ACACIA RESEARCH CORP 10-K

ITEM 9A. CONTROLS AND PROCEDURES Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures We maintain disclosure controls and procedures (as defined in Rules 13a-15(e)and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that this information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2021. Based on the evaluation of our disclosure controls and procedures as of December 31, 2021, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. Management’s Annual Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate “internal control over financial reporting,” as defined in Rule 13a-15(f) under the Exchange Act. Our management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2021 based on the criteria set forth in the Internal Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the assessment, our management has concluded that our internal control over financial reporting was effective as of December 31, 2021. Exemption from Attestation Report of Independent Registered Public Accounting Firm This Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to the rules of the SEC that permit us to provide only Management’s Annual Report because we are a non-accelerated filer. 39 Table of Contents Changes in Internal Controls over Financial Reporting Other than certain enhanced controls in connection with the acquisition of Printronix, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d)and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 40 Table of Contents PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Except as provided below, in accordance with General Instruction G(3) to Form 10-K, certain information required by this Item is incorporated herein by reference to our definitive proxy statement for our 2022 annual meeting of stockholders to be filed with the SEC within 120 days after the close of our fiscal year. Code of Conduct We have adopted a Code of Conduct that applies to all employees, including our Chief Executive Officer and Chief Financial Officer and any persons performing similar functions. Our Code of Conduct is provided on our internet website at www.acaciaresearch.com . ITEM 11. EXECUTIVE COMPENSATION In accordance with General Instruction G(3) to Form 10-K, the information required by this Item is incorporated herein by reference to our definitive proxy statement for our 2022 annual meeting of stockholders to be filed with the SEC within 120 days after the close of our fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS In accordance with General Instruction G(3) to Form 10-K, certain information required by this Item is incorporated herein by reference to our definitive proxy statement for our 2022 annual meeting of stockholders to be filed with the SEC within 120 days after the close of our fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE In accordance with General Instruction G(3) to Form 10-K, the information required by this Item is incorporated herein by reference to our definitive proxy statement for our 2022 annual meeting of stockholders to be filed with the SEC within 120 days after the close of our fiscal year. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES In accordance with General Instruction G(3) to Form 10-K, the information required by this Item is incorporated herein by reference to our definitive proxy statement for our 2022 annual meeting of stockholders to be filed with the SEC within 120 days after the close of our fiscal year. 41 Table of Contents PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this report. (1) Financial Statements. Page Acacia Research Corporation Consolidated Financial Statements: Report of Independent Registered Public Accounting Firm (BDO USA, LLP; New York, NY; PCAOB ID# 243 ) F- 1 Report of Independent Registered Public Accounting Firm (GRANT THORNTON LLP; Newport Beach, CA; PCAOB ID# 248 ) F- 3 Consolidated Balance Sheets as of December 31, 2021 and 2020 F- 4 Consolidated Statements of Operations for the Years Ended December 31, 2021 and 2020 F- 5 Consolidated Statements of Series A Redeemable Convertible Preferred Stock and Stockholders’ Equity for the Years Ended December 31, 2021 and 2020 F- 6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020 F- 8 Notes to Consolidated Financial Statements F- 9 (2) Financial Statement Schedules. Financial statement schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or the Notes thereto. (3) Exhibits. Refer to Item 15(b) below. (b) Exhibits. The following exhibits are either filed herewith or incorporated herein by reference: Exhibit Number Description 2.1** Agreement and Plan of Merger, dated November 22, 2011, by and among Acacia Research Group LLC, Apollo Patent Corp., Adaptix, Inc., and Baker Communications Fund II (QP), L.P., solely in its capacity as representative for the shareholders of Adaptix, Inc. (incorporated by reference to the Current Report on Form 8-K/A filed on January 19, 2012) 2.2 Transaction Agreement, dated as of June 4, 2020, between LF Equity Income Fund and Acacia Research Corporation (incorporated by reference to the Current Report on Form 8-K filed on June 10, 2020) 3.1 Certificate of Amendment of Amended and Restated Certificate of Incorporation of Acacia Research Corporation (as updated through May 18, 2021 and currently in effect) (incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, filed on August 16, 2021) 3.2 Amended and Restated Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock, as filed with the Delaware Secretary of State on January 7, 2020 (incorporated by reference to Appendix B to the Definitive Proxy Statement on Schedule 14A filed on January 17, 2020) 3.3 Third Amended and Restated Bylaws (incorporated by reference to the Current Report on Form 8-K filed on May 25 , 2021 ) 4.1 Tax Benefits Preservation Plan, dated as of March 16, 2019, by and between Acacia Research Corporation and Computershare Inc., as Rights Agent, which includes the Form of Certificate of Designation, Preferences and Rights of Participating Preferred Stock as Exhibit A, the Form of Rights Certificate as Exhibit B and the Summary of Terms as Exhibit C (incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2018, filed on March 15, 2019) 4.2 Description of Acacia Research Corporation Capital Stock (incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2019, filed on March 16, 2020) 4.3 Form of Senior Secured Note (incorporated by reference to the Current Report on Form 8-K filed on October 6, 2021 ) 42 Table of Contents 4.4 Form of Series A Warrant to Purchase Common Stock (incorporated by reference to Appendix C to the Definitive Proxy Statement on Schedule 14A filed on January 17, 2020) 4.5 Form of Series B Warrant to Purchase Common Stock (incorporated by reference to Appendix D to the Definitive Proxy Statement on Schedule 14A filed on January 17, 2020) 10.1* Form of Indemnification Agreement (incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2019, filed on March 16, 2020) 10.2* Acacia Research Corporation Amended and Restated Executive Severance Policy (incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2008, filed on February 26, 2009) 10.3 Form of Purchase Agreement (incorporated by reference to the Current Report on Form 8-K filed on February 16, 2012) 10.4* 2013 Acacia Research Corporation Stock Incentive Plan (incorporated by reference to Annex A to the Definitive Proxy Statement on Schedule 14A filed on April 24, 2013) 10.5* Form of Stock Issuance Agreement under the 2013 