May 3, 2002
Board of Directors
Acacia Research Corporation
500 Newport Center Drive
7th Floor
Newport Beach, CA 92660
To the Members of the Board of Directors of Acacia Research Corporation,
You have requested an opinion by PricewaterhouseCoopers LLP ("PwC") as to
certain federal income tax consequences of the proposed recapitalization of
Acacia Research Corporation, a Delaware Corporation ("Acacia"), whereby Acacia
will issue shares of newly created classes of stock of Acacia, AR-CombiMatrix
stock and AR-Acacia Technologies stock, in exchange for all of the outstanding
Acacia common stock (the "Recapitalization"), as well as the proposed
simultaneous merger of CombiMatrix Corporation, a Delaware corporation
("CombiMatrix"), with and into Combi Acquisition Corp., a Delaware corporation
("Combi Acquisition Corp."), a newly formed wholly owned subsidiary of Acacia,
solely in exchange for shares of AR-CombiMatrix stock (the "Merger"), issued by
Acacia.
Upon the consummation of the Recapitalization, each outstanding option to
purchase Acacia common stock (whether or not vested) shall be converted into an
option to purchase shares of AR-CombiMatrix stock and AR-Acacia Technologies
stock, and upon the consummation of the Merger, each outstanding option to
purchase CombiMatrix common stock (whether or not vested) shall be transferred
to and assumed by Acacia in such manner that it is converted into an option to
purchase shares of AR-CombiMatrix stock (collectively, the "Option Plan
Substitution"). This document sets forth the opinion on the Recapitalization,
the Merger and the Option Plan Substitution, based upon information provided to
PwC by Acacia and CombiMatrix.
Accompanying the Opinion is a Transmission of Background, Assumptions and
Representations letter (referred to herein as the "transmittal letter") setting
forth the background information, assumptions and representations that PwC has
relied upon in reaching the opinions set forth herein. PwC has not independently
verified the accuracy or completeness of the information set forth in that
letter. If any of the information set forth in that letter is inaccurate or
incomplete, the opinions set forth in this opinion may be partially or wholly
inaccurate as a result.
In our opinion, the principal federal income tax consequences of the
Recapitalization of Acacia will be as follows:
1. The AR-CombiMatrix stock and the AR-Acacia Technologies stock will be
treated as stock of Acacia.
2. The exchange by the Acacia stockholders of their Acacia common stock
for AR-CombiMatrix stock and AR-Acacia Technologies stock will
constitute a recapitalization within the meaning of section
368(a)(1)(E) of the Internal Revenue Code of 1986 (the "Code"). Acacia
will be "a party to a reorganization" within the meaning of section
368(b) of the Code.
3. No gain or loss will be recognized by the Acacia stockholders on the
exchange of their Acacia common stock solely for AR-CombiMatrix stock
and AR-Acacia Technologies stock.
4. The payment of cash in lieu of fractional share interests of
AR-CombiMatrix stock will be treated as if the fractional shares were
distributed as part of the exchange to the exchange agent and then were
purchased by the exchange agent. These cash payments will be treated as
full payment for the stock as provided in Section 1001(a) of the Code.
5. The basis of the AR-CombiMatrix stock in the hands of each Acacia
stockholder will equal a portion of their basis in the Acacia common
stock surrendered in the exchange based on the relative fair market of
the AR-CombiMatrix stock as compared to the total consideration
received by the Acacia stockholders pursuant to the Recapitalization.
The holding period of the AR-CombiMatrix stock to be received by each
Acacia stockholder will include the holding period of the Acacia common
stock surrendered in exchange therefor, provided that the Acacia common
stock was held as a capital asset as of the date of the exchange.
6. The basis of the AR-Acacia Technologies stock in the hands of each
Acacia stockholder will equal a portion of their basis in the Acacia
common stock surrendered in the exchange based on the relative fair
market of the AR-Acacia Technologies stock as compared to the total
consideration received by the Acacia stockholders pursuant to the
Recapitalization. The holding period of the AR-Acacia Technologies
stock to be received by each Acacia stockholder will include the
holding period of the Acacia common stock surrendered in exchange
therefor, provided that the Acacia common stock was held as a capital
asset as of the date of the exchange.
7. No gain or loss will be recognized by Acacia on its issuance of
AR-CombiMatrix stock and AR-Acacia Technologies stock in exchange for
the Acacia voting common stock.
