future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended, (the "Exchange Act") until the selling security holders sell all of the shares offered herein. This prospectus is part of a registration statement we filed with the SEC. The documents we incorporate by reference are: 1. Our Annual Report on Form 10-K for the fiscal year ended December 31, 2002, filed March 27, 2003; 2. Our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2003, filed on May 9, 2003; 3. The description of our AR-CombiMatrix stock contained in our Registration Statement on Form 8-A, filed December 19, 2002; and 4. All documents filed by us pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, after the date of this Registration Statement and prior to the filing of a post-effective amendment to this Registration Statement which indicates that all securities offered hereunder have been sold, or which deregisters all securities then remaining unsold under this Registration Statement, shall be deemed to be incorporated by reference in this Registration Statement and to be a part hereof from the date of filing of such documents. We will provide without charge a copy of these filings or, to each person, including any beneficial owner, to whom a copy of this prospectus is delivered, upon such person's written or oral request, a copy of any and all of the information incorporated by reference in this prospectus, other than exhibits to such documents, unless such exhibits are specifically incorporated by reference into the information that this prospectus incorporates. Requests should be directed to the Secretary at Acacia Research Corporation, 500 Newport Center Drive, 7th Floor, Newport Beach, California 92660, telephone: (949) 480-8300. -26- 3,920,544 SHARES ACACIA RESEARCH CORPORATION ACACIA RESEARCH-COMBIMATRIX COMMON STOCK ----------------------------- PROSPECTUS ------------------------------ JULY 7, 2003 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, payable by Acacia Research Corporation ("Acacia") in connection with the sale of Acacia's Acacia Research - CombiMatrix Common Stock being registered. All amounts are estimates except the SEC registration fee. Amount to be paid ----------------- SEC registration fee....................................... $ 833 Printing expenses.......................................... $ 10,000 Legal fees and expenses.................................... $ 35,000 Accounting fees and expenses............................... $ 9,000 Miscellaneous.............................................. $ 5,167 ----------- Total................................................. $ 60,000 ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement in connection with specified actions, suits or proceedings, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation - a derivative action), if they acted in good faith and in a manner they reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceedings, had no reasonable cause to believe their conduct was unlawful. A similar standard is applicable in the case of derivative actions, except that indemnification only extends to expenses (including attorneys' fees) actually and reasonably incurred in connection with the defense or settlement of such action, and the statute requires court approval before there can be any indemnification where the person seeking indemnification has been found liable to the corporation. The statute provides that it is not exclusive of other indemnification that may be granted by a corporation's certificate of incorporation, bylaws, disinterested director vote, stockholder vote, agreement or otherwise. As permitted by Section 145 of the Delaware General Corporation Law, Article VII of Acacia's restated certificate of incorporation provides: No person shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, including without limitation for serving on a committee of the Board of Directors, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL as the same exists or hereafter may be amended. If the DGCL is amended after the date of the filing of this Certificate of Incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the DGCL as so amended. Any amendment, repeal or modification of this Article VII shall not adversely affect any right or protection of a director of the Corporation existing hereunder with respect to any act or omission occurring prior to such amendment, repeal or modification. Acacia has purchased insurance on behalf of any person who is or was a director, officer, employee or agent of Acacia, or is or was serving at the request of Acacia as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not Acacia would have the power to indemnify him against such liability under the provisions of Acacia's restated certificate of incorporation. II-1 ITEM 16. EXHIBITS EXHIBIT NO. DESCRIPTION - ----------- ----------- 4.1 Form of Subscription Agreement (including the Form of Warrant) used for the May 2003 private placement 4.2 Common Stock Purchase Agreement dated as of July 1, 2003, by and among Acacia and the selling security holders set forth on the signature page thereto 5.1 Opinion of Allen Matkins Leck Gamble & Mallory LLP 23.1 Consent of Independent Accountants regarding Acacia Research Corporation 23.2 Consent of Independent Accountants regarding Acacia Technologies Group 23.3 Consent of Independent Accountants regarding CombiMatrix Group 23.4 Consent of Allen Matkins Leck Gamble & Mallory LLP (contained in Exhibit 5.1) 24.1 Power of Attorney (contained on page II-4 of this registration statement) ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes: 1. To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (a) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as amended (the "Securities Act"); (b) 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; and (c) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; provided, however, that paragraphs (a) and (b) 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 with or furnished to the Securities and Exchange Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, 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, 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. The undersigned registrant hereby undertakes that, for the purpose of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act, (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in 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. II-2 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 foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC 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, as amended, the Company certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Newport Beach, State of California, on July 7, 2003. ACACIA RESEARCH CORPORATION By: /s/ Paul R. Ryan ------------------------------------ Paul R. Ryan Chairman and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Paul R. Ryan and Clayton J. Haynes his or her true and lawful attorneys-in-fact and agents, each acting