Acacia Research Corporation Stock Incentive Plan (incorporated by reference to the Current Report on Form 8-K on May 22, 2013) 10.6* 2016 Acacia Research Corporation Stock Incentive Plan (incorporated by reference to the Quarterly Report on Form 10-Q for the period ended June 30, 2016, filed on August 9, 2016) 10.7* Form of Stock Option Agreement under the 2016 Acacia Research Corporation Stock Incentive Plan (incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2016, filed on March 10, 2017) 10.8* Form of Stock Issuance Agreement under the 2016 Acacia Research Corporation Stock Incentive Plan (incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2016, filed on March 10, 2017) 10.9* Form of Profits Interest Agreement Under AIP Operation LLC Profits Interest Plan (incorporated by reference to the Quarterly Report on Form 10-Q for the period ended March 31, 2017, filed on May 10, 2017) 10.10 Investment Agreement dated August 15, 2016, by and between Acacia Research Corporation and Veritone, Inc. (incorporated by reference to the Current Report on Form 8-K filed on March 16, 2017) 10.11 Secured Promissory Note dated August 15, 2016, issued by Veritone, Inc. to Acacia Research Corporation (incorporated by reference to the Current Report on Form 8-K filed on March 16, 2017) 10.12 Primary Common Stock Purchase Warrant dated August 15, 2016, issued by Veritone, Inc. to Acacia Research Corporation, together with form of 10% Warrant to Purchase Common Stock (incorporated by reference to the Current Report on Form 8-K filed on March 16, 2017) 10.13 Common Stock Purchase Warrant dated August 15, 2016, issued by Veritone, Inc. to Acacia Research Corporation (incorporated by reference to the Current Report on Form 8-K filed on March 16, 2017) 10.14 Common Stock Purchase Warrant dated November 25, 2016, issued by Veritone, Inc. to Acacia Research Corporation (incorporated by reference to the Current Report on Form 8-K filed on March 16, 2017) 10.15 Common Stock Purchase Warrant dated November 25, 2016, issued by Veritone, Inc. to Acacia Research Corporation (incorporated by reference to the Current Report on Form 8-K filed on March 16, 2017) 10.16* Employment Agreement, dated June 19, 2020, by and between Acacia Research Group, LLC and Marc W. Booth (incorporated by reference to the Current Report on Form 8-K filed on June 25, 2020) 10.17* Employment Agreement, dated September 3, 2019, by and among Acacia Research Group LLC, Acacia Research Corporation and Clifford Press (incorporated by reference to the Quarterly Report on Form 10-Q for the period ended September 30, 2019, filed on November 12, 2019) 10.18* Employment Agreement, dated September 3, 2019, by and among Acacia Research Group LLC, Acacia Research Corporation and Alfred Tobia (incorporated by reference to the Quarterly Report on Form 10-Q for the period ended September 30, 2019, filed on November 12, 2019) 10.19* Employment Agreement, dated June 4, 2020, by and between Acacia Research Group, LLC and Richard Rosenstein (incorporated by reference to the Current Report on Form 8-K filed on June 4, 2020) 10.20* Employment Agreement, dated June 4, 2020, by and between Acacia Research Group, LLC and Meredith Simmons (incorporated by reference to the Current Report on Form 8-K filed on June 4, 2020) 10.21* Employment Agreement, effective March 16, 2021, by and between Acacia Research Group, LLC and Jason Soncini (incorporated by reference to the Current Report on Form 8-K filed on March 22, 2021) 10.22* Employment Agreement, effective March 10 , 202 2 , by and amo ng Acacia Research Corporation, Acacia Research Group LLC, and Martin D. McNulty Jr. (incorporated by reference to the Current Report on Form 8-K filed on March 15 , 202 2 ) 10.23 Securities Purchase Agreement dated November 18, 2019, by and among Acacia Research Corporation, Starboard Value LP and the investors listed on the Schedule of Buyers attached thereto (incorporated by reference to Appendix A to the Definitive Proxy Statement on Schedule 14A filed on January 17, 2020) 43 Table of Contents 10.24 Supplemental Agreement, dated as of June 4, 2020, between Starboard Value, L.P. and Acacia Research Corporation (incorporated by reference to the Current Report on Form 8-K filed on June 10, 2020) 10.25 Exchange Agreement, dated June 30, 2020, among Acacia Research Corporation, Merton Acquisition HoldCo LLC and Starboard Value LP (incorporated by reference to the Current Report on Form 8-K filed on July 7, 2020) 10.26 Stock Pledge Agreement, dated June 30, 2020, entered into by Acacia Research Group LLC, Advanced Skeletal Innovations LLC and Saint Lawrence Communications LLC in favor of Starboard Value Intermediate Fund LP, as collateral agent (incorporated by reference to the Current Report on Form 8-K filed on July 7, 2020) 10.27 Guaranty, dated June 30, 2020, entered into by the Guarantors (as defined therein) in favor of the Holders (as defined therein) (incorporated by reference to the Current Report on Form 8-K filed on July 7, 2020) 10.28 Release of Security Interests in Patents, dated June 30, 2020, between the Releasees (as defined therein) and Starboard Value Intermediate Fund LP, as collateral agent. (incorporated by reference to the Current Report on Form 8-K filed on July 7, 2020) 10.29 Second Supplemental Agreement, dated as of March 31, 2021, between Starboard Value, L.P., Acacia Research Corporation, Merton Acquisition Holdco LLC and certain other direct and indirect subsidiaries of the Company (incorporated by reference to the Current Report on Form 8-K filed on April 6, 2021) 10.30 Third Supplemental Agreement, dated as of June 30, 2021, between Starboard Value, L.P., Acacia Research Corporation, Merton Acquisition Holdco LLC and certain other direct and indirect subsidiaries of the Company (incorporated by reference to the Current Report on Form 8-K filed on July 7, 2021) 10.31 Fourth Supplemental Agreement, dated as of September 30, 2021, between Starboard Value, L.P., Acacia Research Corporation, Merton Acquisition Holdco LLC and certain other direct and indirect subsidiaries of the Company (incorporated by reference to the Current Report on Form 8-K filed on October 6, 2021) 10.32 Note Amendment Agreement, dated as of November 15, 2021, between Starboard Value, L.P., on behalf of the Starboard Funds, Acacia Research Corporation and Merton Acquisition Holdco LLC (incorporated by reference to the Current Report on Form 8-K filed on November 19, 2021) 10.33 Supplement No. 5 and Amendment to the Stock Pledge Agreement, dated November 15, 2021, by and among certain direct and indirect subsidiaries of Acacia Research Corporation and Starboard Value Intermediate Fund LP, as Collateral Agent (incorporated by reference to the Current Report on Form 8-K filed on November 19, 2021) 10.34 Fifth Supplemental Agreement, dated as of November 30, 2021, between Starboard Value, L.P., on behalf of the Starboard Funds, Acacia Research Corporation and Merton Acquisition Holdco LLC (incorporated by reference to the Current Report on Form 8-K filed on December 6, 2021) 10.35 Sixth Supplemental Agreement, dated as of January 31, 2022, between Starboard Value, L.P., on behalf of the Starboard Funds, Acacia Research Corporation and Merton Acquisition Holdco LLC (incorporated by reference to the Current Report on Form 8-K filed on February 4, 2022) 10.36 Registration Rights Agreement dated November 18, 2019, by and among Acacia Research Corporation and the investors listed on the Schedule