STOCK-BASED INCENTIVE PLANS

The 2002 Acacia Technologies Stock Incentive Plan (“2002 Plan”), the 2013 Acacia Research Corporation Stock Incentive Plan (“2013 Plan”) and the 2016 Acacia Research Corporation Stock Incentive Plan (“2016 Plan”) (collectively, the “Plans”) were approved by the stockholders of Acacia in December 2002, May 2013 and June 2016, respectively. All Plans allow grants of stock options, stock awards and performance shares with respect to Acacia common stock to eligible individuals, which generally includes directors, officers, employees and consultants. Except as noted below, the terms and provisions of the Plans are identical in all material respects.

Acacia’s compensation committee administers the discretionary option grant and stock issuance programs. The compensation committee determines which eligible individuals are to receive option grants or stock issuances under those programs, the time or times when the grants or issuances are to be made, the number of shares subject to each grant or issuance, the status of any granted option as either an incentive stock option or a non-statutory stock option under the federal tax laws, the vesting schedule to be in effect for the option grant or stock issuance and the maximum term for which any granted option is to remain outstanding. The exercise price of options is generally equal to the fair market value of Acacia’s common stock on the date of grant. Options generally begin to be exercisable six months to one year after grant and generally expire seven to ten years after grant. Stock options with time-based vesting generally vest over two to three years and restricted shares with time based vesting generally vest in full after two to three years (generally representing the requisite service period). The Plans terminate no later than the tenth anniversary of the approval of the incentive plans by Acacia’s stockholders.

The Plans provide for the following separate programs:

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Discretionary Option Grant Program. Under the discretionary option grant program, Acacia’s compensation committee may grant (1) non-statutory options to purchase shares of common stock to eligible individuals in the employ or service of Acacia or its subsidiaries (including employees, non-employee board members and consultants) at an exercise price not less than 85% of the fair market value of those shares on the grant date, and (2) incentive stock options to purchase shares of common stock to eligible employees at an exercise price not less than 100% of the fair market value of those shares on the grant date (not less than 110% of fair market value if such employee actually or constructively owns more than 10% of Acacia’s voting stock or the voting stock of any of its subsidiaries).

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Stock Issuance Program. Under the stock issuance program, eligible individuals may be issued shares of common stock directly, upon the attainment of performance milestones or the completion of a specified period of service or as a bonus for past services. Under this program, the purchase price for the shares shall not be less than 100% of the fair market value of the shares on the date of issuance, and payment may be in the form of cash or past services rendered. The eligible individuals shall have full stockholder rights with respect to any shares of Common Stock issued to them under the Stock Issuance Program, whether or not their interest in those shares is vested. Accordingly, the eligible individuals shall have the right to vote such shares and to receive any regular cash dividends paid on such shares.

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Automatic Option Grant Program. Each non-employee director will receive restricted stock units or stock options for the number of shares determined by dividing the annual retainer by the grant date fair value of Acacia’s common stock on the grant date, provided that such individual has served as a non-employee director for at least 6 months. In addition, each new non-employee director will receive restricted stock units or stock options for the number of shares determined by dividing the annual board of directors retainer by the grant date fair value of Acacia’s common stock on the commencement date. Restricted stock units and stock options vest in a series of twelve quarterly installments over the three year period following the grant date, subject to immediate acceleration upon a change in control. Acacia will deliver the restricted shares corresponding to the vested restricted stock units within thirty (30) days after the first to occur of the following events: (i) the fifth (5th) anniversary of the grant date; or (ii) termination of the non-employee director’s service as a member of the Company’s Board of Directors. The non-employee directors do not have any rights, benefits or entitlements with respect to any shares unless and until the shares have been delivered.

The number of shares of common stock available for issuance under the 2002 Plan automatically increased on the first trading day of January each calendar year during the term of the Plan by an amount equal to three percent (3%) of the total number of shares of common stock outstanding on the last trading day in December of the immediately preceding calendar year, not to exceed 500,000 shares. The aggregate number of shares of common stock available for issuance under the 2002 Plan could not exceed 20,000,000 shares. At December 31, 2016, there were no shares available for grant under the 2002 Plan.

The number of shares of Common Stock initially reserved for issuance under the 2013 Plan was 4,750,000 shares. No new additional shares will be added to the 2013 Plan without security holder approval (except for shares subject to outstanding awards that are forfeited or otherwise returned to the 2013 Plan). The stock issuable under the 2013 Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Company on the open market. In June 2016, 625,390 shares of common stock available for issuance under the 2013 Plan were transferred into the 2016 Plan.

On April 26, 2016, Acacia’s Board of Directors adopted the 2016 Plan which was approved by the stockholders in June 2016. The number of shares of Common Stock initially reserved for issuance under the 2016 Plan was 4,500,000 shares plus 625,390 shares of common stock available for issuance under the 2013 Plan, as of the effective date of the Plan. At December 31, 2016, there were 1,754,000 shares available for grant under the 2016 Plan.

Upon the exercise of stock options, the granting of restricted stock, or the delivery of shares pursuant to vested restricted stock units, it is Acacia’s policy to issue new shares of common stock. Acacia’s board of directors may amend or modify the Plans at any time, subject to any required stockholder approval.

