EQUITY-BASED INCENTIVE PLANS

3 Months Ended

Mar. 31, 2024

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. The Plans allow grants of stock options, stock awards and restricted stock units with respect to Acacia common stock to eligible individuals, which generally includes directors, officers, employees and consultants. The 2013 Plan expired in May 2023, therefore, Acacia exclusively grants awards under the 2016 Plan. Except as noted below, the terms and provisions of the Plans are identical in all material respects.

Acacia’s compensation committee administers the Plans. The compensation committee determines which eligible individuals are to receive option grants, stock issuances or restricted stock units under the Plans, 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, stock issuance or restricted stock units and the maximum term for which any granted option is to remain outstanding. The exercise price of options is equal to the fair market value of Acacia’s common stock on the date of grant. Options generally begin to be exercisable one year after grant and expire ten years after grant. Stock options with time-based vesting generally vest over three years and restricted shares and restricted stock units with time-based vesting generally vest in full after one 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:

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 receiving RSAs under the 2016 Plan shall have full stockholder rights with respect to any shares of common stock issued to them under the Stock Issuance Program once those shares are vested, and under the 2013 Plan, had 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 was vested. Accordingly, once full stockholder rights are obtained, the eligible individuals shall have the right to vote such shares and to receive any regular cash dividends paid on such shares.

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 100% 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).

Discretionary Restricted Stock Unit Grant Program. Under the discretionary restricted stock unit program, Acacia's compensation committee may grant restricted stock units to eligible individuals, which vest upon the attainment of performance milestones or the completion of a specified period of service. During June 2023, Acacia's compensation committee adopted a long-term incentive program to incentivize and reward employees, including members of the Company's executive leadership team, for driving Acacia's performance over the longer-term and to align employees and shareholders. Under the long-term incentive program, Acacia's compensation committee granted RSUs subject to time-based vesting requirements and PSUs subject to performance-based vesting requirements to employees of the parent company, including the Company's Chief Executive Officer, interim Chief Financial Officer, Chief Administrative Officer and General Counsel. The grants are generally intended to cover two years of annual grants (fiscal years 2023 and 2024).

The number of shares of common stock initially reserved for issuance under the 2013 Plan was 4,750,000 shares. The 2013 Plan has expired, and while awards remain outstanding under the 2013 Plan, no new awards may be granted under the 2013 Plan. The stock issued, or issuable pursuant to still-outstanding awards, 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.

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, which were transferred into the 2016 Plan as of the effective date of the 2016 Plan. In May 2022, security holders approved an increase of 5,500,000 shares of common stock authorized to be issued pursuant to the 2016 Plan. At March 31, 2024, there were 1,457,214 shares available for grant under the 2016 Plan.

Upon the exercise of stock options, the granting of RSAs, or the delivery of shares pursuant to vested RSUs, it is Acacia’s policy to issue new shares of common stock. The Board may amend or modify the 2016 Plan at any time, subject to any required stockholder approval. As of March 31, 2024, there are 5,604,578 shares of common stock reserved for issuance under the 2016 Plan.

The following table summarizes stock option activity for the Plans:


	Options		Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Life
					(In thousands)




Outstanding at December 31, 2023	1,108,187		$	4.18	$	187	7.9 years
Granted	—		$	—	$	—
Exercised	—		$	—	$	—
Forfeited/Expired	(45,000)		$	5.40	$	—
Outstanding at March 31, 2024	1,063,187		$	4.12	$	1,369	7.9 years
Exercisable at March 31, 2024	556,481		$	4.16	$	711	7.7 years
Vested and expected to vest at March 31, 2024	1,063,187		$	4.12	$	1,369	7.9 years
Unrecognized stock-based compensation expense at March 31, 2024 (in thousands)	$	643
Weighted average remaining vesting period at March 31, 2024	1.7 years

During the three months ended March 31, 2024, there were no stock options granted. The aggregate fair value of options vested during the three months ended March 31, 2024 was $420,000.

The following table summarizes nonvested restricted stock activity for the Plans:


	RSAs				RSUs				PSUs
	Shares		Weighted Average Grant Date Fair Value		Units		Weighted Average Grant Date Fair Value		Units		Weighted Average Grant Date Fair Value





Nonvested at December 31, 2023	193,665		$	3.87	1,408,491		$	4.31	1,981,464		$	4.61
Granted	—		$	—	—		$	—	—		$	—
Vested	(109,330)		$	4.06	(275,244)		$	4.10	—		$	—
Forfeited	—		$	—	(30,534)		$	3.93	—		$	—
Nonvested at March 31, 2024	84,335		$	3.63	1,102,713		$	4.38	1,981,464		$	4.61
Unrecognized stock-based compensation expense at March 31, 2024 (in thousands)	$	286			$	3,351			$	—
Weighted average remaining vesting period at March 31, 2024	0.9 years				1.9 years				zero years

During the three months ended March 31, 2024, there were no RSUs granted. The aggregate fair value of RSAs vested during the three months ended March 31, 2024 was $444,000. The aggregate fair value of RSUs vested during the three months ended March 31, 2024 was $1.1 million. During the three months ended March 31, 2024, RSAs and RSUs totaling 384,574 shares were vested and 148,766 shares of common stock were withheld to pay applicable required employee statutory withholding taxes based on the market value of the shares on the vesting date.

PSUs granted in 2023 can be earned based upon the level of achievement of the Company's compound annual growth rate of its adjusted book value per share, measured over a three-year performance period beginning on January 1, 2023 and ending on December 31, 2025. The number of PSUs granted in 2023 that can be earned ranges from 0% to 200% of the target number of PSUs granted (up to a maximum of 750,000 shares of Acacia's common stock per recipient). Such number of PSUs that are ultimately earned and eligible to vest will generally become vested on the third anniversary of the grant date subject to continued employment through such date. The Company has not recorded any expense related to the PSUs based on the probability assessment performed as of March 31, 2024.

Compensation expense for share-based awards recognized in general and administrative expenses was comprised of the following:


	Three Months Ended March 31,
		2024		2023
		(In thousands)
Options		$	128	$	28
RSAs		106		209
RSUs		624		240
Total compensation expense for share-based awards		$	858	$	477

Total unrecognized stock-based compensation expense as of March 31, 2024 was $4.3 million, which will be amortized over a weighted average remaining vesting period of 1.8 years.