of Buyers attached thereto (incorporated by reference to Appendix F to the Definitive Proxy Statement on Schedule 14A filed on January 17, 2020) 10.37 Governance Agreement dated November 18, 2019 and amended January 7, 2020, by and among Acacia Research Corporation and the entities and natural persons set forth on the signature pages thereto (incorporated by reference to Appendix G to the Definitive Proxy Statement on Schedule 14A filed on January 17, 2020) 10.38 Lease Agreement dated June 7, 2019, by and between Acacia Research Corporation and Jamboree Center 4 LLC (incorporated by reference to the Annual Report on Form 10-K for the year ended December 31, 2019, filed on March 16, 2020) 10.39 First Amendment of Lease, dated as of August 5, 2021, between Sage Realty Corporation and Acacia Research Corporation (incorporated by reference to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, filed on November 1 5 , 2021) 21.1# List of Subsidiaries 23.1# Consent of Independent Registered Public Accounting Firm, BDO USA, LLP 23.2# Consent of Independent Registered Public Accounting Firm , GRANT THORNTON LLP 24.1 Power of Attorney (included in the signature page hereto). 31.1# Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934 31.2# Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934 32.1† Certification of Chief Executive Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 44 Table of Contents 32.2† Certification of Chief Financial Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350 101# The following financial statements from the Company’s Annual Report on Form 10-K for the years ended December 31, 2021 and 2020, formatted in Inline Extensible Business Reporting Language (iXBRL) include: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Series A Redeemable Convertible Preferred Stock and Stockholders' Equity, (iv) Consolidated Statements of Cash Flows and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. 104# Cover Page Interactive Data File (formatted in iXBRL and included in Exhibit 101). ____________________ * The referenced exhibit is a management contract, compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 15(c) of Form 10-K. ** Portions of this exhibit have been omitted pursuant to a request for confidential treatment under Rule 24-b-2 of the Securities Exchange Act of 1934, as amended. The omitted material has been separately filed with the Securities and Exchange Commission. # Filed herewith. † The certifications attached as Exhibits 32.1 and 32.2 that accompany this Annual Report on Form 10-K are not deemed filed with the SEC and are not to be incorporated by reference into any filing of Acacia Research Corporation under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, regardless of any general incorporation language contained in any filing. (c) Other financial statement schedules. Not applicable. ITEM 16. FORM 10-K SUMMARY Not applicable. 45 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ACACIA RESEARCH CORPORATION Dated: March 31, 2022 By: /s/ Clifford Press Clifford Press President and Chief Executive Officer (Principal Executive Officer and Duly Authorized Signatory) POWER OF ATTORNEY We, the undersigned directors and officers of Acacia Research Corporation, do hereby constitute and appoint Clifford Press and Richard Rosenstein, and each of them, as our true and lawful attorneys-in-fact and agents with power of substitution, to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorney-in-fact and agent may deem necessary or advisable to enable said corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Annual Report on Form 10-K, including specifically but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments hereto; and we do hereby ratify and confirm all that said attorney-in-fact and agent, shall do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and the capacities and on the dates indicated. Signature Title Date /s/ Clifford Press President and Chief Executive Officer March 31, 2022 Clifford Press (Principal Executive Officer) /s/ Richard Rosenstein Chief Financial Officer March 31, 2022 Richard Rosenstein (Principal Financial Officer) /s/ Kirsten Hoover Corporate Controller March 31, 2022 Kirsten Hoover (Principal Accounting Officer) /s/ Isaac Kohlberg Director March 31, 2022 Isaac Kohlberg /s/ Maureen O'Connell Director March 31, 2022 Maureen O'Connell /s/ Jonathan Sagal Director March 31, 2022 Jonathan Sagal /s/ Katharine Wolanyk Director March 31, 2022 Katharine Wolanyk 46 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and Board of Directors Acacia Research Corporation New York, NY Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of Acacia Research Corporation (the “Company”) as of December 31, 2021, the related consolidated statements of operations, series A redeemable convertible preferred stock and stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Fair value measurements of the Series A and B Warrants and embedded derivative liabilities in the Series A Redeemable Convertible Preferred Stock. As described further in Note 11 to the consolidated financial statements, the Series A and B Warrants are recorded at fair value using the Black-Scholes option-pricing model. The embedded derivative liabilities in the Series A Redeemable Convertible Preferred Stock (embedded derivative) are recorded at fair value using a binomial model. The Black Scholes option-pricing model and the binomial model require management to make significant assumptions, which include the determination of volatility and credit spread (binomial model only). F-1 Table of Contents We identified the fair value measurements of the Series A and B Warrants and embedded derivative as a critical audit matter. The principal consideration for our determination is management’s significant judgment related to the assumptions of volatility and credit spread. Auditing these significant assumptions involved subjective auditor judgment and the use of our valuation specialist. The primary procedures we performed to address this critical audit matter included: • Utilizing personnel with specialized knowledge and skills in valuation to evaluate the reasonableness of the Company’s assumptions by: (1) comparing volatility and credit spread assumptions against available market data and historical amounts and (2) validating the mathematical accuracy of the models by performing an independent calculation and comparing to management’s concluded valuations. /s/ BDO USA, LLP We have served as the Company’s auditor since 2021. New York, NY March 31, 2022 F-2 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Acacia Research Corporation Opinion on the financial statements We have audited the accompanying consolidated balance sheet of Acacia Research Corporation and subsidiaries (the “Company”) as of December 31, 2020, the related consolidated statements of operations, series A redeemable convertible preferred stock and stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ GRANT THORNTON LLP We served as the Company’s auditor from 2007 to 2021. Newport Beach, California March 29, 2021 (except for Notes 7, 19 and 20, as to which the date is March 31, 2022) F-3 Table of Contents ACACIA RESEARCH CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) December 31, 2021 2020 ASSETS Current assets: Cash and cash equivalents $ 308,943 $ 165,546 Equity securities at fair value 361,778 109,103 Equity securities without readily determinable fair value 5,816 143,257 Investment