The following table summarizes stock-based award grant activity for the Plans for the years ended December 31, 2016 and 2015:



	2016			2015
	Shares	Aggregate fair value (in thousands)		Shares	Aggregate fair value (in thousands)

Restricted stock awards with time-based service conditions	—	$	—	894,000	$	11,470
Restricted stock unit awards with time-based service conditions	—	—		28,000	468
Restricted stock awards with performance-based vesting conditions	138,000	431		—	—
Stock options with time-based service vesting conditions	3,434,000	5,704		—	—
Stock options with market-based vesting conditions	2,250,000	5,530		—	—
Stock options with performance-based vesting conditions	200,000	487		—	—
Total incentive awards granted	6,022,000	$	12,152	922,000	$	11,938

During the year ended December 31, 2016, the Company granted restricted stock awards and stock options (with weighted-average exercise price of $5.75 per share) with performance-based vesting conditions. The awards vest based upon the Company achieving specified cash flow performance targets over a one and two-year period from the date of grant. Under the terms of the awards, the number of restricted shares or stock options that will actually vest is based on the extent to which the Company achieves the specified performance targets during the performance period. As of December 31, 2016, 138,000 shares of restricted stock and 200,000 stock options with performance-based vesting conditions remain unvested. As of December 31, 2016, unrecognized expense for awards with performance-based vesting conditions totaled $683,000.

During the year ended December 31, 2016, the Company granted stock options with market-based vesting conditions, with a weighted-average exercise price of $5.75 per share. The options with market-based vesting conditions vest based upon the Company achieving specified stock price targets over a four-year period. Under the terms of the awards, the number of stock options that will actually vest is based on the extent to which the Company achieves the specified market conditions during the four-year performance period. The stock options vest in equal installments of 25% upon the Company's achievement of 30-day average share prices ranging from $7.00 to $10.00. As of December 31, 2016, 1,687,500 options with market-based vesting conditions remain unvested. As of December 31, 2016, unrecognized expense for options with market-based vesting conditions totaled $2.4 million which is expected to be recognized over an estimated 1 year period.

The following table summarizes stock option activity for the Plans for the year ended December 31, 2016:



			Weighted-Average
	Options		Exercise Price		Remaining Contractual Term	Aggregate Intrinsic Value

Outstanding at December 31, 2015	15,000		$	13.38
Granted	5,884,000		$	4.82
Exercised	(101,000	)	$	3.22
Expired/forfeited	(202,000	)	$	3.12
Outstanding at December 31, 2016	5,596,000		$	4.93	6.7 years	$	8,865,000
Vested	1,113,000		$	5.03	6.5 years	$	1,743,000
Exercisable at December 31, 2016	1,113,000		$	5.03	6.5 years	$	1,743,000

The aggregate intrinsic value of options exercised during the years ended December 31, 2016, 2015 and 2014 was $344,000, $751,000, and $518,000, respectively. The aggregate intrinsic value of options vested during the year ended December 31, 2016 was $2,074,000. The aggregate fair value of options granted during the year ended December 31, 2016 was $11,721,000.The aggregate fair value of options vested during the year ended December 31, 2016 was $2,342,000. No options were granted or vested during the years ended December 31, 2015 and 2014. As of December 31, 2016, the total unrecognized compensation expense related to nonvested stock option awards was $6,842,000, which is expected to be recognized over a weighted-average term of approximately 2 years.

The following table summarizes nonvested restricted share activity for the year ended December 31, 2016:



	Nonvested Restricted Shares		Weighted Average Grant Date Fair Value

Nonvested restricted stock at December 31, 2015	829,000		$	14.41
Granted	138,000		$	3.12
Vested	(342,000	)	$	15.33
Canceled	(292,000	)	$	14.28
Nonvested restricted stock at December 31, 2016	333,000		$	8.90

The weighted-average grant date fair value of nonvested restricted stock granted during the years ended December 31, 2016, 2015 and 2014 was $3.12, $12.83, and $14.41, respectively. The aggregate fair value of restricted stock that vested during the years ended December 31, 2016, 2015 and 2014 was $5,243,000, $11,494,000 and $21,490,000, respectively. As of December 31, 2016, the total unrecognized compensation expense related to nonvested restricted stock awards was $1,873,000, which is expected to be recognized over a weighted-average period of approximately 1 year.

The following table summarizes restricted stock unit activity for the year ended December 31, 2016:



	Restricted Stock Units		Weighted Average Grant Date Fair Value

Nonvested restricted stock units outstanding at December 31, 2015	35,000		$	15.78
Vested	(21,000	)	$	15.43
Nonvested restricted stock units outstanding at December 31, 2016	14,000		$	16.27
Vested restricted stock units outstanding at December 31, 2016	80,000		$	20.99

The weighted-average grant date fair value of restricted stock units granted during the years ended December 31, 2015 and 2014 was $16.72 and $14.33, respectively. There were no restricted units granted during the year ended December 31, 2016. The aggregate fair value of restricted stock units that vested during the years ended December 31, 2016, 2015 and 2014 was $324,000, $480,000 and $460,000, respectively. As of December 31, 2016, the total unrecognized compensation expense related to restricted stock unit awards was $162,000, which is expected to be recognized over a weighted-average period of approximately 1 year.

Compensation expense for the periods presented was comprised of the following:



	2016		2015		2014

Restricted stock awards with time-based service conditions	$	—	$	10,575	$	17,631
Restricted stock unit awards with time-based service conditions	4,391		473		484
Restricted stock awards with performance-based vesting conditions	197		—		—
Stock options with time-based service vesting conditions	1,316		—		—
Stock options with market-based vesting conditions	3,158		—		—
Stock options with performance-based vesting conditions	—		—		—
Total compensation expense	$	9,062	$	11,048	$	18,115

As of December 31, 2016, there are 7,445,000 shares of common stock reserved for issuance under the Plans.