In our opinion, the principal federal income tax consequences of the Merger will
be as follows:
1. The AR-CombiMatrix stock will be treated as stock of Acacia.
2. Provided the Merger qualifies as a merger under applicable state law,
the acquisition by Combi Acquisition Corp. of substantially all of the
assets of CombiMatrix in exchange for AR-CombiMatrix stock and the
assumption by Combi Acquisition Corp. of the liabilities of CombiMatrix
plus the liabilities to which the CombiMatrix assets may be subject,
will qualify as a reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(D) of the Code. For purposes of this
paragraph, "substantially all" means at least 90 percent of the fair
market value of the net assets and at least 70 percent of the fair
market value of the gross assets of CombiMatrix. Acacia, Combi
Acquisition Corp., and CombiMatrix will each be "a party to a
reorganization" within the meaning of section 368(b) of the Code.
3. No gain or loss will be recognized to CombiMatrix on the transfer of
substantially all of its assets to Combi Acquisition Corp. in exchange
for AR-CombiMatrix stock, cash to pay dissenters, if any, and the
assumption by Combi Acquisition Corp. of the liabilities of
CombiMatrix, since the cash will be distributed to the dissenting
stockholders of CombiMatrix pursuant to the plan of reorganization.
4. No gain or loss will be recognized by either Acacia or Combi
Acquisition Corp. on the receipt by Combi Acquisition Corp. of
substantially all of CombiMatrix's assets in exchange for AR-Acacia
Technologies stock, cash, if any, and the assumption of the liabilities
of CombiMatrix.
5. Combi Acquisition Corp. will not recognize gain or loss when it
exchanges AR-CombiMatrix stock for substantially all the assets of
CombiMatrix.
6. The CombiMatrix stockholders will not recognize gain or loss when
they exchange their CombiMatrix common stock solely for AR-CombiMatrix
stock (including any fractional share interests to which they may be
entitled).
7. The payment of cash in lieu of fractional share interests of
AR-CombiMatrix stock will be treated as if the fractional shares were
distributed as part of the exchange to the exchange agent and then were
purchased by the exchange agent. These cash payments will be treated as
full payment for the stock as provided in Section 1001(a) of the Code.
8. The CombiMatrix stockholders', other than Acacia, basis in the
AR-CombiMatrix stock (including any fractional share interests to which
they may be entitled) received pursuant to the Merger will be equal to
the basis they had in their CombiMatrix common stock.
9. The holding period of the AR-CombiMatrix stock to be received by the
CombiMatrix stockholders in the exchange (including any fractional
share interests to which they may be entitled) will include the holding
period of the CombiMatrix common stock to be surrendered in exchange
therefor, provided the CombiMatrix common stock is held as a capital
asset in the hands of the CombiMatrix stockholders on the date of
the exchange.
10. Combi Acquisition Corp.'s tax basis in the assets it receives pursuant
to the merger will equal CombiMatrix's basis in those assets. Combi
Acquisition Corp.'s holding period in the assets it receives pursuant
to the Merger will include CombiMatrix's holding period in such assets.
11. Acacia's basis in its Combi Acquisition Corp. stock will be adjusted as
if Acacia acquired CombiMatrix's assets acquired by Combi Acquisition
Corp. in the Merger (and Acacia assumed any liabilities which Combi
Acquisition Corp. assumed or to which the CombiMatrix assets acquired
were subject) directly from CombiMatrix in a transaction in which
Acacia's basis in the assets of CombiMatrix was determined under
Section 362(b) of the Code; and Acacia transferred the CombiMatrix
assets (and liabilities which Combi Acquisition Corp. assumed or to
which the CombiMatrix assets acquired by Combi Acquisition Corp. were
subject) to Combi Acquisition Corp. in a transaction in which Acacia's
basis in Combi Acquisition Corp. stock was determined under Section 358
of the Code.
In our opinion, the principal federal income tax consequences of the Option Plan
Substitution will be as follows:
1. Subsections 83(a) and 83(b) of the Code will not apply to the options
to acquire AR-CombiMatrix stock and the options to acquire AR-Acacia
Technologies stock until they are exercised, and the optionee will not
recognize taxable income on the exchange of the options.
2. The exchange of Acacia stock options for AR-CombiMatrix stock options
and AR-Acacia Technologies stock options will not give the holders of
such options benefits in addition to those that they had under the
Acacia stock options prior to the exchange.