securities - equity method investments 30,934 30,673 Investment at fair value — 2,752 Accounts receivable, net 9,517 506 Inventories 8,930 — Prepaid expenses and other current assets 4,764 5,832 Total current assets 730,682 457,669 Long-term restricted cash 418 35,000 Property, plant and equipment, net 4,183 270 Goodwill 7,470 — Other intangible assets, net 48,793 16,912 Leased right-of-use assets 2,027 951 Other non-current assets 5,283 505 Total assets $ 798,856 $ 511,307 LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,440 $ 1,019 Accrued expenses and other current liabilities 5,789 3,707 Accrued compensation 4,136 2,265 Royalties and contingent legal fees payable 2,463 2,162 Deferred revenue 1,114 — Senior Secured Notes Payable 181,248 115,663 Total current liabilities 200,190 124,816 Deferred revenue, net of current portion 581 — Series A warrant liabilities 11,291 6,640 Series A embedded derivative liabilities 18,448 26,728 Series B warrant liabilities 96,378 52,341 Long-term lease liabilities 2,027 951 Deferred income tax liabilities, net 18,552 — Other long-term liabilities 6,161 591 Total liabilities 353,628 212,067 Commitments and contingencies Series A redeemable convertible preferred stock, par value $ 0.001 per share; stated value $ 100 per share; 350,000 shares authorized, issued and outstanding as of December 31, 2021 and 2020; aggregate liquidation preference of $ 35,000 as of December 31, 2021 and 2020 14,753 10,924 Stockholders' equity: Preferred stock, par value $ 0.001 per share; 10,000,000 shares authorized; no shares issued or outstanding — — Common stock, par value $ 0.001 per share; 300,000,000 shares authorized; 48,807,748 and 49,279,453 shares issued and outstanding as of December 31, 2021 and 2020, respectively 49 49 Treasury stock, at cost, 5,388,469 and 4,604,365 shares as of December 31, 2021 and 2020, respectively ( 47,281 ) ( 43,270 ) Additional paid-in capital 648,389 651,416 Accumulated deficit ( 181,724 ) ( 330,921 ) Total Acacia Research Corporation stockholders' equity 419,433 277,274 Noncontrolling interests 11,042 11,042 Total stockholders' equity 430,475 288,316 Total liabilities, redeemable convertible preferred stock, and stockholders' equity $ 798,856 $ 511,307 The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of Contents ACACIA RESEARCH CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) Years Ended December 31, 2021 2020 Revenues: Intellectual property operations $ 76,043 $ 29,782 Industrial operations 12,004 — Total revenues 88,047 29,782 Costs and expenses: Cost of revenues - intellectual property operations 28,691 24,824 Cost of sales - industrial operations 7,407 — Engineering and development expenses - industrial operations 200 — Sales and marketing expenses - industrial operations 1,538 — General and administrative expenses 35,666 24,476 Total costs and expenses 73,502 49,300 Operating income (loss) 14,545 ( 19,518 ) Other income (expense): Equity securities investments: Change in fair value of equity securities 87,527 176,173 Gain on sale of equity securities 116,129 7,352 Earnings on equity investment in joint venture 3,530 — Net realized and unrealized gain 207,186 183,525 Gain on sale of prepaid investment and derivative — 2,845 Change in fair value of investment ( 2,752 ) 5,474 Gain on sale of investment 3,591 8,187 Change in fair value of the Series A and B warrants and embedded derivatives ( 40,408 ) ( 58,238 ) Loss on foreign currency exchange ( 89 ) ( 4,905 ) Interest expense on Senior Secured Notes ( 7,922 ) ( 10,136 ) Interest income and other 501 838 Total other income 160,107 127,590 Income before income taxes 174,652 108,072 Income tax (expense) benefit ( 24,287 ) 1,159 Net income including noncontrolling interests in subsidiaries 150,365 109,231 Net income attributable to noncontrolling interests in subsidiaries ( 1,168 ) — Net income attributable to Acacia Research Corporation $ 149,197 $ 109,231 Income per share: Net income attributable to common stockholders - Basic $ 118,804 $ 86,846 Weighted average number of shares outstanding - Basic 48,797,290 48,840,829 Basic net income per common share $ 2.43 $ 1.78 Net income attributable to common stockholders - Diluted $ 188,224 $ 84,894 Weighted average number of shares outstanding - Diluted 98,470,870 57,435,128 Diluted net income per common share $ 1.91 $ 1.48 The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of Contents ACACIA RESEARCH CORPORATION CONSOLIDATED STATEMENTS OF SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (In thousands, except share data) Year Ended December 31, 2021 Series A Redeemable Convertible Preferred Stock Common Stock Treasury Stock Additional Paid-in Capital Accumulated Deficit Noncontrolling Interests in Operating Subsidiaries Total Stockholders' Equity Shares Amount Shares Amount Balance at December 31, 2020 350,000 $ 10,924 49,279,453 $ 49 $ ( 43,270 ) $ 651,416 $ ( 330,921 ) $ 11,042 $ 288,316 Net income including noncontrolling interests in subsidiaries — — — — — — 149,197 1,168 150,365 Distributions to noncontrolling interests in subsidiaries — — — — — — — ( 1,168 ) ( 1,168 ) Accretion of Series A Redeemable Convertible Preferred Stock to redemption value — 3,829 — — — ( 3,829 ) — — ( 3,829 ) Dividend on Series A Redeemable Convertible Preferred Stock — — — — — ( 1,452 ) — — ( 1,452 ) Stock options exercised — — 60,000 1 — 201 — — 202 Issuance of common stock for vesting of restricted stock units — — 28,834 — — — — — — Issuance of common stock for unvested restricted stock awards, net of forfeitures — — 223,565 — — — — — — Compensation expense for share-based awards — — 0 — — 2,053 — — 2,053 Repurchase of common stock — — ( 784,104 ) ( 1 ) ( 4,011 ) — — — ( 4,012 ) Balance at December 31, 2021 350,000 $ 14,753 48,807,748 $ 49 $ ( 47,281 ) $ 648,389 $ ( 181,724 ) $ 11,042 $ 430,475 The accompanying notes are an integral part of these consolidated financial statements. F-6 Table of Contents ACACIA RESEARCH CORPORATION CONSOLIDATED STATEMENTS OF SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (In thousands, except share data) Year Ended December 31, 2020 Series A Redeemable Convertible Preferred Stock Common Stock Treasury Stock Additional Paid-in Capital Accumulated Deficit Noncontrolling Interests in Operating Subsidiaries Total Stockholders' Equity Shares Amount Shares Amount Balance at December 31, 2019 350,000 $ 8,089 50,370,987 $ 50 $ ( 39,272 ) $ 652,003 $ ( 439,656 ) $ 1,833 $ 174,958 Net income attributable to Acacia Research Corporation — — — — — — 109,231 — 109,231 Accretion of Series A Redeemable Convertible Preferred Stock to redemption value — 2,835 — — — ( 2,835 ) — — ( 2,835 ) Dividend on Series A Redeemable Convertible Preferred Stock — — — — — ( 1,382 ) — — ( 1,382 ) Stock options exercised — — 13,333 — — 48 — — 48 Issuance of common stock for vesting of restricted stock units — — 14,354 — — — — — — Issuance of common stock for unvested restricted stock awards, net of forfeitures — — 565,316 — — — — — — Compensation expense for share-based awards — — — — — 1,662 — — 1,662 Repurchase of common stock — — ( 1,684,537 ) ( 1 ) ( 3,998 ) — — — ( 3,999 ) Dissolution of Acacia Intellectual Property Fund, L.P. — — — — — 1,920 ( 496 ) ( 1,424 ) — Distributions to noncontrolling interests in subsidiaries — — — — — — — ( 409 ) ( 409 ) Acquisition of MalinJ1 — — — — — — — 11,042 11,042 Balance at December 31, 2020 350,000 $ 10,924 49,279,453 $ 49 $ ( 43,270 ) $ 651,416 $ ( 330,921 ) $ 11,042 $ 288,316 The