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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 18, 1998
REGISTRATION NO. 333-
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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)
<TABLE>
<S> <C>
CALIFORNIA 95-4405754
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
12 SOUTH RAYMOND AVENUE
PASADENA, CALIFORNIA 91105
(626) 449-6431
(Address, including zip code, and telephone number,
including area code, of Registrants' principal executive offices)
--------------------------
KATHRYN KING-VAN WIE, CHIEF OPERATING OFFICER
ACACIA RESEARCH CORPORATION
12 SOUTH RAYMOND AVENUE
PASADENA, CALIFORNIA 91105
(626) 449-6431
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES OF COMMUNICATIONS TO:
D. STEPHEN ANTION
O'Melveny & Myers LLP
400 South Hope Street
Los Angeles, California 90071-2899
(213) 669-6000
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
FROM TIME TO TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT,
SUBJECT TO MARKET CONDITIONS AND CERTAIN CONTRACTUAL RESTRICTIONS ON TRANSFER.
--------------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF OF EACH CLASS TO OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER SECURITY(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, no par value per share........... 634,786 $17.00(3) $10,791,362(3) $3,183.45
</TABLE>
(1) Includes a number of shares of Common Stock initially issuable upon exercise
of certain warrants held by the Selling Securityholders and, pursuant to
Rule 416 under the Securities Act, an indeterminate number of shares of
Common Stock as may be issued from time to time upon exercise of such
warrants by reason of adjustment of the number of shares of Common Stock to
be issued upon such exercises under certain circumstances outlined in the
Prospectus.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Pursuant to Rule 457(c), the price of the Common Stock is based upon the
average of the high and low prices of the Common Stock on the Nasdaq
National Market on May 14, 1998.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED MAY , 1998
PROSPECTUS
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
<PAGE>
ACACIA RESEARCH CORPORATION
634,786 SHARES OF
COMMON STOCK
------------------
This Prospectus relates to the sale by the securityholders of Acacia
Research Corporation (the "Company") named herein (the "Selling
Securityholders") of up to an aggregate of 634,786 shares (subject to adjustment
in certain circumstances) of common stock, no par value per share (the "Common
Stock"), of the Company. Of the shares of the Common Stock covered by this
Prospectus, 317,393 shares were issued by the Company to the Selling
Securityholders in a private placement completed by the Company in March 1998
(the "March Private Placement") pursuant to an exemption from registration
contained in Regulation D promulgated under Section 4(2) of the Securities Act
of 1933, as amended (the "Securities Act"). An additional 317,393 shares
(subject to adjustment in certain circumstances) of the Common Stock covered by
this Prospectus are issuable upon the exercise of warrants issued to the Selling
Securityholders in the March Private Placement. See "Selling Securityholders."
The shares of Common Stock offered by this Prospectus may be sold from time
to time by the Selling Securityholders in privately negotiated transactions, in
brokers' transactions, to market makers or in block placements, at market prices
prevailing at the time of sale or at prices otherwise negotiated. See "Plan of
Distribution." The Selling Securityholders, and intermediaries through whom such
securities are sold, may be deemed underwriters within the meaning of the
Securities Act with respect to the securities offered, and any profits realized
or commissions received may be deemed underwriting compensation. The Company has
agreed to indemnify the Selling Securityholders against certain liabilities,
including liabilities under the Securities Act.
The Company will not receive any of the proceeds from the sale of the shares
of Common Stock being sold by the Selling Securityholders pursuant to this
Prospectus (although the Company will receive proceeds from the exercise of any
warrants by the Selling Securityholders). See "Use of Proceeds." The Company has
agreed to bear the expenses incurred in connection with the registration of the
shares offered by this Prospectus. The Selling Securityholders will pay or
assume brokerage commissions or similar charges incurred in the sale of the
shares offered by this Prospectus.
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "ACRI." The closing sale price of the Common Stock on May 15, 1998, as
reported by Nasdaq, was $17.875 per share.
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY , 1998.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-3 under the Securities Act,
with respect to the securities offered hereby. This Prospectus does not contain
all of the information set forth in such Registration Statement and the exhibits
thereto. For further information with respect to the Company, reference is
hereby made to the Registration Statement and the exhibits thereto, which may be
inspected without charge at the Public Reference Facilities maintained at the
principal office of the Commission at 450 Fifth Street, N.W., Room 1024,
Washington D.C. 20549 and at the Commission's regional offices at 7 World Trade
Center, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
may be obtained upon written request from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
Electronic registration statements made through the Electronic Data Gathering,
Analysis and Retrieval System are publicly available through the Commission's
Web site (http://www.sec.gov). Statements contained in the Prospectus as to the
contents of any contract or other document referred to herein are not
necessarily complete and in each instance reference is made to the copy of such
contract or other document filed (or incorporated by reference) as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Commission. Such reports
and other information filed by the Company may be inspected and copied at the
public reference facilities maintained by the Commission at the addresses shown
above. Copies of such material can be obtained from the Public Reference Section
of the Commission at the address shown above at prescribed rates or through the
Commission's Web site. Reports and other information concerning the Company may
also be inspected at the offices of the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "ACRI." Certain information, reports and proxy statements of the Company
are also available for inspection at the offices of the Nasdaq National Market
Reports Section, 1735 K Street, Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission, as noted below, are incorporated by reference into this Prospectus:
(a) Annual Report on Form 10-K for the fiscal year ended December 31, 1997; (b)
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998; (c) Current
Report on Form 8-K, event date January 29, 1998; (d) Current Report on Form 8-K,
event date April 2, 1998; (e) the description of the Common Stock contained in
the Company's Registration Statement on Form 8-A filed with the Commission on or
about May 11, 1995; and (f) Amendment No. 1 to Form 8-A on Form 8-A/A filed June
5, 1995.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering
of the securities covered by this Prospectus, shall be deemed to be incorporated
by reference herein and to be a part hereof from the date of filing such
documents. Any statement contained herein or in any document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for the purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed to
constitute a part of this Prospectus, except as so modified or superseded. The
Company hereby undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus has been delivered, upon
the written or oral request of such person, a copy of any or all of the
documents referred to in "Incorporation of Certain Information by Reference"
which have been or may be incorporated in this Prospectus by reference, other
than exhibits to such documents. Requests for such copies should be directed to
the Corporate Secretary at Acacia Research Corporation, 12 South Raymond Avenue,
Pasadena, California 91105.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED HEREIN. INVESTORS SHOULD ALSO
CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE HEADING "RISK FACTORS."
THE COMPANY
Acacia Research Corporation, a California corporation (the "Company"), is a
capital management company that provides investment advisory services, and also
provides management services to and makes direct investments in emerging
businesses. The Company's operations are comprised of two lines of business: (i)
investment advisor to domestic and offshore private investment funds; and (ii)
investing in and developing start-up business ventures. The Company is
diversified and each business segment is operated independently. See "Risk
Factors--No Assurance of Success."