alone, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to the Registration Statement, and to sign any registration statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and all post-effective amendments thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-3 has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE OFFICE DATE --------- ------ ---- /s/ Paul R. Ryan Chairman and Chief Executive Officer July 7, 2003 - ------------------------------------ (Principal Executive Officer) Paul R. Ryan /s/ Clayton J. Haynes Chief Financial Officer (Principal July 7, 2003 - ------------------------------------ Financial and Accounting Officer) Clayton J. Haynes /s/ Robert L. Harris, II President and Director July 7, 2003 - ------------------------------------ Robert L. Harris, II /s/ Thomas B. Akin Director July 7, 2003 - ------------------------------------ Thomas B. Akin /s/ Ridgon Currie Director July 7, 2003 - ------------------------------------ Ridgon Currie /s/ Fred A. de Boom Director July 7, 2003 - ------------------------------------ Fred A. de Boom /s/ Edward W. Frykman Director July 7, 2003 - ------------------------------------ Edward W. Frykman /s/ G. Louis Graziadio, III Director July 7, 2003 - ------------------------------------ G. Louis Graziadio, III /s/ Amit Kumar Director July 7, 2003 - ------------------------------------ Amit Kumar II-4
EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------------ ------------------------------------------------------------- 4.1 Form of Subscription Agreement (including the Form of Warrant) used for the May 2003 private placement 4.2 Common Stock Purchase Agreement dated as of July 1, 2003, by and among Acacia and the selling security holders set forth on the signature page thereto 5.1 Opinion of Allen Matkins Leck Gamble & Mallory LLP 23.1 Consent of Independent Accountants regarding Acacia Research Corporation 23.2 Consent of Independent Accountants regarding Acacia Technologies Group 23.3 Consent of Independent Accountants regarding CombiMatrix Group 23.4 Consent of Allen Matkins Leck Gamble & Mallory LLP (contained in Exhibit 5.1) 24.1 Power of Attorney (contained on page II-4 of this registration statement) EX-4.1 3 acacia_s3ex4-1.txt EXHIBIT 4.1 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 Acacia Research - CombiMatrix common stock ("AR-CombiMatrix stock"), par value $0.001 per share, and one-half (0.5) of one warrant to purchase one share of AR-CombiMatrix stock ("Warrant")) pursuant to the Company's Confidential Private Placement Memorandum dated May 7, 2003 (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 Warrant, please refer to Attachment 1 hereto "Form of 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, 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. If this Subscription is rejected by the Company in part, the Company shall promptly return the rejected portion of the funds received from the undersigned, without interest, and this Subscription Agreement shall thereafter remain in effect with respect to the portion of the subscription not so rejected. 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; C-1 (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; (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 AR-CombiMatrix stock ("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 C-2 144 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 AR-CombiMatrix 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 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 C-3 (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 use commercially reasonable efforts to file a Registration Statement with the SEC for the resale of the Company's AR-CombiMatrix stock included in the Units sold pursuant to the Memorandum ("Unit Shares") and the Company's AR-CombiMatrix stock to be issued upon exercise of the 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). If and when the Registration Statement becomes effective, 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 any 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 AR-CombiMatrix 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. C-4 (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 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 use commercially reasonable efforts 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 have such Registration Statement declared effective on or before the date which is 120 days following the final closing of the Offering (the "Outside Date"), the Company shall return to the undersigned an amount in cash equal to 1.0% of the Capital Commitment, net of any finder's fees, on the Outside Date and on the monthly anniversary of the Outside Date until the earlier of (A) the date on which such Registration Statement is declared effective and (B) the one year anniversary of the final closing of the Offering, with any such payment to be made by the Company within 10 business days of the date on which such payment becomes payable. (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 AR-CombiMatrix stock under a Registration Statement, whether or not Registrable Shares are included, the Holders C-5 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 AR-CombiMatrix 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) use commercially reasonable efforts to prepare and file with the SEC a Registration Statement with respect to such Registrable Shares and use commercially reasonable 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; (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, C-6 (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 commercially reasonable 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 C-7 and expenses of 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 C-8 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 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 C-9 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. 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 SHARES REPRESENTED BY THIS CERTIFICATE 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." 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 C-10 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 provided by the Company to the undersigned in connection with this transaction and the documents incorporated therein by reference, 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 acknowledgments 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 C-11 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. 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, regardless of any laws on choice of law or conflicts of law of any jurisdiction. 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 stockholders, partners or other record owners and __________ non-individual stockholders, partners or other record owners. Those non-individual stockholders, 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. C-12 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 stockholders, partners or other record owners and __________ non-individual stockholders, partners or other record owners. Those non-individual stockholders, 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." 