accompanying notes are an integral part of these consolidated financial statements. F-7 Table of Contents ACACIA RESEARCH CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Years Ended December 31, 2021 2020 Cash flows from operating activities: Net income including noncontrolling interests in subsidiaries $ 150,365 $ 109,231 Adjustments to reconcile net income including noncontrolling interests in subsidiaries to net cash provided by (used in) operating activities: Change in fair value of investment, net 2,752 ( 5,474 ) Gain on sale of investment ( 3,591 ) ( 8,187 ) Depreciation and amortization 10,688 4,800 Amortization of debt discount and issuance costs 110 7,051 Change in fair value of Series A redeemable convertible preferred stock embedded derivatives ( 8,280 ) 8,754 Change in fair value of Series A warrants 4,651 3,072 Change in fair value of Series B warrants 44,037 46,412 Compensation expense for share-based awards 2,053 1,662 Loss on foreign currency exchange 89 4,905 Change in fair value of equity securities ( 87,527 ) ( 176,173 ) Gain on sale of equity securities ( 116,129 ) ( 7,352 ) Gain on sale of prepaid investment and derivative — ( 2,845 ) Earnings on equity investment in joint venture ( 3,530 ) — Changes in assets and liabilities: Accounts receivable ( 747 ) 5 Inventories 1,906 — Prepaid expenses and other assets ( 78 ) ( 2,919 ) Accounts payable and accrued expenses 760 ( 2,546 ) Royalties and contingent legal fees payable 301 ( 16 ) Deferred revenue ( 246 ) — Deferred income tax liabilities 15,742 — Net cash provided by (used in) operating activities 13,326 ( 19,620 ) Cash flows from investing activities: Acquisition, net of cash acquired (Note 3) ( 33,250 ) — Patent acquisition ( 21,000 ) ( 13,780 ) Sale of investment at fair value 3,591 12,409 Purchases of equity securities ( 66,624 ) ( 46,492 ) Sales of equity securities 154,784 228,873 Maturities and sales of debt securities — 118,459 Cash distributed for notes receivable ( 4,021 ) — Acquisition of Life Sciences Portfolio equity securities — ( 280,263 ) Distributions received from equity investment in joint venture 2,362 — Distributions to noncontrolling interests in operating subsidiary — ( 409 ) Purchases of property and equipment ( 91 ) ( 199 ) Net cash provided by investing activities 35,751 18,598 Cash flows from financing activities: Repurchase of common stock ( 4,012 ) ( 3,998 ) Issuance of Senior Secured Notes, net of lender fee 115,000 110,437 Paydown of Senior Secured Notes ( 50,000 ) — Senior Secured Notes issuance costs paid to other parties — ( 496 ) Dividend on Series A Redeemable Convertible Preferred Stock ( 1,452 ) ( 1,382 ) Issuance of Series B warrants — 4,600 Proceeds from exercise of stock options 202 48 Net cash provided by financing activities 59,738 109,209 Increase in cash and cash equivalents and restricted cash 108,815 108,187 Cash and cash equivalents and restricted cash, beginning 200,546 92,359 Cash and cash equivalents and restricted cash, ending $ 309,361 $ 200,546 Supplemental schedule of cash flow information: Interest paid $ 7,336 $ 1,259 Income taxes paid (refunded) 25 ( 3,482 ) Noncash investing and financing activities: Patent acquisition in exchange of notes receivable 4,000 — Patent acquisition accrued liabilities 5,000 — Distribution to noncontrolling interests in subsidiaries 1,168 — The accompanying notes are an integral part of these consolidated financial statements F-8 Table of Contents ACACIA RESEARCH CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS Acacia Research Corporation (the “Company,” “we,” “us,” or "our") is a permanent capital platform that purchases businesses based on the differentials between public and private market valuations. We use a wide range of transactional and operational capabilities to realize the intrinsic value in the businesses that we acquire. Our ideal transactions include the acquisition of public or private companies, the acquisition of divisions of other companies, or structured transactions that can result in the recapitalization or restructuring of the ownership of a business to enhance value. Our focus to date has been on companies with market values in the sub-$2 billion range and particularly on businesses valued at $1 billion or less. We are, however, opportunistic, and may pursue acquisitions that are larger under the right circumstance. We operate our business based on three key principles of People, Process and Performance and have built a management team with demonstrated expertise in Research, Transactions and Execution, and Operations and Management of our targeted acquisitions. We utilized these skill sets and resources to acquire a portfolio of equity securities of public and private life science businesses, or the “Life Sciences Portfolio,” in June 2020. As of December 31, 2021, we have monetized a portion of the portfolio while retaining an interest in a number of operating businesses, including a controlling interest in one of the companies in the portfolio. Further, some of the businesses in which we continue to hold an interest generate revenues through the receipt of royalties. Intellectual Property Operations – Patent Licensing, Enforcement and Technologies Business Acacia invests in intellectual property and related absolute return assets and engages in the licensing and enforcement of patented technologies. Through our Patent Licensing, Enforcement and Technologies Business we are a principal in the licensing and enforcement of patent portfolios, with our operating subsidiaries obtaining the rights in the patent portfolio or purchasing the patent portfolio outright. We assume all responsibility for advancing operational expenses while pursuing a patent licensing and enforcement program, and when applicable, share net licensing revenue with our patent partners as that program matures, on a pre-arranged and negotiated basis. We may also provide upfront capital to patent owners as an advance against future licensing revenue. Currently, on a consolidated basis, our operating subsidiaries own or control the rights to multiple patent portfolios, which include U.S. patents and certain foreign counterparts, covering technologies used in a variety of industries. We generate revenues and related cash flows from the granting of IP rights for the use of patented technologies that our operating subsidiaries control or own. Our Intellectual Property Operations business depends upon the identification and investment in new patents, inventions and companies that own IP through our relationships with inventors, universities, research institutions, technology companies and others. If Acacia’s operating subsidiaries are unable to maintain those relationships and identify and grow new relationships, then they may not be able to identify new technology-based opportunities for sustainable revenue and/or revenue growth. During the year ended December 31, 2021, Acacia obtained control of one new patent portfolio. During 2020, Acacia obtained control of five new patent portfolios. Industrial Operations Acquisition On October 7, 2021, we consummated our first operating company acquisition of Printronix Holding Corporation and subsidiaries (“Printronix”). Printronix is a leading manufacturer and distributor of industrial impact printers, also known as line matrix printers, and related consumables and services. The Printronix business serves a diverse group of customers that operate across healthcare, food and beverage, manufacturing and