[LETTERHEAD OF A.G. EDWARDS & SONS, INC.]
April 17, 2002
Special Committee to the Board of Directors
c/o CombiMatrix Corporation
6500 Harbour Heights Parkway
Mukilteo, WA 98275
Gentlemen:
You have requested our opinion as to the fairness, from a financial
point of view, to the shareholders ("Minority Shareholders") other than Acacia
Research Corporation ("Acacia") of CombiMatrix Corporation ("CombiMatrix" or the
"Company") of the consideration ("Consideration") to be received by the Minority
Shareholders in the proposed Merger ("Merger") by and among CombiMatrix, Acacia
and Combi Acquisition Corp. pursuant to the terms of the Agreement and Plan of
Reorganization (the "Agreement") signed on March 20, 2002. The Consideration to
be received by the Minority Shareholders in the Merger will consist of one share
of Acacia CombiMatrix stock (as defined in the Agreement and the Restated
Certificate of Incorporation of Acacia Research Corporation) for each share of
CombiMatrix common stock owned by the Minority Shareholders.
A.G. Edwards & Sons, Inc. ("A.G. Edwards"), as part of its investment
banking business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate or
other purposes. We are not aware of any present or contemplated relationship
among A.G. Edwards, the Company, the Company's directors and officers or its
shareholders, or among A.G. Edwards, Acacia (including other related entities),
Acacia's directors and officers or shareholders, which in our opinion would
affect our ability to render a fair and independent opinion in this matter.
We are acting as exclusive financial advisor to the Special Committee
of the Board of Directors of the Company in connection with the Merger and will
receive a fee from the Company for our services pursuant to the terms of our
engagement letter with the Company dated as of March 13, 2002.
In connection with this opinion, we have reviewed and considered such
financial and other matters as we have deemed relevant, including, among other
things:
i. the signed Agreement dated March 20, 2002, and discussions with
counsel representing Acacia, CombiMatrix and the Special Committee concerning
the Agreement and other related documents;
ii. the historical and future business and operations of Acacia,
CombiMatrix and Acacia Media Technologies ("Media Technologies");
iii. the historical financial performance of Acacia through a review of
their audited financial results;
iv. the historical and forecasted financial statements for CombiMatrix
as prepared by CombiMatrix's management;
v. an investigation of the future operational and financial performance
and anticipated cash needs of CombiMatrix and Media Technologies, respectively;
vi. an investigation regarding the current operations and future
prospects of CombiMatrix and Media Technologies, primarily through discussions
with the managements of CombiMatrix and Media Technologies, respectively;
vii. the biological array processor market and the primary market
segments CombiMatrix will pursue;
viii. the market data for stocks of public companies in the same or
similar markets as CombiMatrix;
ix. an investigation of the existing patent portfolio of Media
Technologies through discussions with internal and external counsel representing
Media Technologies;
x. an investigation of the role and responsibilities of Acacia
concerning the post-merger management and operations of CombiMatrix and Media
Technologies;
xi. the history and performance of "tracking" stocks and similar
transaction structures;
xii. an investigation of studies related to marketability discounts
applied to minority interests in private companies;
xiii. Acacia's annual report on Form 10-K for its fiscal year ended
December 31, 2001, Acacia's quarterly reports on Form 10-Q for its fiscal
quarters ended March 31, 2001, June 30, 2001 and September 30, 2001, and certain
other publicly available information for the Company and Acacia; and
xiv. other analyses which A.G. Edwards deemed necessary.
In preparing our opinion, A.G. Edwards has assumed and relied upon the
accuracy and completeness of all financial and other information that was
publicly available, or supplied or otherwise made available to us by
CombiMatrix, Acacia and Media Technologies. We have not been engaged to, and
therefore we have not, verified the accuracy or completeness of any of such
information. A.G. Edwards has relied upon the assurances of the managements of
CombiMatrix, Acacia and Media Technologies that they are not aware of any facts
that would make any financial or other information inaccurate or misleading.
A.G. Edwards has been informed and assumed that financial projections supplied
to, discussed with or otherwise made available to us reflect the best currently
available estimates and judgments of the management of CombiMatrix as to the
expected future financial performance of the Company. A.G. Edwards has not
independently verified such information or assumptions nor do we express any
opinion with respect thereto.
As discussed with managements of Acacia and Media Technologies, A.G.
Edwards relied upon their statements that they had neither prepared nor reviewed
any projections or estimates of the potential revenue, income or value that
could be derived from any current or future litigation or licensing efforts
related to the patents held by Media Technologies and its related entities.
A.G. Edwards has not made any independent valuation or appraisal of the
assets or liabilities of CombiMatrix, Acacia or Media Technologies, nor have we
been furnished with any such valuations or appraisals. A.G. Edwards also did not
independently attempt to assess or value any of the intangible assets (including
goodwill) nor did it make any independent assumptions with respect to their
application in the Merger.
A.G. Edwards' opinion is necessarily based on economic, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof. The analyses performed by A.G. Edwards are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than suggested by such analyses. It should be understood
that, although subsequent developments may affect our opinion, A.G. Edwards does
not have any obligation to update, revise or reaffirm our opinion and it
expressly disclaims any responsibility to do so. Our opinion as expressed
herein, in any event, is limited to the fairness, from a financial point of
view, to the Minority Shareholders, of the Consideration to be received in the
Merger pursuant to the Agreement.
For purposes of rendering our opinion we have assumed in all respects
material to our analysis that the representations and warranties of each party
contained in the Agreement are true and correct, that each party will perform
all of the covenants and agreements required to be performed by it under the
Agreement and that all conditions to the consummation of the Merger will be
satisfied without waiver thereof. We have also assumed that all governmental,
regulatory and other consents and approvals contemplated by the Agreement will
be obtained and that in the course of obtaining any of those consents, no
restrictions will be imposed or waivers made that would have an adverse effect
on the contemplated benefits of the Merger.
A.G. Edwards was not engaged to and did not review, nor is it
expressing any opinion with respect to, any alternative transaction or strategic
alternatives that may be available to the Company or the Minority Shareholders.
We are not expressing any opinion as to what the value of the Company's common
stock has been or will be, nor have we considered the tax implications of the
Merger. Our opinion also does not address the merits of the underlying decision
by the Company to engage in the Merger.
In rendering its opinion, A.G. Edwards assumed that (a) the Merger will
be accounted for in accordance with U.S. Generally Accepted Accounting
Principles and (b) the Merger will be consummated on the terms contained in the
Agreement without any waiver of any material terms or conditions by CombiMarix.
G-3
It is understood that this letter is for the information of the Special
Committee of the Board of Directors and does not constitute a recommendation as
to how any holder of the outstanding shares of the Company's common stock should
vote with respect to the Merger. This opinion may not be reproduced, summarized,
excerpted from or otherwise publicly referred to without our prior written
consent.
Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the Consideration to be received by the Minority Shareholders
in the Merger pursuant to the Agreement is fair, from a financial point of view,
to the Minority Shareholders.
Very truly yours,
A.G. EDWARDS & SONS, INC.
By: /S/ TIMOTHY C. MCQUAY
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Timothy C. McQuay
Managing Director |