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: _____________________________ C-13 SUBSCRIPTION AGREEMENT SIGNATURE PAGE FOR INDIVIDUALS AND LIVING OR REVOCABLE TRUSTS IN WITNESS WHEREOF, the undersigned executed this Agreement as of ___________, 2003. 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: ___________, 2003 S-1 SUBSCRIPTION AGREEMENT SIGNATURE PAGE FOR PARTNERSHIPS, CORPORATIONS, TRUSTS, OR OTHER ENTITIES IN WITNESS WHEREOF, the undersigned has executed this Agreement as of ______________, 2003. 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: ___________, 2003 S-2 ATTACHMENT 1 NO. FORM OF 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 AR-COMBIMATRIX 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 Acacia Research-CombiMatrix 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 "AR-CombiMatrix stock" shall mean the Company's presently authorized Acacia Research-CombiMatrix common stock, par value $0.001 per share, and any stock into or for which such stock may hereafter be converted or exchanged. This Warrant is issued pursuant to that certain Subscription Agreement between the Holder and the Company dated May __, 2003 (the "Subscription Agreement"). 1. TERM OF WARRANT; CALLABILITY BY COMPANY. The purchase right represented by this Warrant is exercisable, in whole or in part, at any time during the period beginning on the date hereof and ending on May __, 2008 (the "Term") However, at any time during the Term after the first anniversary of the date hereof, if the daily average of the high and low prices of the Company's AR-CombiMatrix stock on the Nasdaq SmallCap Market is equal to or above $4.50 (the "Call Price") for 20 consecutive trading days, the Company will have the right, but not the obligation, to redeem all of the Warrants on 30 days prior written notice at a redemption price of $0.10 per New Warrant. 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 A-1 days after the end of the 30-day period, the Company will deliver 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 AR-CombiMatrix 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. The Warrant Price is $2.75 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. (a) 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. (b) If, within one year following the date hereof, the Company has not filed a Registration Statement, which has been declared effective by the SEC, for the resale of the shares of AR-CombiMatrix stock to be issued upon exercise of this Warrant, the Holders of this Warrant shall be entitled to exercise this Warrant, in whole but not 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 upon such surrender, the Holder shall be entitled to receive a number of shares of AR-CombiMatrix stock equal to the quotient obtained by dividing [(A-B)(X)] by (A), where: (A) = the closing bid price of the AR-CombiMatrix stock on the trading day immediately preceding the date of such exercise; (B) = the then applicable Warrant Price; and (X) = the number of shares of AR-CombiMatrix stock issuable upon exercise of this Warrant in accordance with its terms. A-2 In the event of any exercise of the rights represented by this Warrant pursuant to this paragraph 3 (b), certificates for the shares of stock so purchased shall be delivered to the Holder within 15 days thereafter 4. STOCK FULLY PAID; RESERVATION OF SHARES. All AR-CombiMatrix 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 AR-CombiMatrix 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 AR-CombiMatrix 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 AR-CombiMatrix 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 AR-CombiMatrix stock, or distribute dividends on its AR-CombiMatrix stock payable in AR-CombiMatrix 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 subparagraphs (a) or (b) of this Section 5, the number of shares of AR-CombiMatrix stock purchasable hereunder shall be adjusted, to the nearest whole share, to the product obtained A-3 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. No adjustment in the number of shares shall be made upon any adjustment in the Warrant Price pursuant to subparagraph (d) below. 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 AR-CombiMatrix 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 AR-CombiMatrix 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 AR-CombiMatrix 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 AR-CombiMatrix 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. A-4 10. MISCELLANEOUS. (a) NO RIGHTS AS STOCKHOLDER. The Holder of this Warrant shall not be entitled to vote or receive dividends or be deemed the Holder of AR-CombiMatrix 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 stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders 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. (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, regardless of any laws on choice of law or conflicts of law of any jurisdiction. This Warrant is executed as of May __, 2003. ACACIA RESEARCH CORPORATION By: ________________________________ Name: ________________________________ Title:________________________________ A-5 EXHIBIT 1 --------- NOTICE OF EXERCISE TO: ACACIA RESEARCH CORPORATION 1. The undersigned hereby elects to purchase _______________ shares of AR-CombiMatrix 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 AR-CombiMatrix 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 AR-CombiMatrix 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) -1- EX-4.2 4 acacia_s3ex4-2.txt EXHIBIT 4.2 COMMON STOCK PURCHASE AGREEMENT ------------------------------- THIS COMMON STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into as of July 1, 2003, by and among ACACIA RESEARCH CORPORATION, a Delaware corporation (the "Purchaser") and the individuals set forth on the signature page hereto (each, a "Seller" and, collectively the "Sellers"). Capitalized terms used herein shall have the meanings set forth in Article 5. R E C I T A L S : - - - - - - - - WHEREAS, the Seller desires to sell to the Purchaser, and the Purchaser desires to purchase from the Seller, shares of the Common Stock of Advanced Material Sciences, Inc., a Delaware corporation ("AMS"), for the consideration set forth herein. WHEREAS, capitalized terms used herein and not otherwise defined shall have the meanings set forth in Section 5.1. NOW, THEREFORE, in consideration of the mutual promises and agreements herein, and subject to the terms and conditions hereinafter set forth, the parties hereby agree as follows: ARTICLE 1 PURCHASE AND SALE OF SHARES 1.1 PURCHASE AND SALE. On the basis of the representations, warranties, covenants and agreements and subject to the satisfaction or waiver of the terms and conditions, set forth herein, each Seller agrees to sell to the Purchaser and the Purchaser agrees to purchase from each Seller that number of shares of common stock of AMS (collectively the "AMS Shares") set forth next to such Seller's name on the signature page hereto in exchange for that number of shares of the Purchaser's Acacia Research-CombiMatrix Common Stock (collectively the "Acacia Shares") set forth next to such Seller's name on the signature page hereto. 