logistics, and other sectors. This mature technology is known for its ability to operate in hazardous environments. Printronix has a manufacturing site located in Malaysia and third-party configuration sites located in the United States, Singapore and Holland, along with sales and support locations around the world to support its global network of users, channel partners and strategic alliances. This acquisition was made F-9 Table of Contents at what we believe to be an attractive purchase price, and we are now supporting existing management in its execution of strategic partnerships to generate growth. We acquired all of the outstanding stock of Printronix, for a cash purchase price of approximately $ 37.0 million, which included an initial $ 33.0 million cash payment and a $ 4.0 million working capital adjustment. The Company's consolidated financial statements include Printronix's consolidated operations from October 7, 2021 through December 31, 2021. Refer to Note 3 for additional information. COVID-19 Pandemic The full impact of the COVID-19 pandemic continues to evolve as of the date of this report. While the Company does not expect the current situation to present direct risks to its business, and it has not had a material impact to date, the COVID-19 pandemic could adversely impact the Company’s operations, as well as the operations of its licensees and other business partners. Our cash is held in major financial institutions primarily in government instruments. Our business is fully able to operate in a socially distanced and/or remote capacity and in accordance with applicable laws, policies and best practices. Our workforce is provided ample paid sick leave, and we have in place robust disaster recovery and business continuity policies that have been revised to account for a long-term remote work contingency such as this. However, the ongoing pandemic may present risks that we do not currently consider material or risks that may evolve quickly that could have a materially adverse effect on our business, results of operations and financial condition. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting Principles The consolidated financial statements and accompanying notes are prepared on the accrual basis of accounting in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"). Correction of Immaterial Error In connection with the preparation of the Company’s consolidated financial statements during the year ended December 31, 2021, the Company identified and recorded an adjustment to the current and prior periods related to the estimated amortization period of deferred debt issuance costs. T he Company evaluated the error a nd determined that the related impact did not materially misstate previously issued consolidated financial statements. Although the Company concluded that the misstatement was n ot material to its previously issued consolidated financial statements, the Company has determined it is appropriate to revise its previously issued consolidated financial statements to correct for the error . Refer to Note 20 for additional information including a summary of the adjustments to certain previously reported financial information. Principles of Consolidation The consolidated financial statements include the accounts of Acacia and its wholly and majority-owned and controlled subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. Noncontrolling interests in Acacia’s majority-owned and controlled operating subsidiaries (“noncontrolling interests”) are separately presented as a component of stockholders’ equity. Consolidated net income or (loss) is adjusted to include the net (income) or loss attributed to noncontrolling interests in the consolidated statements of operations. Refer to the Consolidated Statements of Series A Redeemable Convertible Preferred Stock and Stockholders’ Equity for total noncontrolling interests. In 2020, in connection with the transaction with Link Fund Solutions Limited, which is more fully described in Note 4, the Company acquired equity securities of Malin J1 Limited (“MalinJ1”). MalinJ1 is included in the Company’s consolidated financial statements because the Company, through its interest in the equity securities of MalinJ1, has the ability to control the operations and activities of MalinJ1. Viamet HoldCo LLC, a Delaware limited liability company and wholly-owned subsidiary of Acacia, is the majority shareholder of MalinJ1. A wholly-owned subsidiary of Acacia is the general partner of the Acacia Intellectual Property Fund, L.P. (the “Acacia IP Fund”), which was formed in August 2010. The Acacia IP Fund has been included in the Company’s consolidated financial statements since 2010, as Acacia’s wholly-owned subsidiary, the general partner of Acacia IP Fund, has the ability to F-10 Table of Contents control the operations and activities of the Acacia IP Fund. The Acacia IP Fund was terminated as of December 31, 2017 and dissolved in 2020. Segment Reporting The Company uses the management approach, which designates the internal organization that is used by management for making operating decisions and assessing performance as the basis of the Company’s reportable segments. Refer to Note 19 for additional information regarding our two reportable business segments: Intellectual Property Operations and Industrial Operations. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Acacia believes that, of the significant accounting policies described herein, the accounting policies associated with revenue recognition, estimates of variable consideration for revenue, including sales returns, the valuation of equity securities without readily determinable fair value, the determination of excess and obsolete inventories, bad debt allowances and product warranty liabilities, the valuation of Series A redeemable convertible preferred stock (the “Series A Redeemable Convertible Preferred Stock”), embedded derivatives, Series A warrants (the “Series A Warrants”) and Series B warrants (the “Series B Warrants”), stock-based compensation expense, impairment of goodwill, patent-related and other intangible assets, the determination of the economic useful life of amortizable intangible assets, and income taxes and valuation allowances against net deferred tax assets, require its most difficult, subjective or complex judgments. Revenue Recognition Intellectual Property Operations Acacia's revenue is recognized upon transfer of control (i.e., by the granting) of promised bundled IP Rights and other contractual performance obligations to licensees in an amount that reflects the consideration we expect to receive in exchange for those IP Rights. Revenue contracts that provide promises to grant the right to use IP Rights as they exist at the point in time at which the IP Rights are granted, are accounted for as performance obligations satisfied at a point in time and revenue is recognized at the point in time that the applicable performance obligations are satisfied and all other revenue recognition criteria have been met. For the periods presented, revenue contracts executed by Acacia primarily provided for the payment of contractually determined, one-time, paid-up license fees in consideration for the grant of certain IP Rights for patented technologies owned or controlled by Acacia. Revenues also included license fees from sales-based revenue contracts, the majority of which were originally executed in prior periods, which provide for the payment of quarterly