As a registered investment advisor, the Company currently manages two
domestic private investment partnerships whose limited partners are required to
be "accredited investors" under Regulation D promulgated under the Securities
Act. The Company is also the investment advisor to two offshore investment
corporations. Client funds are invested primarily in mid-cap to large-cap U.S.
equities. The Company may manage additional private investment partnerships and
offshore investment funds in the future. See "Risk Factors--Risks Associated
with the Money Management Business; Profitability Uncertain."
The Company also participates in the formation of emerging or start-up
companies in various business fields by arranging for and contributing capital
and providing management assistance. Potential ventures are evaluated based on
the ability of the business to become viable and reach a significant milestone
with the Company's initial investment. See "Risk Factors--Risks Associated with
the Emerging Companies."
The Company has significant economic interests in six companies and takes an
active role in each company's growth and advancement. The Company holds majority
interests in the following companies: (i) 66.7 percent of the outstanding common
stock of Soundview Technologies Incorporated, a Delaware corporation ("Soundview
Technologies"); (ii) 89.6 percent of the outstanding common stock of MerkWerks
Corporation, a California corporation ("MerkWerks"); and (iii) 52.7 percent of
the outstanding common stock of CombiMatrix Corporation, a California
corporation ("CombiMatrix"). The Company holds minority interests in the
following companies: (i) a 33.3 percent membership interest in Greenwich
Information Technologies LLC, a Delaware limited liability company ("Greenwich
Information Technologies"); (ii) a 25.0 percent membership interest in Internet
Software LLC, a Delaware limited liability company ("Internet Software"); and
(iii) 18.6 percent of the outstanding common stock of Whitewing Labs, Inc., a
Delaware corporation ("Whitewing") (with voting control over 27.6 percent of the
common stock in connection with certain loans made by the Company secured by
common stock of Whitewing). Soundview Technologies, Greenwich Information
Technologies, MerkWerks, CombiMatrix, Whitewing and Internet Software are
collectively referred to hereinafter as the "Affiliates." See "Risk Factors" for
risks associated with each individual Affiliate.
Soundview Technologies was formed in 1996 and owns intellectual property
related to the telecommunications field, which includes audio and video blanking
systems, also known as "V-chip" technology. Soundview Technologies has developed
a V-chip retrofit device, the V Chip Converter-TM-, for use in televisions
already in existence that will be "deaf" to V-chip signals. Soundview
Technologies intends to license its technology to television manufacturers and
television accessory companies. Soundview Technologies has incurred substantial
losses and has not had any revenues to date.
Greenwich Information Technologies was formed in 1996 and is the exclusive
marketing and licensing agent for several patents relating to video-on-demand
and audio-on-demand technology. To date, Greenwich Information Technologies has
incurred substantial losses and has not had any revenues.
3
<PAGE>
MerkWerks was formed in 1995 and is currently developing a software utility
product for use with CD-Recorder, or CD-R, computer drives. The initial version
of the product, CD WonderWriter-TM-, is planned for the Macintosh platform.
MerkWerks anticipates adapting this software for Microsoft-Registered Trademark-
Windows-TM- platform. To date, MerkWerks has incurred substantial losses and has
not had any revenues.
CombiMatrix was formed in 1995 and is engaged in a highly specialized and
focused research effort to create products which would be used to streamline the
drug-discovery process. CombiMatrix is in a developmental stage. CombiMatrix has
incurred substantial losses and has not generated any revenues to date.
Internet Software was formed in 1997 and has developed proprietary software
products for use on the Internet. Internet Software has not generated any
revenues to date.
Whitewing was formed in 1993 and develops and markets a line of nutritional
supplement products. Whitewing conducted an initial public offering of its
common stock in February 1996. Whitewing stock and warrants trade on the Nasdaq
Small Cap Market under the symbols "WWLI" and "WWLI-W," respectively.
Development of emerging businesses is subject to all of the problems,
expenses, delays and risks inherent in the establishment of a new business
enterprise, many of which are beyond the Company's ability to control, including
uncertain market conditions, product acceptance, cost and availability of
capital, and the absence of an operating history. Moreover, the Company expects
to encounter competition in the area of business opportunities from other
entities having similar business objectives, such as venture capital funds. Many
of these potential competitors may possess greater financial, technical, human
and other resources than the Company. Accordingly, there can be no assurance
that the Company's plan of operations will be successful or that the Company
will be able to achieve or maintain profitable operations. See "Risks
Factors--No Assurance of Success" and "Risks Associated with the Emerging
Companies."
The Company has never paid any cash dividends on its Common Stock and does
not anticipate that it will pay dividends in the foreseeable future. Instead,
the Company intends to apply any earnings to the development and expansion of
its business.
The Company was incorporated in the State of California on January 25, 1993,
and conducted its initial public offering on June 15, 1995. The Company's Common
Stock trades on the Nasdaq National Market System ("Nasdaq") under the symbol
"ACRI."
The Company maintains its executive offices at 12 South Raymond Avenue,
Pasadena, California 91105 and its telephone number is (626) 449-6431.
4
<PAGE>
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. Reference is made in particular to the description of the Company's plans
and objectives for future operations, assumptions underlying such plans and
objectives and other forward-looking statements included in this Prospectus.
Such statements may be identified by the use of forward-looking terminology such
as "may," "will," "expect," "believe," "estimate," "anticipate," "intend,"
"continue," or similar terms, variations of such terms or the negative of such
terms. Such statements are based on management's current expectations and are
subject to a number of factors and uncertainties which could cause actual
results to differ materially from those described in the forward-looking
statements. The Company expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward-looking statements
contained herein to reflect any change in the Company's expectations with regard
thereto or any change in events, conditions or circumstances on which any such
statement is based. Factors which could cause such results to differ materially
from those described in the forward-looking statements include those set forth
below.
RISK FACTORS
AN INVESTMENT IN THE SHARES OF COMMON STOCK OFFERED HEREBY IS SPECULATIVE,
INVOLVES A HIGH DEGREE OF RISK AND SHOULD ONLY BE MADE BY INVESTORS WHO CAN
AFFORD TO LOSE THEIR ENTIRE INVESTMENT. THIS PROSPECTUS CONTAINS, IN ADDITION TO
HISTORICAL INFORMATION, FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY. SEE
"FORWARD-LOOKING STATEMENTS." FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED BELOW, AS WELL AS
THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS OR INCORPORATED HEREIN BY
REFERENCE. PROSPECTIVE PURCHASERS, PRIOR TO MAKING AN INVESTMENT, SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS WELL AS THE OTHER INFORMATION
SET FORTH IN THIS PROSPECTUS, THE EXHIBITS HERETO AND THE DOCUMENTS INCORPORATED
BY REFERENCE HEREIN.