1.2 THE CLOSING OF PURCHASE AND SALE OF COMMON STOCK. The purchase and sale described in Section 1.1 shall take place at a closing (the "Closing") to be held at the offices of the Purchaser, 500 Newport Center Drive, Suite 700, Newport Beach, California 92660, on July 1, 2003. At the Closing, the Sellers shall convey and deliver stock certificate(s), duly endorsed for transfer to the Purchaser or accompanied by a duly executed stock assignment separate from certificate, evidencing the AMS Shares against delivery by Purchaser to Sellers of stock certificates representing the Acacia Shares. ARTICLE 2 REPRESENTATIONS AND WARRANTIES BY PURCHASER The Purchaser represents, warrants, agrees, and covenants as follows: 2.1 AUTHORIZATION. (a) The Purchaser is duly authorized to execute and deliver this Agreement and instruments executed in connection herewith. (b) The Purchaser is a duly organized and validly existing corporation in good standing under the laws the State of Delaware and has all requisite corporate power and authority for the ownership and operation of its properties and for the carrying on of its business as now conducted and as proposed to be conducted. The Purchaser is duly licensed or qualified and in good standing as a foreign corporation authorized to do business in all jurisdictions in which the nature of the respective business conducted or property owned by it makes such qualification necessary. (c) This Agreement and each other agreement and instrument contemplated hereby constitute the valid and binding obligations of the Purchaser, enforceable against it in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors' rights generally. (d) The execution, delivery and performance of this Agreement will not breach, violate or conflict with its Restated Certificate of Incorporation or Amended and Restated Bylaws or any material agreement to which Purchaser is a party or by which it is bound. (e) Other than consents or approvals under state and federal securities laws, rules and regulations, no consent or approval of any Person (as defined in Section 5.1 below) is required in connection with the execution, delivery and performance of this Agreement and such other agreements and instruments by the Purchaser which has not heretofore been obtained. 2.2 ACACIA SHARES. The Acacia Shares have been duly authorized, are validly issued and are fully paid and nonassessable. 2.3 OTHER. No Person has or will have, as a result of the transactions contemplated by this Agreement, any right, interest or valid claim upon or against the Sellers for any commission, fee or other compensation as a finder or broker because of any act or omission by such Purchaser and the Purchaser agrees to indemnify and hold the Sellers harmless against any such commissions, fees or other compensation. -2- ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER Each Seller represents, warrants, and covenants as follows: 3.1 NO SOLICITATION. The Agreement was in no way a result of a solicitation of the Seller by the Purchaser. The transactions contemplated by this Agreement resulted from an unsolicited offer by the Sellers to exchange their AMS Shares for the Acacia Shares. 3.2 DUE DILIGENCE EXAMINATION. Each Seller and his advisers have relied on their own examination of reports filed by the Purchaser under the Securities Act, the Exchange Act and other publicly available information relating to the Purchaser and the Purchaser's business and finances (collectively, the "Information"), and any and all other information deemed relevant by the Seller in order to make an informed investment decision regarding this Agreement, and have reviewed and received such Information and understand the Information and this Agreement. Without limiting the foregoing, each Seller acknowledges that it has received and reviewed the following: (a) the Purchaser's proxy statement, dated November 8, 2002; (b) the Purchaser's Annual Report on Form 10-K for the year ended December 31, 2002; (c) the Purchaser's Quarterly Report on Form 10-Q for the quarter ended March 31, 2003; and (d) the Purchaser's proxy statement, dated April 10, 2003. 3.3 SOPHISTICATION. Each Seller has such knowledge and experience in financial, tax, and business matters so as to enable such Seller to utilize the information made available to the undersigned in connection with this Agreement to evaluate the merits and risks of such and to make an informed investment decision with respect thereto. No Seller is relying on the Purchaser with respect to the legal, tax, and other economic considerations of this Agreement and has obtained, or had the opportunity to obtain the advice of such Seller's own legal, tax and other advisors. 3.4 COOPERATION. Each Seller 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 Purchaser is subject, including, without limitation, such additional information as the Purchaser may deem appropriate with regard to such Seller's suitability. 3.5 GOOD AND MARKETABLE TITLE. Each Seller has, and at the Closing, the Purchaser will receive, good and marketable title to the AMS Shares owned by such Seller, free and clear of all liens, claims, security interests, charges and encumbrances. -3- 3.6 AUTHORITY; ENFORCEABLE AGREEMENTS. (a) Each Seller has full legal capacity and authority to enter into, execute and deliver this Agreement and each other agreement and instrument executed in connection herewith. (b) This Agreement and such other agreements and instruments contemplated hereby constitute the valid and binding obligations of each Seller, enforceable against each Seller in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or affecting creditors' rights generally. (c) The execution, delivery and performance of this Agreement will not breach, violate or conflict with any agreement to which any Seller is a party or by which it is bound. (d) No consent or approval of any Person is required in connection with the execution, delivery and performance of this Agreement or any other agreements and instruments by which any of the Sellers is bound which has not heretofore been obtained. 