3. The exchange of CombiMatrix stock options for AR-CombiMatrix stock
options will not give the holders of such options benefits in addition
to those that they had under the CombiMatrix stock options prior to the
exchange.
4. The status of any options to acquire Acacia common stock as incentive
stock options under Section 422 of the Code ("ISOs") will be preserved
in the options to acquire AR-CombiMatrix stock and AR-Acacia
Technologies stock received in exchange for the options to acquire
Acacia common stock.
5. The ISO status of options to acquire CombiMatrix common stock will be
preserved in the options to acquire AR-CombiMatrix stock received in
exchange for the options to acquire CombiMatrix common stock.
The opinions contained in this opinion are subject to the following
qualifications to, and limitations on, their validity and effectiveness:
1. The opinion represents PwC's view of the proper federal income tax
treatment of the issues presented based upon PwC's analysis of the
relevant federal income tax authorities as of the date hereof. The
opinion is not binding on the Internal Revenue Service, state revenue
authorities, or the courts. The Internal Revenue Service has announced
that it will not issue advance rulings on the classification of an
instrument with certain voting and liquidation rights in an issuing
corporation but whose dividend rights are determined by reference to
the earnings of a segregated portion of the issuing corporation's
assets, including assets held by a subsidiary of the issuing
corporation. There are no court decisions or other authorities bearing
directly on the classification of instruments with characteristics
similar to those of the AR-CombiMatrix stock or the AR-Acacia
Technologies stock. Accordingly, our opinion is based upon the Code,
the pertinent Treasury Department regulations and the lack of contrary
authority that cogently relates the law to pertinent facts similar to
the situation described above.
2. The opinion is based upon the Code and its legislative history, the
regulations, judicial decisions and current rulings of the Internal
Revenue Service, all as in effect on the date of the opinion. These
authorities may be amended or revoked at any time. Any changes may or
may not be retroactive with respect to the transactions entered into or
contemplated prior to the date thereof and could cause the opinion to
be or become incorrect, in whole or in part, with respect to the
federal income tax results of the transactions described herein. There
is and can be no assurance that such legislative, judicial or
administrative changes will not occur in the future. We assume no
obligation to update or modify the opinion letter to reflect any
developments that may impact the opinion from and after the date of the
opinion letter.
3. We consent to the inclusion of the opinion in Acacia's S-4 Registration
Statement to be filed with the Securities and Exchange Commission under
the Securities Act of 1933 (the "Securities Act") on or about May 3,
2002, describing the Recapitalization and the Merger (the "Registration
Statement"). We also consent to the references to this opinion and to
PricewaterhouseCoopers LLP in the Registration Statement under the
captions "Material United States Federal Income Tax Consequences of the
Recapitalization" and "Material United States Federal Income Tax
Consequences of the Merger." The issuance of this consent does not
concede that we are an "Expert" for purposes of the Securities Act.
4. The opinion depends upon the accuracy and completeness of the
background and assumptions set forth in the transmittal letter. We have
relied upon the background and assumptions set forth there, and their
sources, without any independent investigation or verification of their
accuracy or completeness. Any inaccuracy or incompleteness in our
understanding of the background and assumptions set forth herein could
adversely affect the conclusions in the opinion letter. By acceptance
of the opinion letter, Acacia as evidenced its permission for PwC to
rely upon the accuracy of the background and assumptions set forth in
the transmittal letter in performing its analysis of the federal income
tax issues in rendering the opinion. In addition, we have assumed,
without any independent verification, that all the agreements necessary
to effect the transactions contemplated by the parties as described in
the transmittal letter will be validly executed by persons who are duly
authorized to enter into such agreements on behalf of the named parties
thereto, that such agreements were valid and binding obligations of the
parties thereto in accordance with their terms, and that the
obligations thereunder were performed in the manner set forth therein.
Finally, we do not undertake, and expressly disclaim, any obligation to
monitor the background or assumptions set forth herein or any changes
thereto from and after the date of the opinion letter.
5. We express our opinions only as to matters expressly addressed herein.
PwC is not expressing its opinion as to any other aspects or
consequences of the transactions contemplated by the Acacia
acquisition, whether discussed herein or not. No opinion should be
inferred as to any other matters, including without limitation, any
other federal income tax issues with respect to such transactions
including any withholding issues or any state, local or foreign tax
treatment of such transactions or any matter incidental thereto
described herein.
Very Truly Yours,
Signed
/s/ PricewaterhouseCoopers LLP |