NO ASSURANCE OF SUCCESS
The Company's operations are comprised of two lines of business: (i)
management of private investment funds; and (ii) investing in start-up business
ventures. The Company's business operations are subject to numerous risks
associated with managing investment funds and establishing new business
ventures. Continued implementation of the plan of operations of the Company and
each of the Company's new business ventures will be subject to all of the
problems, expenses and uncertainties inherent in the establishment of new
business enterprises, many of which are subject to outside influences over which
the Company has no control, including technological advances and product
obsolescence, uncertain market acceptance, increased levels of competition,
increases in operating costs including costs of supplies, personnel, equipment,
the availability and cost of capital, reduced margins caused by competitive
pressures and changes in general economic conditions and governmental regulation
imposed under federal, state or local laws. There can be no assurance that the
Company's new business ventures will be able to market any product on a
commercial scale, that these new business ventures will ever achieve or maintain
profitable operations or that they, or the Company, will be able to remain in
business.
RISKS ASSOCIATED WITH THE EMERGING COMPANIES
Involvement in emerging companies is marked by a high degree of risk,
including difficulties in selecting ventures with viable business plans and
acceptable likelihoods of success and future profitability. There is a high
probability of loss associated with investments in start-ups. Identifying and
developing each new business opportunity also requires the Company to dedicate
significant amounts of financial resources, management attention and personnel,
with no assurance that these expenditures will prove fruitful.
The Company generally invests in start-up ventures with no operating
histories, unproven technologies and products and, in some cases, the need for
identification and implementation of experienced
5
<PAGE>
management. Because of the uncertainties and risks associated with such start-up
ventures, investors in the Company should expect substantial losses associated
with failed ventures. In addition, markets for venture capital in the United
States are increasingly competitive. As a result, the Company faces potential
losses of business opportunities and possible deterioration of the terms of
available financing and equity investments in start-up ventures. Furthermore,
the Company may lack financial resources to fully fund additional ventures in
which it could participate and the Company as well as its Affiliates may be
dependent upon external financing to provide sufficient capital.
RISKS ASSOCIATED WITH THE MONEY MANAGEMENT BUSINESS; PROFITABILITY UNCERTAIN
Although management of the Company has had extensive experience in the
investment industry, the Company itself has a short history of operations and
only limited revenues. The Company currently manages two domestic private
investment partnerships and two offshore private investment corporations. The
Company invests a portion of its own funds in the domestic partnership funds as
a general partner. The Company does not invest Company funds in the offshore
investment funds. From its inception through March 31, 1998, the Company has
received approximately $583,000 in aggregate performance and management fees
from managing the four investment funds. The Company is attempting to increase
the assets invested in the various funds it manages. There can be no assurance
that the Company will be able to attract significant levels of additional
capital into its investment funds.
The Company has formulated its plan of operations based on certain
assumptions regarding the potential monies that will be invested in its funds
under management and the anticipated performance of, and profits that can be
realized by, these funds. Any future success of the Company will depend upon
many factors, including factors which may be beyond the control of the Company
or which cannot be predicted at this time. These factors include the amount of
assets under management in the Company's investment funds, the performance of
those funds, the overall performance of the equity markets in the United States,
the success of the Company's stock selecting strategy and other factors. The
Company's income from managing the investment funds is comprised of management
fees, based upon the amount of assets under management, as well as performance
fees that are based on the performance of each individual fund, as the Company
receives a percentage of the profit earned by each fund.
POTENTIAL FLUCTUATIONS IN THE FUTURE RESULTS OF OPERATION OF THE COMPANY
The Company's operating results may vary significantly from quarter to
quarter due to a variety of factors, including the amount of money invested in
the private investment funds managed by the Company, the performance of such
investment funds, the results of operations of the Affiliates, the nature and
timing of investments in new businesses by the Company and the timing of the
sales of securities of the Affiliates.
The Company also expects to incur significant start-up expenses in pursuing
and developing new business ventures. To date, the Company has lacked a
consistent source of recurring revenue and most of its revenues have come from
sales of securities of the Affiliates.
POTENTIAL FLUCTUATIONS IN FUTURE RESULTS OF OPERATIONS OF THE AFFILIATES
To date, Whitewing has experienced substantial operating losses and its
operating results have varied significantly from quarter to quarter due to a
variety of factors. For further information regarding the nature of and the
fluctuations in Whitewing's operating results, potential investors are directed
to review Whitewing's filings under the Exchange Act, available from the
Commission.
CombiMatrix, MerkWerks, Greenwich Information Technologies, Internet
Software and Soundview Technologies have generated no revenues to date. The
Company anticipates that any results of operations of these Affiliates are
likely to vary significantly as a result of a number of factors, including the
timing of
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new product introductions by each of these Affiliates, the technical feasibility
of the companies' technologies and techniques, the novelty of the technology
owned by these Affiliates, the level of product acceptance, the strength of each
of these Affiliates' intellectual property rights, each Affiliate's ability to
exploit its technology, the volume and timing of orders received, product line
maturation, the impact of price competition, and each Affiliate's ability to
access distribution channels. Many of these factors are beyond the control of
the Affiliates. There can be no assurance that any Affiliate will experience
growth in the future or be profitable on an operating basis in any future
period.
UNCERTAINTY OF EMERGING COMPANIES; LACK OF MARKET ACCEPTANCE OF PRODUCTS
COMBIMATRIX. CombiMatrix was incorporated in October 1995 and began
operations in April 1996. CombiMatrix is developing technologies involving
combinatorial chemistry, which could represent significant improvements over
existing technologies in the speed and cost-effectiveness of drug discovery.
CombiMatrix is a developmental stage company without any current products or
revenues. Its current activities relate almost exclusively to research and
development.
The Company's investment in CombiMatrix is subject to the risks associated
with new technologies, including the viability of the technology, unknown market
acceptance, difficulties in obtaining financing, the strength of its
intellectual property protection, increasing competition, and the ability to
convert technology into revenues. In addition, because the technologies critical
to the success of this industry are in their infancy, no assurances can be given
that CombiMatrix will be able to successfully implement its technologies. In the
event its technologies prove to be successful, CombiMatrix intends to pursue
collaborations with pharmaceutical companies, which may include the screening of
drug companies' libraries and possibly the licensing of internally developed
chemical compounds. No assurances can be given that CombiMatrix, even if
successful in developing its technologies, would be able to successfully
implement the collaborative efforts with pharmaceutical companies.
CombiMatrix intends to vigorously protect its intellectual property rights.
There can be no assurance, however, that CombiMatrix's pending patent
applications will issue or that a third party will not violate, or attempt to
invalidate, CombiMatrix's intellectual property rights, possibly forcing
CombiMatrix to expend substantial legal fees. Successful challenges to certain
of CombiMatrix's patents, if issued, would materially adversely affect
CombiMatrix's business, operating results, financial condition and prospects.
There can be no assurance that certain aspects of CombiMatrix's technology
will not be reverse-engineered by third parties without violating CombiMatrix's
proprietary rights. CombiMatrix's existing protections also may not preclude
competitors from developing products with features and prices similar to or
better than those of CombiMatrix.