3.7 INVESTMENT. Each Seller is acquiring the Acacia Shares for investment for his, her or its own account, and not with the view to, or for resale in connection with, any "distribution" of all or any portion thereof within the meaning of the Securities Act. The Acacia Shares received by the Seller will be restricted securities. Each Seller understands that the Acacia Shares to be acquired hereunder have not been registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the Sellers' investment intent and the accuracy of the Sellers' representations as expressed herein. No Seller has offered or sold any portion of the Acacia Shares being acquired nor does any Seller have any contract, understanding, agreement or arrangement with any person or with respect to any portion of the Acacia Shares. Each Seller acknowledges that the Acacia Shares being acquired hereunder must be held indefinitely unless the transfer thereof is registered under the Securities Act or unless an exemption from such registration is available, and that each share certificate representing the Acacia Shares shall bear a legend setting forth the restrictions on the transfer thereof 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." -4- Each Seller is an "accredited investor" as defined in Rule 501 under the Securities Act. In connection with the foregoing, each Seller has delivered to Purchaser a completed and executed a Confidential Purchaser Questionnaire in the form attached hereto as Schedule 1. 3.8 RULE 144. Each Seller acknowledges that he, she or it is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement, subject to the satisfaction of certain conditions, including, among other things, the availability of certain current public information about the Purchaser, the resale occurring after the expiration of minimum holding periods after a party has purchased and paid for the security to be sold, the sale being effected through a "broker's transaction" or in transactions directly with a "market maker" and the number of shares being sold during any three-month period not exceeding specified limitations except as provided in Rule 144(k). 3.9 INDEMNIFICATION. Each Seller agrees, jointly and severally, to indemnify and hold harmless the Purchaser against and in respect of any loss, liability, damage, claim or expense resulting from any breach of any representation, warranty, covenant or agreement by him, her or it contained in this Agreement. 3.10 ACACIA RESEARCH--COMBIMATRIX STOCK. Each Seller acknowledges that the Purchaser's Acacia Research-CombiMatrix common stock, including the Acacia Shares, and the Purchaser's Acacia Research-Acacia Technologies common stock are both classes of common stock of the Purchaser, and as such remain subject to all risks associated with an investment in the Purchaser and all of Purchaser's businesses, assets and liabilities. Each Seller further acknowledges that although the Acacia Research-CombiMatrix common stock and the Acacia Research-Acacia Technologies common stock are intended to reflect the performance of different business groups within the Purchaser, they are not stock issued by the separate groups and accordingly the market values of the two classes may not in fact reflect the performance of the separate groups. 3.11 OTHER. No person has or will have, as a result of the transactions contemplated by this Agreement, any right, interest or valid claim upon or against the Purchaser for any commission, fee or other compensation as a finder or broker because of any act or omission by any Seller and the Sellers agree, jointly and severally, to indemnify and hold the Purchaser harmless against any such commissions, fees or other compensation. ARTICLE 4 REGISTRATION RIGHTS WITH RESPECT TO ACACIA SHARES 4.1 REGISTRATION RIGHTS. (a) REGISTRATION. The Purchaser will file a Registrations Statement with the SEC for the resale of the Acacia Shares within sixty (60) days of the date hereof. Subject to the provisions of this Agreement, the Purchaser shall use its reasonable efforts to cause such Registration Statement to be declared effective by the SEC as promptly as shall be practicable. Purchaser shall use its best efforts to keep such Registration Statement in effect until Sellers have sold or otherwise distributed all of the Acacia Shares or until such Acacia Shares may be traded without restriction pursuant to -5- paragraph (k) of Rule 144, if applicable. Purchaser acknowledges and agrees that time is of the essence with respect to the liquidity of the Acacia Shares. Sellers shall promptly notify the Purchaser of the proposed manner of sale of any Acacia Shares to be sold pursuant to such Registration Statement other than in an unsolicited brokers' transaction including only usual and customary brokers' commissions. No Seller shall undertake any such transactions other than unsolicited brokers' transaction including only usual and customary brokers' commissions unless (i) such Seller shall have furnished all information required to be disclosed in any related prospectus supplement, and (ii) such Seller shall have agreed in writing to bear all costs of registration and related expenses (including attorneys' fees). (b) SUSPENSION OF EFFECTIVENESS. The Purchaser's obligations under Section 4.1 (a) above shall not restrict its ability to suspend the effectiveness of, or direct any Seller not to offer or sell securities under, the Registration Statement, at any time, for such reasonable period of time which the Purchaser believes is necessary to prevent the premature disclosure of any events or information having a material effect on the Purchaser. In addition, the Purchaser shall not be required to keep the Registration Statement effective, or may, without suspending such effectiveness, instruct any Seller not to sell such securities, during any period during which the Purchaser 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 Purchaser's Common Stock under a Registration Statement, each Seller agrees not to effect any public sale or distribution of the Purchaser's Common Stock, including a sale pursuant to Rule 144 or Rule 144A under the Securities Act, during a period designated by the Purchaser in a written notice duly given to the Sellers, which period shall commence approximately 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 Purchaser's Common Stock under a Registration Statement and shall continue for up to 180 consecutive days. (d) REGISTRATION PROCEDURES. Except as otherwise expressly provided herein, in connection with any registration of the Acacia Shares pursuant to this Agreement, the Purchaser shall: (i) furnish to each Seller one or more copies of the definitive final prospectus filed with the SEC; (ii) notify the Sellers, 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, at the request of any Seller, the Purchaser shall prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Acacia 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 each Seller any such supplement or amendment; and -6- (iii) notify each Seller promptly, and (if requested by any such Person) confirm such advice in writing, (1) 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, (2) 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 Purchaser 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 (3) of the receipt by the Purchaser of any notification with respect to the suspension of the qualification or exemption from qualification of a Registration Statement or any of