license fees based on quarterly sales of applicable product units by licensees (“Recurring License Revenue Agreements”). Revenues may also include court ordered settlements or awards related to our patent portfolio or sales of our patent portfolio. IP Rights granted included the following, as applicable: (i) the grant of a non-exclusive, future license to manufacture and/or sell products covered by patented technologies, (ii) a covenant-not-to-sue, (iii) the release of the licensee from certain claims, and (iv) the dismissal of any pending litigation. The IP Rights granted were generally perpetual in nature, extending until the legal expiration date of the related patents. The individual IP Rights are not accounted for as separate performance obligations, as (i) the nature of the promise, within the context of the contract, is to grant combined items to which the promised IP Rights are inputs and (ii) the Company's promise to grant each individual IP right described above to the customer is not separately identifiable from other promises to grant IP Rights in the contract. Since the promised IP Rights are not individually distinct, Acacia combined each individual IP Right in the contract into a bundle of IP Rights that is distinct, and accounted for all of the IP Rights promised in the contract as a single performance obligation. The IP Rights granted were “functional IP rights” that have significant standalone functionality. Acacia’s subsequent activities do not substantively change that functionality and do not significantly affect the utility of the IP to which the licensee has rights. Acacia’s operating subsidiaries have no further obligation with respect to the grant of IP Rights, including no express or implied obligation to maintain or upgrade the technology, or provide future support or services. The contracts provide for the grant of the licenses, covenants-not-to-sue, releases, and other significant deliverables upon execution of the contract. Licensees legally obtain control of the IP Rights upon execution of the F-11 Table of Contents contract. As such, the earnings process is complete and revenue is recognized upon the execution of the contract, when collectability is probable and all other revenue recognition criteria have been met. Revenue contracts generally provide for payment of contractual amounts within 15-90 days of execution of the contract, or the end of the quarter in which the sale or usage occurs for Recurring License Revenue Agreements. Contractual payments made by licensees are generally non-refundable. For sales-based royalties from Recurring License Revenue Agreements, Acacia includes in the transaction price some or all of an amount of estimated variable consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Notwithstanding, revenue is recognized for a sales-based royalty promised in exchange for a license of IP Rights when the later of (i) the subsequent sale or usage occurs, or (ii) the performance obligation to which some or all of the sales-based royalty has been allocated has been satisfied. Estimates are generally based on historical levels of activity, if available. Revenues from contracts with significant financing components (either explicit or implicit) are recognized at an amount that reflects the price that a licensee would have paid if the licensee had paid cash for the IP Rights when they are granted to the licensee. In determining the transaction price, Acacia adjusts the promised amount of consideration for the effects of the time value of money. As a practical expedient, Acacia does not adjust the promised amount of consideration for the effects of a significant financing component if Acacia expects, at contract inception, that the period between when the entity grants promised IP Rights to a customer and when the customer pays for the IP Rights will be one year or less. In general, Acacia is required to make certain judgments and estimates in connection with the accounting for revenue contracts with customers. Such areas may include identifying performance obligations in the contract, estimating the timing of satisfaction of performance obligations, determining whether a promise to grant a license is distinct from other promised goods or services, evaluating whether a license transfers to a customer at a point in time or over time, allocating the transaction price to separate performance obligations, determining whether contracts contain a significant financing component, and estimating revenues recognized at a point in time for sales-based royalties. License revenues were comprised of the following for the periods presented: Years Ended December 31, 2021 2020 (In thousands) Paid-up license revenue agreements $ 73,585 $ 28,389 Recurring License Revenue Agreements 2,458 1,393 Total $ 76,043 $ 29,782 Industrial Operations Printronix recognizes revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration which it expects to receive for providing those goods or services. To determine the transaction price, Printronix estimates the amount of consideration to which it expects to be entitled in exchange for transferring promised goods or services to a customer. Elements of variable consideration are estimated at the time of sale which primarily include product rights of return, rebates, price protection and other incentives that occur under established sales programs. These estimates are developed using the expected value or the most likely amount method and are reviewed and updated, as necessary, at each reporting period. Revenues, inclusive of variable consideration, are recognized to the extent it is probable that a significant reversal recognized will not occur in future periods. The provision for returns and sales allowances is determined by an analysis of the historical rate of returns and sales allowances over recent quarters, and adjusted to reflect management’s future expectations. Printronix enters into contract arrangements that may include various combinations of tangible products (which include printers, consumables and parts) and services, which are generally capable of being distinct and accounted for as separate performance obligations. Printronix evaluates whether two or more contracts should be combined and accounted for as a single contract and whether the combined or single contract has more than one performance obligation. This evaluation requires judgement, and the decision to combine a group of contracts or separate the combined or single contract into multiple distinct performance obligations may impact the amount of revenue recorded in a reporting period. Printronix deems performance obligations to be distinct if the customer can benefit from the product or service on its own or together F-12 Table of Contents with readily available resources (i.e. capable of being distinct) and if the transfer of products or services is separately identifiable from other promises in the contract (i.e. distinct within the context of the contract). For contract arrangements that include multiple performance obligations, Printronix allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices for each performance obligation. In general, standalone selling prices are observable for tangible products and standard software while standalone selling prices for repair and maintenance services are developed with an expected cost-plus margin or residual approach. Regional pricing, marketing strategies and business practices are evaluated to derive