GREENWICH INFORMATION TECHNOLOGIES. Greenwich Information Technologies was
formed in June 1996 and is the exclusive marketing and licensing agent for a
number of domestic and international patents and other intellectual property
pertaining to information-on-demand systems. To date, Greenwich Information
Technologies has yet to license any of its patents or other intellectual
properties. Although Greenwich Information Technologies believes that it has
marketing and licensing rights to enforceable patents, no assurances can be
given that other companies will not challenge the underlying patents to these
rights or develop competing technologies that do not infringe such patents.
Furthermore, whether or not competing products emerge, it is uncertain whether
and to what extent Greenwich Information Technologies will be able to profitably
market and license its rights to the information-on-demand technology.
INTERNET SOFTWARE. Internet Software was formed in October 1997 and has
developed proprietary software products for use on the Internet. Because its
first software product has not yet been released, the market acceptance of such
product is uncertain. In addition, the software industry is highly competitive.
Thus, there can be no assurance that Internet Software will obtain significant
revenues or profitability.
7
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SOUNDVIEW TECHNOLOGIES. Soundview Technologies was formed in March 1996 to
commercialize patent rights of a method of video and audio blanking technology,
also known as V-chip technology, that screens objectionable television
programming and blocks it from the viewer. Although Soundview Technologies
believes that it owns an enforceable patent on this technology, no assurances
can be given that other companies will not challenge Soundview Technologies'
patent rights or develop competing technologies that do not infringe Soundview
Technologies' patent. Additionally, whether or not competing products emerge, it
is uncertain whether and to what extent Soundview Technologies will be able to
profitably exploit its technology. The issued patent that Soundview owns expires
in November 2002.
MERKWERKS. MerkWerks was formed in September 1995 as a software development
company, whose first product is expected to be software for use with
CD-recordable disk drives for Macintosh platforms. MerkWerks is in the
developmental stage and, to date, has not completed the development of any
products or generated any revenues. No assurances can be given that MerkWerks
will ever be able to successfully market its products or that a market for such
products will develop.
The success of MerkWerks' software depends on its acceptance by original
equipment manufacturers (OEMs) that produce CD-recordable disk drives.
MerkWerks' strategy is to convince these OEMs of the utility of MerkWerks'
software so that the OEMs will install such software in the CD-recordable disk
drives prior to their sale to the end-user, which will generate license fees for
MerkWerks and generate market acceptance of MerkWerks' platform. No assurances
can be given that MerkWerks' software will gain the acceptance of OEMs or ever
be incorporated into CD-recordable disk drives.
MerkWerks' initial software release is expected to be designed for use with
the Macintosh platform. In addition, MerkWerks anticipates adapting its software
to the Windows platform. However, it is uncertain whether MerkWerks will be
successful in adapting its software to the Windows platform, and, if successful,
whether a viable market will develop for this product.
UNCERTAIN REVENUES OF AFFILIATES
CombiMatrix, MerkWerks, Greenwich Information Technologies, Internet
Software and Soundview Technologies have generated no revenues to date and have
had substantial losses. Although each of these companies is developing products
for marketing and commercial sale, either through direct sales or licensing, no
assurances can be given that any of these companies will ever generate
meaningful revenues or will ever be profitable.
AFFILIATES' NEED FOR ADDITIONAL CAPITAL; SUBSEQUENT FINANCINGS
To date, the Affiliates have primarily relied upon the sale of equity
securities, including sales to the Company and certain loans from the Company,
to generate the funds needed to finance the implementation of their plans of
operations. The Affiliates may be required to obtain additional financing
through bank borrowings, debt or equity financings or otherwise, or curtail such
activities. No assurance can be given that the Affiliates will continue to be
able to obtain financing or will obtain financing on favorable terms.
LACK OF MANAGEMENT; NEED FOR MARKETING AND SALES PERSONNEL
CombiMatrix, MerkWerks, Greenwich Information Technologies, Internet
Software and Soundview Technologies have generated no revenues to date. There
can be no assurance these companies will be able to meet their anticipated
working capital needs for developing their products. Failure to properly develop
these products will prevent these companies from generating meaningful product
sales. Further success in developing commercially viable products will create
the need for these companies to expand their management personnel. Some of these
companies will require the Company's assistance in identifying and
8
<PAGE>
implementing experienced management teams and no assurances can be given that
these companies will be successful in assembling qualified and effective
management teams.
Additionally, unlike Greenwich Information Technologies and Soundview
Technologies, which intend to license their respective technologies to third
parties for commercial exploitation, CombiMatrix and MerkWerks currently intend
to develop, manufacture, market and sell their respective products directly to
customers. Because CombiMatrix and MerkWerks have not completed the research and
development of their products, they have not hired marketing and sales personnel
or finalized strategic marketing plans. There can be no assurance that
CombiMatrix and MerkWerks will be able to attract and retain qualified marketing
and sales personnel or that any marketing efforts undertaken by the companies
will be successful.
DEPENDENCE ON KEY PERSONNEL; NEED TO RETAIN PERSONNEL
The Company's success will depend on its ability to attract, retain and
motivate the qualified personnel that will be essential to the Company's current
plans and future development. The competition for such personnel is intense and
there can be no assurance that the Company will be successful in retaining its
existing key employees or in attracting and retaining the required additional
personnel. In particular, the success of the Company and each Affiliate will
also be greatly determined by the retention, motivation and success of the
individuals discussed in the following paragraphs regarding the Company and its
Affiliates.
THE COMPANY. The Company's success will depend to a significant extent upon
the continued services of Paul R. Ryan, the Company's President and Chief
Executive Officer, who also serves as a co-general partner of the two domestic
private investment partnerships and as portfolio manager for the two offshore
investment funds. The Company does not maintain key person life insurance
coverage with respect to Mr. Ryan.
COMBIMATRIX. CombiMatrix's success will depend to a significant extent upon
the continued services of its Vice President-Research and Development. The
Company maintains key person life insurance coverage with respect to this
individual in the amount of $1,000,000.
GREENWICH INFORMATION TECHNOLOGIES. Greenwich Information Technologies'
success will depend to a significant extent upon the continued services of H.
Lee Browne, Greenwich Information Technologies' President and Chief Executive
Officer. Neither Greenwich Information Technologies nor the Company maintains
key person life insurance coverage with respect to Mr. Browne.
INTERNET SOFTWARE. Internet Software is currently managed by H. Lee Browne
and Michael Lloyd. Internet Software's success will depend to a large extent on
their continued services.
SOUNDVIEW TECHNOLOGIES. Soundview Technologies' success will depend to a
significant extent upon the continued services of H. Lee Browne, Soundview
Technologies' President and Chief Executive Officer, and David H. Schmidt,
Soundview Technologies' Vice President and Director of Technology. Neither
Soundview Technologies nor the Company maintains key person life insurance
coverage with respect to Messrs. Browne or Schmidt.
MERKWERKS. MerkWerks' success will depend to a significant extent upon the
continued service of James Merkle, Jr., MerkWerks' President. The Company
currently maintains key person life insurance coverage with respect to Mr.
Merkle in the amount of $1,000,000.