the Acacia Shares for offer or sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose. The Purchaser may require each Seller to furnish to the Purchaser such information regarding him, her or itself and the distribution of such Acacia Shares as the Purchaser may from time to time reasonably request in writing and such other information as may be legally required in connection with such registration. Each Seller agrees, by his acquisition of the Acacia Shares and his, her or its acceptance of the benefits provided to it hereunder, to furnish promptly to the Purchaser all information required to be disclosed in order to make any previously furnished information not materially misleading. Each Seller agrees, in connection with any disposition of the Acacia Shares, to comply with all applicable prospectus delivery requirements of the SEC. Each Seller further agrees that upon receipt of any notice from the Purchaser 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, such Seller will forthwith discontinue disposition of the Acacia Shares pursuant to the Registration Statement covering such Acacia Shares until the Seller's receipt of the copies of the supplemented or amended prospectus contemplated by this Agreement, or until it is advised in writing by the Purchaser that the use of the prospectus may be resumed, and, if so directed by the Purchaser, the Sellers will deliver to the Purchaser (at the Purchaser's expense) all copies, other than permanent file copies then in the Sellers' possession, of the prospectus covering such Acacia Shares current at the time of receipt of such notice. (e) REGISTRATION EXPENSES. All expenses incident to the Purchaser's performance of or compliance with the registration of shares pursuant to this Agreement, including, without limitation, all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, fees and expenses of counsel for the Purchaser and its independent certified public accountants, (all such expenses being herein called "Registration Expenses") will be borne by the Purchaser; provided that in no event shall Registration Expenses payable by the Purchaser include any (i) underwriting discounts, commissions, or fees attributable to the sale of the Acacia Shares, (ii) fees and expenses of any counsel, accountants, or other persons retained or employed by any Seller, or (iii) transfer fees, if any. -7- (f) ASSIGNMENT OR TRANSFER. The rights granted to the Sellers pursuant to this Article 4 shall not be, directly or indirectly, assigned, or transferred. ARTICLE 5 DEFINITIONS 5.1 CERTAIN DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "ACACIA SHARES" shall have the meaning assigned to that term in Section 1.1 of this Agreement. "AGREEMENT" means this Common Stock Purchase Agreement, including all Schedules, as from time to time amended and in effect between the parties hereto. "AMS SHARES" shall have the meaning assigned to that term in Section 1.1 of this Agreement. "CLOSING" shall have the meaning assigned to that term in Section 1.2 of this Agreement. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, as shall be in effect at the time. "INFORMATION" shall have the meaning assigned to that term in Section 3.2 of this Agreement. "PERSON" means an individual, corporation, partnership, limited liability company, joint venture, trust, or unincorporated organization, or a government or any agency or political subdivision thereof. "PURCHASER" shall have the meaning assigned to that term in the preamble to this Agreement. "REGISTRATION STATEMENT" means the registration statement or comparable document under the Securities Act through which a public sale or disposition of the Acacia 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. "SEC" means the Securities and Exchange Commission and successors thereto. "SECURITIES ACT" means the Securities Act of 1933, as amended, and the rules and regulations thereunder, as shall be in effect at the time. -8- "SELLERS" shall have the meaning assigned to that term in the preamble to this Agreement. ARTICLE 6 MISCELLANEOUS 6.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part of the Purchaser in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. 6.2 AMENDMENTS, WAIVERS AND CONSENTS. Any provision in this Agreement to the contrary notwithstanding, no changes in or additions to this Agreement may be made, and compliance with any covenant or provision herein set forth may not be omitted or waived, without the prior written consent of the parties. Any waiver or consent may be given subject to satisfaction of conditions stated therein and any waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 6.3 ADDRESSES OR NOTICES, ETC. All notices, requests, demands and other communications provided for hereunder shall be in writing (including telegraphic communication) and mailed, by certified or registered mail, or telegraphed or delivered to the applicable party at the addresses indicated below: If to the Purchaser: Acacia Research Corporation 500 Newport Center Drive Suite 700 Newport Beach, California 92660 Attention: Robert A. Berman, Senior Vice President and General Counsel If to a Seller, to the address set forth below such Seller's name on the signature page hereto. 6.4 COSTS, EXPENSES AND TAXES. Each party shall pay its own fees in connection with the investigation, preparation, execution and delivery of this Agreement and other instruments and documents to be delivered hereunder and the transactions contemplated hereby and thereby. In addition, each Seller shall pay any and all material stamp and other taxes payable or determined to be payable by such Seller in connection with the execution and delivery of this Agreement and other instruments and documents to be delivered hereunder or thereunder, and agrees to save the Purchaser harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and filing fees. In the event of any controversy, claim or dispute among the parties hereto arising out of or relating to this Agreement, or any breach hereof, the prevailing party shall be entitled to recover from the losing party reasonable attorney's fees, expenses and costs. -9- 6.5 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the Sellers and the Purchaser and their respective successors and assigns. 6.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made in this Agreement or any other instrument or document delivered in connection herewith or therewith, shall survive the execution and delivery hereof or thereof for a period of three (3) years from the date of this Agreement. 6.7 PRIOR AGREEMENTS. This Agreement constitutes the entire agreement between the parties and supersedes any prior understandings or agreements concerning the subject matter hereof. 6.8 SEVERABILITY. The invalidity or unenforceability of any provision hereto shall in no way affect the validity or enforceability of any other provision. 6.9 GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California. 