Stock-Based Incentive Plans

12 Months Ended

Dec. 31, 2018

EQUITY-BASED INCENTIVE PLANS

Stock-Based Incentive Plans

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 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:

•

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).

•

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.


•	Automatic Option Grant Program. Through fiscal year 2016, each non-employee director received 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. In addition, each new non-employee director received 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. These restricted stock units and stock options vested 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 unrestricted 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 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. At December 31, 2018, there were 709,000 shares available for grant under the 2013 Plan.

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, 2018, there were 3,689,000 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. As of December 31, 2018, there are 7,938,000 shares of common stock reserved for issuance under the Plans.

Stock-based award grant activity for the periods presented was as follows:



	2018			2017
	Shares	Aggregate fair value (in thousands)		Shares	Aggregate fair value (in thousands)
Restricted stock awards with time-based service conditions	102,000	$	386	—	$	—
Stock options with time-based service vesting conditions	930,000	1,588		1,368,000	2,930
Total incentive awards granted	1,032,000	$	1,974	1,368,000	$	2,930

The following table summarizes stock option activity for the Plans for the year ended December 31, 2018:



			Weighted-Average
	Options		Exercise Price		Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at December 31, 2017	5,830,000		$	5.13
Granted	930,000		$	3.91
Exercised	(83,000	)	$	3.12
Expired/forfeited	(3,168,000	)	$	5.00
Outstanding at December 31, 2018	3,509,000		$	4.96	4.1 years	$	—
Vested	2,339,000		$	4.82	3.2 years	$	—
Exercisable at December 31, 2018	2,339,000		$	4.82	3.2 years	$	—

The aggregate intrinsic value of options exercised during the years ended December 31, 2018 and 2017 was $51,000 and $296,000, respectively. The aggregate intrinsic value of options vested during the year ended December 31, 2018 was $0. The aggregate fair value of options granted during the year ended December 31, 2018 was $1,588,000. The aggregate fair value of options vested during the years ended December 31, 2018 and 2017 was $1,918,000 and $2,009,000, respectively. As of December 31, 2018, the total unrecognized compensation expense related to nonvested stock option awards was $844,000, which is expected to be recognized over a weighted-average term of approximately 1 year.

The following table summarizes nonvested restricted share activity for the year ended December 31, 2018:



	Nonvested Restricted Shares		Weighted Average Grant Date Fair Value
Nonvested restricted stock at December 31, 2017	123,000		$	4.77
Granted	102,000		$	3.79
Vested	(225,000	)	$	4.32
Canceled	—		$	—
Nonvested restricted stock at December 31, 2018	—		$	—

The weighted-average grant date fair value of nonvested restricted stock granted during the years ended December 31, 2018 and 2016 was $3.79 and $3.12, respectively. There were no grants of restricted stock during the year ended December 31, 2017. The aggregate fair value of restricted stock that vested during the years ended December 31, 2018 and 2017 was $972,000 and $1,560,000, respectively. As of December 31, 2018, there was no unrecognized compensation expense related to nonvested restricted stock awards.

The following table summarizes restricted stock unit activity for the year ended December 31, 2018:



	Restricted Stock Units		Weighted Average Grant Date Fair Value
Nonvested restricted stock units outstanding at December 31, 2017	2,000		$	16.72
Vested	(2,000	)	$	16.72
Nonvested restricted stock units outstanding at December 31, 2018	—		$	—
Vested restricted stock units outstanding at December 31, 2018	31,000		$	15.43

There were no restricted units granted during the years ended December 31, 2018 and 2017. The aggregate fair value of restricted stock units that vested during the years ended December 31, 2018 and 2017 was $40,000 and $200,000, respectively. As of December 31, 2018, there was no unrecognized compensation expense related to restricted stock unit awards.

Profits Interest Plan

On February 16, 2017, AIP Operation LLC, a Delaware limited liability company (“AIP”), and an indirect subsidiary of Acacia, adopted a Profits Interest Plan (the “Plan”) that provides for the grant of membership interests in AIP to certain members of management and the Board of Directors of Acacia as compensation for services rendered for or on behalf of AIP. Each profits interest unit granted pursuant to the Plan is intended to qualify as a “profits interest” for U.S. federal income tax purposes and will only have value to the extent the fair value of AIP increases beyond the fair value at the issuance date of the membership interests. The membership interests are represented by units (the “Units”) reserved for the issuance of awards under the Plan. The Units entitle the holders to share in or be allocated certain AIP profits and losses and to receive or share in AIP distributions pursuant to the AIP Limited Liability Company Operating Agreement entered into as of February 16, 2017 (the “LLC Agreement”). In connection with the adoption of the Plan, a form of Profits Interest Agreement was approved pursuant to which Units may be granted from time to time. Units vest upon AIP’s achievement of certain performance milestones (one-third upon 150% appreciation, and the remaining two-thirds upon 300% appreciation in value of Acacia’s aggregate investment in Veritone), subject to the continued service of the recipient, and are subject to the terms and conditions of the Plan, the Profits Interest Agreement and the LLC Agreement. The Units were fully vested in September 2017.

Acacia owns 60% of the membership interests in AIP and at all times will control AIP. Acacia from time to time may contribute to AIP certain assets or securities related to portfolio companies in which Acacia holds an interest. Units may be awarded as one-time, discretionary grants to recipients. As of December 31, 2018, AIP holds the Veritone 10% Warrant described at Note 6.

Profits interests totaling 400 Units, or 40% of the membership interests in AIP, were granted in February 2017, with an aggregate grant date fair value of $722,000. The fair value of the Units totaled $591,000 as of December 31, 2018. Upon full vesting of the units in September 2017, all previously unrecognized compensation expense was immediately recognized.

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



	2018			2017

Restricted stock awards with time-based service conditions	$	460		$	1,025
Restricted stock unit awards with time-based service conditions	1			161
Restricted stock awards with performance-based vesting conditions	—			121
Stock options with time-based service vesting conditions	1,672			2,165
Stock options with market-based vesting conditions	—			2,372
Profits interests units	(2,450		)	3,041
Total compensation expense	$	(317	)	$	8,885