COMPETITION FACING THE COMPANY'S MONEY MANAGEMENT BUSINESS
Competition in the investment markets and among providers of investment
management services is intense. Some of these competing providers have greater
financial, marketing and other resources, as well
9
<PAGE>
as greater research capabilities than the Company. The Company believes that its
products and services are differentiated from those of its competitors and
well-suited for the investment marketplace. However, there can be no assurance
that the Company will prove successful in its efforts to attract the desired
amount of funds for investment in the funds managed by the Company.
COMPETITION FACING THE AFFILIATES
WHITEWING. The markets for Whitewing's products are intensely competitive.
The nutritional supplements market is characterized by frequent product
introductions, short product life cycles, rapid price declines and eroding
profit margins and evolving customer preferences. In each of its product lines,
Whitewing competes and is expected in the future to compete with a large number
of companies with significantly greater financial and other resources. Many of
Whitewing's current and potential competitors have significantly greater name
recognition, research capabilities and financial and technical resources than
Whitewing, and many have longstanding positions and established brand names in
their markets.
COMBIMATRIX. The pharmaceutical and biotechnology industries are subject to
intense competition and rapid and significant technological change. Many
organizations are actively attempting to identify and optimize compounds and
build libraries for potential pharmaceutical development. CombiMatrix will
compete directly with the research departments of pharmaceutical companies,
biotechnology companies, other combinatorial chemistry companies, and research
and academic institutions. Many of these competitors have greater financial and
other resources, and more experience in research and development, than
CombiMatrix. Historically, pharmaceutical companies have maintained close
control over their research activities, including the synthesis, screening, and
optimization of chemical compounds. Many of these companies, which represent the
greatest potential market for CombiMatrix's services and compounds, are
developing combinatorial chemistry and other methodologies to improve
productivity. In addition, these companies may already have large collections of
compounds previously synthesized or ordered from chemical supply catalogs or
other sources against which they may screen new targets. Other sources of
compounds include compounds extracted from natural products, such as plants and
microorganisms, and compounds created using rational drug design. Academic
institutions, governmental agencies and other research organizations are also
conducting research in areas in which CombiMatrix is working, either on their
own or through collaborative efforts.
CombiMatrix anticipates that it will face increased competition in the
future as new companies enter the market and advanced technologies become
available. CombiMatrix's processes may be rendered obsolete or uneconomical by
technological advances or entirely different approaches developed by one or more
of CombiMatrix's competitors. The existing approaches of CombiMatrix's
competitors or new approaches or technology developed by CombiMatrix's
competitors may be more effective than those developed by CombiMatrix.
GREENWICH INFORMATION TECHNOLOGIES. Although Greenwich Information
Technologies believes that it has marketing and licensing rights to enforceable
patents and other intellectual property relating to video and audio on demand,
no assurances can be given that other companies will not develop competing
technologies that offer better or less expensive alternatives to those offered
by Greenwich Information Technologies. In the event a competing technology
emerges, Greenwich Information Technologies would expect substantial
competition. Potential competitors could have significantly greater research
capabilities and financial and technical resources than Greenwich Information
Technologies, and some could have established brand names in the market for such
products.
INTERNET SOFTWARE. The software industry is highly competitive. Internet
Software seeks to prevent competition through proprietary technology. Internet
Software has five pending patent applications. However, no patents have yet
issued and there can be no assurance that patents will be issued, that their
validity will be upheld if challenged or that they will have sufficiently broad
scope to effectively limit competition for its software product.
10
<PAGE>
SOUNDVIEW TECHNOLOGIES. Soundview Technologies believes that its V-chip
technology is protected by enforceable patent rights. However, no assurances can
be given that other companies will not develop competing technologies that offer
better or less expensive alternatives to those offered by Soundview
Technologies. Many potential competitors could have significantly greater
research capabilities and financial and technical resources than Soundview
Technologies, and some could have established brand names in the market for such
products.
MERKWERKS. There are currently at least 25 CD-recordable disk drive software
packages on the market. MerkWerks' first product is not yet complete or ready
for sale. Thus, the acceptance of MerkWerks' software in the market is unproven
and speculative. The markets for software products are intensely competitive and
are characterized by rapid changes in technological standards. MerkWerks faces
competition from large companies with substantial technical, marketing and
financial resources, allowing them to aggressively develop, enhance and market
competing products. These advantages may allow competitors to dominate
distribution channels and to respond more quickly than MerkWerks to emerging
technologies or to changing customer requirements. Numerous actions by these
competitors, including price reductions and product giveaways, increased
promotion, the introduction of enhanced products and product bundling could have
a material adverse effect on MerkWerks' ability to develop and market its
software products and on MerkWerks' business, financial condition and operating
results.
PROPRIETARY TECHNOLOGY
The success of the business of CombiMatrix, Greenwich Information
Technologies, Internet Software, Soundview Technologies, and MerkWerks relies,
to varying degrees, on proprietary technology and the protection and exclusivity
thereof. CombiMatrix, Greenwich Information Technologies, Internet Software and
Soundview Technologies will depend largely on the protection of enforceable
patent rights. CombiMatrix and Internet Software currently have applications on
file with the U.S. Patent and Trademark Office seeking patents on their core
technology, while Greenwich Information Technologies and Soundview Technologies
have patent or rights to patents that have been issued as well as have
additional patents pending. MerkWerks intends to rely on a combination of
statutory and common law, copyright, trademark and trade secret law, and
licensing agreements to protect its software product. No assurances can be given
that pending patent applications will issue, third parties will not violate, or
attempt to invalidate the Affiliates' intellectual property rights, or certain
aspects of the Affiliates' intellectual property will not be reversed-engineered
by third parties without violating the Affiliates' proprietary rights.
In addition to the protection that may be afforded by patents and the
various laws protecting proprietary rights, the Affiliates enter into
confidentiality agreements with certain third parties and to generally limits
access to information relating to their intellectual property. Despite these
precautions, third parties may be able to gain access to and use their
intellectual property to develop similar competing technologies and/or products.
Any substantial unauthorized use of the Affiliates' patent and other proprietary
rights, could materially and adversely affect the business and operational
results of the Affiliates.
NEW PRODUCTS AND TECHNOLOGICAL CHANGES AFFECTING THE AFFILIATES
The markets for each Affiliate's products are also marked by extensive
competition, rapidly changing technology, frequent product improvements, and
evolving industry standards. The success of each Affiliate will depend on its
ability to develop and market new products or enhance existing ones to meet the
evolving needs of the market for such products. There can be no assurance that
the Affiliates' existing or future products will be successful or profitable. In
addition, there can be no assurance that products or technologies developed by
others will not render the Affiliates' products noncompetitive or obsolete.
11
<PAGE>
LIMITED OPERATING HISTORY
The Company commenced operations in 1993 and, accordingly, has a limited
operating history. The Company's prospects must be considered in light of the
risks, expenses, and difficulties frequently encountered by companies with such
limited operating histories. Since the Company has a limited operating history,
there can be no assurance that its operations will be profitable or that it will
generate sufficient revenues to meet its expenditures and support its
activities.