6.10 JURISDICTION. Any suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby may be brought in any federal court located in Orange County, California or any California state court located in Orange County, California, and each of the parties hereby consents to the jurisdiction of such courts (and of the appropriate appellate courts therefrom) in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection that it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding brought in any such court has been brought in an inconvenient form. Process in any such suit, action or proceeding may be served on any party anywhere in the world, whether within or without the jurisdiction of any such court. Without limiting the foregoing, each party agrees that service of process on such party as provided in Section 6.3 shall be deemed effective service of process on such party. 6.11 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF THE PARTIES HERETO IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF. 6.12 REPRESENTATION BY COUNSEL/GENERAL INTERPRETATION/MUTUAL CONTRIBUTION. The parties hereto acknowledge that each party to this Agreement is sophisticated and has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement, and that the parties and their counsel have mutually contributed to the drafting of this Agreement. Accordingly, no provision of this Agreement shall be construed against any party on the ground that that party or its counsel draft the provision or caused it to be drafted. No rule of strict construction will be applied against any party. The provision of this Agreement shall be interpreted in a reasonable manner to effect the intent of the parties. -10- 6.13 FACSIMILE SIGNATURES. Any signature page delivered by a fax machine shall be binding to the same extent as an original signature page, with regard to any agreement subject to the terms hereof or any amendments thereto. Any party who delivers such a signature page agrees to later deliver an original counterpart to any party which requests it. 6.14 HEADINGS. Article, Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. 6.15 COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart. 6.16 FURTHER ASSURANCES. From and after the date of this Agreement, upon the reasonable request of the Purchaser, each Seller shall execute and deliver such instruments, documents and other writings as may be reasonably necessary or desirable to confirm and carry out and to effectuate fully the intent and purposes of this Agreement and the transactions contemplated hereby. [SIGNATURE PAGE TO FOLLOW] -11- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers or individuals thereunder duly authorized, as of the date first above written. PURCHASER: ACACIA RESEARCH CORPORATION By: /S/ PAUL R. RYAN ----------------------- Paul R. Ryan Chief Executive Officer -12- Sellers signature page to Common Stock Purchase Agreement MILTON ARONOWITZ, JR. /S/ MILTON ARONOWITZ, JR. -------------------------------------------- Number of shares of common stock of AMS held by Seller: 30,000 Number of shares of Acacia Research- CombiMatrix Common Stock to be received by Seller: 5,000 PHILIP J. CHELSVIG /S/ PHILIP J. CHELSVIG -------------------------------------------- Number of shares of common stock of AMS held by Seller: 125,000 Number of shares of Acacia Research- CombiMatrix Common Stock to be received by Seller: 20,833 DOMINIC F. MORTELLARO /S/ DOMINIC F. MORTELLARO -------------------------------------------- Number of shares of common stock of AMS held by Seller: 50,000 Number of shares of Acacia Research- CombiMatrix Common Stock to be received by Seller: 8,333 Signature page to Common Stock Purchase Agreement CARL D. SELKIRK & MARGARET L. SELKIRK /S/ CARL D. SELKIRK -------------------------------------------- /S/ MARGARET L. SELKIRK -------------------------------------------- Number of shares of common stock of AMS held by Seller: 50,000 Number of shares of Acacia Research- CombiMatrix Common Stock to be received by Seller: 8,333 DAVID M. LACKEY /S/ DAVID M. LACKEY -------------------------------------------- Number of shares of common stock of AMS held by Seller: 40,000 Number of shares of Acacia Research- CombiMatrix Common Stock to be received by Seller: 6,667 DONALD F. RICHEY, M.D. /S/ DONALD F. RICHEY, M.D. -------------------------------------------- Number of shares of common stock of AMS held by Seller: 25,000 Number of shares of Acacia Research- CombiMatrix Common Stock to be received by Seller: 4,167 Signature page to Common Stock Purchase Agreement CALVIN C. LAYLAND DPM INC. PENSION & PROFIT SHARING PLAN By: /S/ CALVIN C. LAYLAND -------------------------------------- Calvin C. Layland Number of shares of common stock of AMS held by Seller: 50,000 Number of shares of Acacia Research- CombiMatrix Common Stock to be received by Seller: 8,333 ALAN LYNNE FAMILY LIMITED PARTNERSHIP By: /S/ FREDERIC A. GLADLE -------------------------------------- Frederic A. Gladle, Management Trust General Partner for the Alan Lynne Family Limited Partnership Number of shares of common stock of AMS held by Seller: 50,000 Number of shares of Acacia Research- CombiMatrix Common Stock to be received by Seller: 8,333 Signature page to Common Stock Purchase Agreement DRAKE REVOCABLE TRUST 2001, JOHN D. DRAKE AND VIRGINIA L. DRAKE, TRUSTEES By: /S/ VIRGINIA L. DRAKE -------------------------------------- Virginia L. Drake, Trustee Number of shares of common stock of AMS held by Seller: 250,000 Number of shares of Acacia Research- CombiMatrix Common Stock to be received by Seller: 41,667 KEVIN BRUCE KENNELLY /S/ KEVIN BRUCE KENNELLY -------------------------------------------- Number of shares of common stock of AMS held by Seller: 200,000 Number of shares of Acacia Research- CombiMatrix Common Stock to be received by Seller: 33,333 Signature page to Common Stock Purchase Agreement FARMER CHILDREN'S TRUST By: /S/ IRENE C. FARMER -------------------------------------- Irene C. Farmer, Trustee Number of shares of common stock of AMS held by Seller: 25,000 Number of shares of Acacia Research- CombiMatrix Common Stock to be received by Seller: 4,167 PHILIP T. CHING AND/OR BEVERLY S. CHING, TRUSTEES TO P.T. CHING AND B.S. CHING LIVING TRUST DTD JUNE 28, 1988 By: /S/ PHILIP T. CHING -------------------------------------- Philip T. Ching, Trustee By: /S/ BEVERLY S. CHING -------------------------------------- Beverly S. Ching, Trustee Number of shares of common stock of AMS held by Seller: 100,000 Number of shares of Acacia Research- CombiMatrix Common Stock to be received by Seller: 16,667 Signature page to Common Stock Purchase Agreement JOSEPH C. TSAI /S/ JOSEPH C. TSAI -------------------------------------------- Number of shares of common stock of AMS held by Seller: 12,000 Number of shares of Acacia Research- CombiMatrix Common Stock to be received by Seller: 2,000 CHU LIVING TRUST DATED OCTOBER 2, 2000 By: /S/ PRISCILLA K. CHU -------------------------------------- Priscilla K. Chu, Trustee Number of shares of common stock of