To date, the Company has relied upon the sale of equity securities to
generate the funds needed to finance the implementation of its plan of
operations. The Company has in the past also relied on gains from the sale of
investment securities, including those of Whitewing, CombiMatrix, Soundview
Technologies, and MerkWerks, as well as equity interests in Greenwich
Information Technologies as additional sources of revenue.
COMPANY'S NEED FOR ADDITIONAL CAPITAL; SUBSEQUENT FINANCINGS
As of March 31, 1998, the Company had working capital of $6,085,894 and
stockholders' equity of $14,543,891 based on the Company's consolidated
financial statements. There can be no assurance that the Company will not
encounter unforeseen difficulties that may deplete its capital resources more
rapidly than anticipated. Any efforts to seek additional funds could be made
through equity, debt, or other external financing, however, there can be no
assurance that additional funding will be available on favorable terms, if at
all.
MINORITY POSITIONS IN CERTAIN AFFILIATES
WHITEWING. The Company currently owns 532,459 shares of the common stock of
Whitewing, representing 18.6% of the outstanding shares and has voting control
over 789,709 shares of common stock of Whitewing, representing 27.6% of the
outstanding shares. R. Bruce Stewart, the Company's Chief Financial Officer, is
Chairman of the Board of Directors of Whitewing and Paul Ryan, the Company's
President and Chief Executive Officer, is also a member of the Board of
Directors of Whitewing, representing half of Whitewing's Board of Directors.
This minority position and board representation results in the Company having
influence at Whitewing, but not the ability to control the decision-making at
Whitewing.
GREENWICH INFORMATION TECHNOLOGIES. The Company currently maintains a
membership interest of 33.3% in Greenwich Information Technologies. Although a
senior member of Greenwich Information Technologies, the Company does not hold a
majority of the board of three senior members. Similarly, the Company has no
control over the day to day operations of Greenwich Information Technologies,
which are directed by the chief executive officer, H. Lee Browne, an individual
who is a significant shareholder, but not an officer or director of the Company.
INTERNET SOFTWARE. The Company has a membership interest of 25% in Internet
Software. Although the Company is a senior member of Internet Software, the
Company does not hold a majority of the board of three senior members.
Similarly, the Company has no control over the day to day operations of Internet
Software, which are currently directed by its chief executive officer, H. Lee
Browne, an individual who is a significant shareholder, but not an officer or
director, of the Company.
MANAGEMENT AND PERFORMANCE FEES
The level of performance and management fee revenue received by the Company
will depend upon the performance of each fund the Company manages and the amount
of money invested in the funds managed by the Company, which in turn will depend
to a large extent upon the performance of the funds
12
<PAGE>
managed by the Company. There can be no assurance that the Company will prove
successful in raising any additional capital for the investment funds managed by
the Company.
INVESTMENT IN THE PARTNERSHIP
As of March 31, 1998, the Company had $643,154 invested in the two domestic
private partnership funds it manages, and may invest additional amounts to
acquire or increase its interests in these or other funds. To the extent that
the Company's funds are so committed, they will be subject to all of the risks
to be encountered by all investors in such funds as a result of the investment
strategy adopted for the funds by the Company as a general partner, including
the risks associated with short sales, hedging, option trading, trading on
margin and other leverage transactions. The investment strategy adopted by the
domestic funds managed by the Company, and any other funds it subsequently
invests, could result in substantial losses, and these losses could have a
material adverse impact on the operational results of the Company. Conversely,
if any partnership funds in which Company funds are invested prove to be
profitable, the partners thereof, including the Company, will be credited with
partnership net income. The Company will thereby incur income tax liability,
even if it receives little or no cash distributions from such funds. Since the
stated intention of the funds managed by the Company is to reinvest
substantially all income and gain allocable to the partners thereof, the Company
does not anticipate receiving distributions of cash from the funds to the
partners, including the Company, that could be used to pay any income tax on
partnership profits.
It is the present intention of the Company to limit its investment in
certain designated assets, including investments in domestic partnership funds,
to an amount not exceeding forty-five percent in the aggregate, of the Company's
total assets, to avoid characterization of the Company as an investment company
that would be subject to regulation under the Investment Company Act of 1940.
RECENT DEVELOPMENTS
In May 1997, MerkWerks announced the completion of an alpha version of its
initial software product, CD-WonderWriter-TM-. MerkWerks has not yet completed
the beta version of such product.
In January 1998, the Company completed a series of independent, but related
transactions with certain Selling Securityholders, which resulted in the
acquisition of additional equity ownership in four of the Affiliates by the
Company in exchange for issuances of shares of Common Stock of the Company. A
total of 44 transactions were completed. The aggregate number of shares (or
percentage of membership interests in the case of Greenwich Information
Technologies) acquired and the number of shares of Common Stock issued by the
Company are set forth below:
<TABLE>
<CAPTION>
NO. OF
AFFILIATE NO. OF COMPANY
SHARES ACQUIRED SHARES ISSUED
--------------- ---------------
<S> <C> <C>
CombiMatrix................................................. 100,000 22,085
Greenwich Information Technologies.......................... 3.31% 51,017
MerkWerks................................................... 401,359 85,975
Soundview Technologies...................................... 1,144,000 244,336
</TABLE>
On March 12, 1998, the Federal Communications Commission approved final
rules regarding television guidelines rating systems and V-chip technical
standards and Soundview Technologies launched its licensing program for its
patented V-chip technology. On April 7, 1998, the U.S. Patent and Trademark
Office issued a reexamination certificate confirming the approval of all
existing and newly-added claims of the patent held by Soundview Technologies
regarding the V-chip technology.
On March 17, 1998, the Company's board of directors declared a two-for-one
split of the Company's Common Stock in the form of a stock dividend subject to
the approval by shareholders of an amendment
13
<PAGE>
to the Company's Articles of Incorporation to increase the number of authorized
shares of Common Stock at the annual meeting to be held on May 19, 1998. If
approved, the Company will distribute the stock dividend on or about June 12,
1998 for each share held of held of record at the close of business on May 29,
1998.
On March 19, 1998, CombiMatrix completed a private placement of units of 6%
unsecured subordinated promissory notes and common stock purchase warrants
raising approximately $1.45 million. CombiMatrix will use the net proceeds of
the private placement as working capital for general corporate purposes and
research and development of its technologies.
On March 29, 1998, the Company sold 317,393 units to six accredited
investors in the March Private Placement at a purchase price of $11.50 per unit.
Each unit consisting of one Common Stock purchase warrant and one share of the
Company's Common Stock. Each common stock purchase warrant entitles its holder
to purchase one share of the Company's Common Stock at an exercise price of
$15.00 per share, subject to adjustment, and expires March 29, 2001. The
Company's sale of these units was exempt from registration requirements as a
private placement under Section 4(2) of the Securities Act Regulation D
promulgated thereunder. The March Private Placement generated net proceeds of
$3.50 million of which $2.5 million was used to finance the Company's investment
in Internet Software. Finders involved in this transaction received finders fees
for 100,000 units at a rate of $1.15 per unit placed.