AMS held by Seller: 25,000 Number of shares of Acacia Research- CombiMatrix Common Stock to be received by Seller: 4,167 BRIAN T. CHING /S/ BRIAN T. CHING -------------------------------------------- Number of shares of common stock of AMS held by Seller: 40,000 Number of shares of Acacia Research- CombiMatrix Common Stock to be received by Seller: 6,667 Signature page to Common Stock Purchase Agreement BRENT D. CHING /S/ BRENT D. CHING -------------------------------------------- Number of shares of common stock of AMS held by Seller: 34,000 Number of shares of Acacia Research- CombiMatrix Common Stock to be received by Seller: 5,667 BRADLEY T. CHING /S/ BRADLEY T. CHING -------------------------------------------- Number of shares of common stock of AMS held by Seller: 34,000 Number of shares of Acacia Research- CombiMatrix Common Stock to be received by Seller: 5,667 M. ROBERT CHING M.D. TRUSTEE M. ROBERT CHING M.D. INC., DEFINED BENEFIT PENSION PLAN By: /S/ M. ROBERT CHING, M.D. -------------------------------------- M. Robert Ching, M.D., and Trustee Number of shares of common stock of AMS held by Seller: 64,500 Number of shares of Acacia Research- CombiMatrix Common Stock to be received by Seller: 10,750 Signature page to Common Stock Purchase Agreement M. ROBERT CHING PHYLLIS J. CHING LIVING TRUST By: /S/ M. ROBERT CHING, M. D. -------------------------------------- M. Robert Ching, M.D., and Trustee Number of shares of common stock of AMS held by Seller: 508,000 Number of shares of Acacia Research- CombiMatrix Common Stock to be received by Seller: 84,667 FREDERICK L. SIMMONS /S/ FREDERICK L. SIMMONS -------------------------------------------- Number of shares of common stock of AMS held by Seller: 25,000 Number of shares of Acacia Research- CombiMatrix Common Stock to be received by Seller: 4,167 PATSY Z. DEWEY /S/ PATSY Z. DEWEY -------------------------------------------- Number of shares of common stock of AMS held by Seller: 25,000 Number of shares of Acacia Research- CombiMatrix Common Stock to be received by Seller: 4,167 Signature page to Common Stock Purchase Agreement FRED FINOCCHIARO /S/ FRED FINOCCHIARO -------------------------------------------- Number of shares of common stock of AMS held by Seller: 12,250 Number of shares of Acacia Research- CombiMatrix Common Stock to be received by Seller: 2,042 EX-5.1 5 acacia_s3ex5-1.txt EXHIBIT 5.1 OPINION AND CONSENT OF ALLEN MATKINS LECK GAMBLE & MALLORY LLP July 7, 2003 Acacia Research Corporation 500 Newport Center Drive Newport Beach, California 92660 Re: Acacia Research Corporation Registration Statement on Form S-3 Ladies and Gentlemen: We have examined the Registration Statement on Form S-3 to be filed by Acacia Research Corporation (the "Company") with the Securities and Exchange Commission on or about July 7, 2003 (the "Registration Statement") in connection with the registration under the Securities Act of 1933, as amended (the "Securities Act"), for resale by the selling security holders of 3,920,544 shares of the Company's Acacia Research - CombiMatrix Common Stock, of which 1,208,252 are issuable upon the exercise of outstanding warrants. All of such shares are collectively referred to herein as the "Shares." This opinion is being furnished in accordance with the requirements of Item 16 of Form S-3 and Item 601(b)(5)(i) of Regulation S-K. For purposes of this opinion, we have examined such matters of law and originals, or copies, certified or otherwise, identified to our satisfaction, of such documents, corporate records and other instruments as we have deemed necessary. In our examination, we have assumed the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to originals of all documents submitted to us as certified, photostatic or conformed copies, and the authenticity of the originals of all such latter documents. We have also assumed the due execution and delivery of all documents where due execution and delivery are prerequisites to the effectiveness thereof. With your consent, we have relied upon certificates of public officials and certificates of officers of the Company for the accuracy of material, factual matters contained therein which were not independently established. Based upon the foregoing and all other instruments, documents and matters examined for the rendering of this opinion, it is our opinion that, when issued and sold in the manner referred to in the Registration Statement, the Shares issued and sold thereby will be legally and validly issued, fully paid and non-assessable. We express no opinion as to the applicability or effect of any laws, orders or judgments of any state or jurisdiction other than federal securities laws and the general corporate laws of the State of Delaware and the State of California. Furthermore, our opinion is based solely upon existing laws, rules and regulations, and we undertake no obligation to advise you of any changes that may be brought to our attention after the date hereof. We consent to the filing of this opinion letter as Exhibit 5.1 to the Registration Statement. In giving this consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act, the rules and regulations of the Securities and Exchange Commission promulgated thereunder, or Item 509 of Regulation S-K. Very truly yours, /s/ ALLEN MATKINS LECK GAMBLE & MALLORY LLP ALLEN MATKINS LECK GAMBLE & MALLORY LLP EX-23.1 6 acacia_s3ex23-1.txt EXHIBIT 23.1 We hereby consent to the incorporation by reference in this Registration Statement on Form S-3 of our report dated March 26, 2003 relating to the financial statements, which appears in Acacia Research Corporation's Annual Report on Form 10-K for the year ended December 31, 2002. We also consent to the reference to us under the heading "Experts" in such Registration Statement. PRICEWATERHOUSECOOPERS LLP Los Angeles, California June 27, 2003 EX-23.2 7 acacia_s3ex23-2.txt EXHIBIT 23.2 We hereby consent to the incorporation by reference in this Registration Statement on Form S-3 of our report dated March 26, 2003 relating to the financial statements of Acacia Technologies Group (a division of Acacia Research Corporation), which appears in Acacia Research Corporation's Annual Report on Form 10-K for the year ended December 31, 2002. We also consent to the reference to us under the heading "Experts" in such Registration Statement. PRICEWATERHOUSECOOPERS LLP Los Angeles, California June 27, 2003 EX-23.3 8 acacia_s3ex23-3.txt EXHIBIT 23.3 We hereby consent to the incorporation by reference in this Registration Statement on Form S-3 of our report dated March 26, 2003 relating to the financial statements of CombiMatrix Group (a division of Acacia Research Corporation), which appears in Acacia Research Corporation's Annual Report on Form 10-K for the year ended December 31, 2002. We also consent to the reference to us under the heading "Experts" in such Registration Statement. PRICEWATERHOUSECOOPERS LLP Los Angeles, California June 27, 2003 -----END PRIVACY-ENHANCED MESSAGE-----