On April 2, 1998, the Company purchased a 25.0% membership interest in
Internet Software for $2,500,000. This investment was made with proceeds of the
March Private Placement. Internet Software has been developing proprietary
software products for use on the Internet. Its first product, scheduled for
release in July 1998, will be targeted for broad-base use by individuals and
corporations. Internet Software has five patents pending before the U.S. Patent
and Trademark Office. There can be no assurance that Internet Software will be
able to maintain its product release schedule or its patent applications will be
granted.
In April 1998, the Company sold 400,000 units to twenty-seven accredited
investors at a purchase price of $14.00 per unit (the "April Private
Placement"). Each unit consisted of one common stock purchase warrant and one
share of the Company's Common Stock. Each common stock purchase warrant entitles
its holder to purchase one share of the Company's Common Stock at an exercise
price of $18.50 per share, subject to adjustment, and expires on April 27, 2001.
The Company's sale of these units was exempt from registration, as a private
placement, under Section 4(2) of the Securities Act and Regulation D promulgated
thereunder. The April Private Placement generated net proceeds of approximately
$5.4 million to be used as working capital for general corporate purposes.
Finders involved in this transaction received finders fees at a rate of $1.40
per unit placed.
The Company has the right to redeem all of the warrants issued in the March
Private Placement and the April Private Placement on 30 days prior written
notice at a redemption price of $0.01 per warrant if the closing bid price of
the Company's Common Stock exceeds certain set targets. If the Company elects to
exercise its redemption right, the holder of the 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. The warrant may not be exercised after the end
of any such 30-day period.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the shares of
Common Stock offered by the Selling Securityholders pursuant to this Prospectus.
The Company will receive proceeds upon the exercise of warrants to purchase
shares of Common Stock held by certain of the Selling Securityholders. See
"Selling Securityholders." Such funds, when received by the Company, will be
used for general corporate purposes.
14
<PAGE>
SELLING SECURITYHOLDERS
The shares of Common Stock offered pursuant to this Prospectus have been or
will be issued to the Selling Securityholders (or their assignees) directly by
the Company. An aggregate of 317,393 of the shares of Common Stock offered
pursuant to this Prospectus were issued by the Company to certain of the Selling
Securityholders in the March Private Placement. An additional 317,393 of the
shares of Common Stock offered pursuant to this Prospectus (subject to
adjustment under certain circumstances) represent shares issuable to certain of
the Selling Securityholders upon exercise of the warrants issued in the March
Private Placement (the "March Warrants"). The March Warrants may be redeemed by
the Company under certain circumstances. See "Recent Developments." The Company
will not receive any of the proceeds from sales of the shares of Common Stock
offered pursuant to this Prospectus, although the Company will receive the
exercise prices to be paid by the Selling Securityholders upon exercise of the
March Warrants held by such Selling Securityholders and referenced in the
footnotes to the table below. Such funds, when received by the Company, will be
used for general corporate purposes.
The following table sets forth certain information with respect to the
beneficial ownership of shares of the Company's Common Stock by the Selling
Securityholders as of May 1, 1998 and the number of shares which may be offered
pursuant to this Prospectus for the account of each of the Selling
Securityholders or their transferees from time to time. Except as described in
the footnotes to the table, to the best of the Company's knowledge, none of the
Selling Securityholders has had any position, office or other material
relationship with the Company or any of its affiliates.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES
BENEFICIALLY MAXIMUM NUMBER BENEFICIALLY PERCENT OF CLASS
OWNED OF SHARES WHICH OWNED BENEFICIALLY OWNED
PRIOR TO MAY BE SOLD IN AFTER THE AFTER THE
SELLING SECURITYHOLDERS OFFERING(1) THIS OFFERING(1) OFFERING(2) OFFERING(2)
- ------------------------------------- ----------------- ---------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Thomas B. Akin (3)................... 130,436 130,436 0 0
Alternative Investment............... 48,600 48,600 0 0
Corsair Capital Partners............. 71,514 71,514 0 0
Ritchie Capital...................... 53,800 53,800 0 0
Ueli Schurch......................... 200,000 200,000 0 0
Talkot Crossover Fund L.P............ 130,436 130,436 0 0
</TABLE>
- ------------------------
(1) Assumes exercise of all March Warrants beneficially owned by the Selling
Securityholder at the exercise price and for the maximum number of shares
permitted as of the date of this Prospectus. Share figures include shares of
Common Stock issued in the March Private Placement and underlying the March
Warrants as follows:
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK ISSUED IN
MARCH SHARES UNDERLYING
SELLING SECURITYHOLDERS PRIVATE PLACEMENT WARRANTS
- ---------------------------------------------------- -------------------- -----------------
<S> <C> <C>
Thomas B. Akin (3).................................. 65,218 65,218
Alternative Investment.............................. 24,300 24,300
Corsair Capital Partners............................ 35,757 35,757
Ritchie Capital..................................... 26,900 26,900
Ueli Schurch........................................ 100,000 100,000
Talkot Crossover Fund L.P........................... 65,218 65,218
</TABLE>
(2) Assumes that each Selling Securityholder will sell all of the shares of
Common Stock offered pursuant to this Prospectus, but not any other shares
of Common Stock beneficially owned by such Securityholder.
(3) Mr. Akin has been nominated for election as a director of the Company to be
held at the annual meeting of shareholders on May 19, 1998. Mr. Akin is
also a general partner of Talkot Crossover Fund L.P. and holds investment
power over the fund's shares.
15
<PAGE>
PLAN OF DISTRIBUTION
The shares of Common Stock offered hereby may be sold by the Selling
Securityholders or by their respective pledgees, donees, transferees or other
successors in interest. Such sales may be made at fixed prices that may be
changed, at market prices prevailing at the time of sale, at prices related to
such prevailing market prices, or at negotiated prices. The shares may be sold
by one or more of the following: (a) one or more block trades in which a broker
or dealer so engaged will attempt to sell all or a portion of the shares held by
the Selling Securityholders as agent but may position and resell a portion of
the block as principal to facilitate the transaction; (b) 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 pursuant to this Prospectus; (c)
ordinary brokerage transactions and transactions in which the broker solicits
purchasers; and (d) privately negotiated transactions between the Selling
Securityholders and purchasers without a broker-dealer. The Selling
Securityholders may effect such transactions by selling shares to or through
broker-dealers, and such broker-dealers will receive compensation in negotiated
amounts in the form of discounts, concessions, commissions or fees from the
Selling Securityholders and/or the purchasers of the shares for whom such
broker-dealers may act as agent or to whom they sell as principal, or both
(which compensation to a particular broker-dealer might be in excess of
customary commissions). Such brokers or dealers or other participating brokers
or dealers and the Selling Securityholders may be deemed to be "underwriters"
within the meaning of the Securities Act, in connection with such sales. Except
for customary selling commissions in ordinary brokerage transactions, any such
underwriter or agent will be identified, and any compensation paid to such
persons will be described, in a Prospectus Supplement. In addition, any
securities covered by this Prospectus that qualify for sale pursuant to Rule 144
might be sold under Rule 144 rather than pursuant to this Prospectus.
LEGAL MATTERS
The validity of the shares of Common Stock intended to be sold pursuant to
this Prospectus will be passed upon for the Company by O'Melveny & Myers LLP.
EXPERTS
The consolidation financial statements of the Company incorporated in this
Prospectus by reference to the Annual Report on Form 10-K for the year ended
December 31, 1997 have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
The consolidated financial statements incorporated in this Prospectus by
reference for the year ended December 31, 1996 have been so included in reliance
on the report of Finocchiaro & Co., independent accountants, given on the
authority of said firm as experts in auditing and accounting. Fred F.
Finocchiaro, a principal of Finocchiaro & Co., beneficially owns 69,150 shares
of the Company's Common Stock and warrants to purchase an additional 27,150
shares of Common Stocks. Of the warrants exercisable, 2,000 were issued as
"finders warrants." The shares and warrants beneficially owned by Mr.
Finocchiaro were issued in connection with private placements by the Company in
June 1997 and November 1997.
16
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
SECURITYHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
Prospectus Summary........................................................ 3
Forward-Looking Statements................................................ 5
Risk Factors.............................................................. 5
Recent Developments....................................................... 13
Use of Proceeds........................................................... 14
Selling Securityholders................................................... 15
Plan of Distribution...................................................... 16
Legal Matters............................................................. 16
Experts................................................................... 16
</TABLE>
ACACIA RESEARCH
CORPORATION
634,786 SHARES OF
COMMON STOCK
---------------------
PROSPECTUS
---------------------
MAY , 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the registration and sale of the Selling
Securityholder Securities are as follows:
<TABLE>
<S> <C>
SEC registration fee............................................ $3,183.45
Printing and engraving.......................................... 2,000
Accounting fees and expenses.................................... 1,000
Legal fees and expenses......................................... 10,000
Miscellaneous expenses.......................................... 5,000
---------
Total....................................................... $21,183.45
---------
---------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Bylaws of the Company, as amended to date, requires the Company to
indemnify its officers and directors to the fullest extent permitted by Section
317 of the California Corporations Code and applicable law. Section 317 provides
for the indemnification of officers, directors and other corporate agents in
terms sufficiently broad to indemnify such persons, under certain circumstances,
for liabilities (including reimbursement of expenses incurred) arising under the
Securities Act.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------
<C> <S>
4.1 Form of Common Stock Warrant Agreement issued as part of the March Private Placement(1)
4.2 Form of Specimen Certificate of Company's Common Stock(2)
5.1 Opinion of Counsel regarding legality of securities being registered
23.1 Consent of Independent Auditors (Finocchiaro & Co.)
23.2 Consent of Independent Accountants (Price Waterhouse LLP)
23.3 Consent of Counsel (included in Exhibit 5.1)
24.1 Powers of Attorney (included on page II-4)
</TABLE>
- ------------------------
(1) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the period ended March 31, 1998 filed on May 15, 1998 (File No.
0-26068).
(2) Incorporated by reference from the Company's Registration Statement on Form
SB-2 (File No. SB2-33-87368-L.A.)
II-1
<PAGE>
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:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act.
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
PROVIDED, HOWEVER, that paragraphs (1)(i) and (1)(ii) above do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the 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.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to Section 13(a) or
15(d) of the Exchange Act (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that
is incorporated by reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(5) That, for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(6) That, for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(7) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 6
II-2
<PAGE>
above, or otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all the requirements for
filing on Form S-3 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Pasadena, State of California, on May 15, 1998.
<TABLE>
<S> <C> <C>
ACACIA RESEARCH CORPORATION
By /s/ PAUL R. RYAN
-----------------------------------------
Paul R. Ryan
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Paul R. Ryan and Kathryn King-Van Wie, his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement (or any other registration statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act), and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or either of them or their or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ PAUL R. RYAN Officer and Director
- ------------------------------ (Principal Executive May 15, 1998
Paul R. Ryan Officer)
Chief Financial Officer
/s/ R. BRUCE STEWART and Chairman of the
- ------------------------------ Board (Principal May 15, 1998
R. Bruce Stewart Financial and Accounting
Officer)
/s/ BROOKE P. ANDERSON
- ------------------------------ Director May 15, 1998
Brooke P. Anderson
/s/ FRED A. DE BOOM
- ------------------------------ Director May 15, 1998
Fred A. de Boom
/s/ EDWARD W. FRYKMAN
- ------------------------------ Director May 15, 1998
Edward W. Frykman
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------
<C> <S>
4.1 Form of Common Stock Warrant Agreement issued as part of the March Private Placement(1)
4.2 Form of Specimen Certificate of Company's Common Stock(2)
5.1 Opinion of Counsel regarding legality of securities being registered
23.1 Consent of Independent Auditors (Finocchiaro & Co.)
23.2 Consent of Independent Accountants (Price Waterhouse LLP)
23.3 Consent of Counsel (included in Exhibit 5.1)
24.1 Powers of Attorney (included on page II-4)
</TABLE>
- ------------------------
(1) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the period ended March 31, 1998 filed on May 15, 1998 (File No.
0-26068).
(2) Incorporated by reference from the Company's Registration Statement on Form
SB-2 (File No. SB2-33-87368-L.A.)
<PAGE>
EXHIBIT 5.1
May
15th
1 9 9 8
003, 863-999
(213) 669-6000
Acacia Research Corporation
12 South Raymond Avenue
Pasadena, California 91105
Re: Registration Statement on Form S-3
----------------------------------
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on
Form S-3 (the "Registration Statement") to be filed by you with the
Securities and Exchange Commission on May 18, 1998 in connection with the
registration under the Securities Act of 1933, as amended, of 634,786 shares
of your Common Stock, no par value (the "Shares").
We are familiar with the proceedings heretofore taken, and with the
additional proceedings proposed to be taken, by you in connection with the
authorization and proposed issuance and sale of the Shares.
It is our opinion that, subject to said proceedings being duly
taken and completed by you prior to the issuance and sale of the Shares, upon
the issuance and sale thereof in the manner referred to in the Registration
Statement, the Shares will be legally and validly issued, fully paid and
nonassessable.
We consent to the use of this opinion as an exhibit to the
Registration Statement.
Respectfully submitted,
/s/ O'Melveny & Myers LLP
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Acacia Research Corporation on Form S-3 of our report dated July 31, 1997
incorporated by reference into the Annual Report on From 10-K of Acacia Research
Corporation for the fiscal year ended December 31, 1997 and to the reference to
us under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
/s/ FINOCCHIARO & CO.
- ---------------------------------------------
Finocchiaro & Co.
Pasadena, California
May , 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-3 of our report dated
March 25, 1998, which appears in the Annual Report on Form 10-K of Acacia
Research Corporation for the year ended December 31, 1997. We also consent to
the reference to us under the heading "Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
- ---------------------------------------------
Price Waterhouse LLP
Los Angeles, California
May 12, 1998