the estimated standalone selling price using a cost-plus margin methodology. Printronix recognizes revenue for each performance obligation upon transfer of control of the promised goods or services. Control is deemed to have been transferred when the customer has the ability to direct the use of and has obtained substantially all of the remaining benefits from the goods and services. The determination of whether control transfers at a point in time or over time requires judgment and includes consideration of the following: 1) the customer simultaneously receives and consumes the benefits provided as Printronix performs its promises, 2) the performance creates or enhances an asset that is under control of the customer, 3) the performance does not create an asset with an alternative use to Printronix, and 4) Printronix has an enforceable right to payment for its performance completed to date. Revenues for products are generally recognized upon shipment, whereas revenues for services are generally recognized over time, assuming all other criteria for revenue recognition have been met. Incremental costs of obtaining a contract are expensed as incurred. Service revenue commissions are tied to the revenue recognized during the current year of the related sale. Printronix offers printer-maintenance services through service agreements that customers may purchase separately from the printer. These agreements commence upon expiration of the standard warranty period. Printronix provides the point-of-customer-contact, dispatches calls and sells the parts used for printer repairs to service providers. Printronix contracts third parties to perform the on-site repair services at the time of sale which covers the period of service at a set amount. The maintenance service agreements are separately priced at a stand-alone value. For those transactions in which maintenance service agreements are purchased concurrently with the purchase of printers, the revenue is deferred based on the selling price, which approximates the stand-alone value for separately sold maintenance services agreements. Revenue from maintenance service contracts are recognized on a straight-line basis over the period of each individual contract, which is consistent with the pattern in which the benefit is consumed by the customer. Printronix's net revenues from October 7, 2021 through December 31, 2021 were comprised of the following (in thousands): Printers, consumables and parts $ 10,934 Services 1,070 Total $ 12,004 Refer to Note 19 for additional information regarding net sales to customers by geographic region. Deferred revenue on the consolidated balance sheets represents a contract liability under Accounting Standards Codification (“ASC”) 606 and consists of payments and billings in advance of the performance. Printronix recognized approximately $ 800,000 in revenue that was previously included in the beginning balance (October 7, 2021) of deferred revenue during the period from October 7, 2021 through December 31, 2021. Printronix's payment terms vary by the type and location of its customers and the products, solutions or services offered. The time between invoicing and when payment is due is not significant. In instances where the timing of revenue recognition differs from the timing of invoicing, Printronix has determined that its contracts do not include a significant financing component. Printronix's remaining performance obligations, following the transfer of products to customers, primarily relate to repair and support services. The aggregated transaction price allocated to remaining performance obligations for arrangements with an original term exceeding one year was $ 772,000 , inclusive of deferred revenue, as of December 31, 2021. On average, remaining performance obligations as of December 31, 2021 are expected to be recognized over a period of approximately two years . F-13 Table of Contents Cost of Revenues Intellectual Property Operations Cost of revenues include the costs and expenses incurred in connection with Acacia’s patent licensing and enforcement activities, including inventor royalties paid to original patent owners, patent maintenance and prosecution costs, contingent legal fees paid to external patent counsel, other patent-related legal expenses paid to external patent counsel, licensing and enforcement related research, consulting and other expenses paid to third-parties and the amortization of patent-related investment costs. Cost of revenues were comprised of the following for the periods presented: Years Ended December 31, 2021 2020 (In thousands) Inventor royalties $ 1,142 $ 7,349 Contingent legal fees 12,074 7,419 Litigation and licensing expenses 5,462 5,683 Amortization of patents 9,851 4,681 Other patent portfolio expense (income) 162 ( 308 ) Total $ 28,691 $ 24,824 Inventor Royalties and Contingent Legal Expenses Inventor royalties are expensed in the consolidated statements of operations in the period that the related revenues are recognized. Patent costs, including any upfront advances paid to patent owners by Acacia’s operating subsidiaries, that are recoverable from future net revenues are amortized over the estimated economic useful life of the related patents, or as the prepaid royalties are earned by the inventor, as appropriate, and the related expense is included in amortization expense in the consolidated statements of operations. Any unamortized upfront advances recovered from net revenues are expensed in the period recovered and included in amortization expense in the consolidated statements of operations. Contingent legal fees are expensed in the consolidated statements of operations in the period that the related revenues are recognized. In instances where there are no recoveries from potential infringers, no contingent legal fees are paid; however, Acacia’s operating subsidiaries may be liable for certain out of pocket legal costs incurred pursuant to the underlying legal services agreement. Inventor royalty and contingent legal agreements generally provide for payment by the Company of contractual amounts 30 days subsequent to the quarter end during which related license fee payments are received from licensees by the Company. Industrial Operations Included in cost of sales are inventory costs (refer to " Inventories " below), indirect labor, overhead and warranty costs. Printronix offers both assurance-type and service-type product warranties with varying terms depending on the product, region and customer contracts. Warranty periods range from three months to two years . The provision for warranty costs is determined by applying the historical claims experience and estimated repair costs to the outstanding units under warranty. The following is a summary of the accrued warranty liabilities for the period from October 7, 2021 through December 31, 2021, which are included in accrued expenses and other current liabilities, and other long-term liabilities in the consolidated balance sheet as of December 31, 2021 (in thousands): Beginning balance (October 7, 2021) $ 260 Estimated future warranty expense 17 Warranty claims settled ( 55 ) Ending balance $ 222 F-14 Table of Contents Concentrations Intellectual Property Operations Financial instruments that potentially subject Acacia to concentrations of credit risk are cash equivalents and accounts receivable. Acacia places its cash equivalents primarily in highly rated money market funds and investment grade marketable securities. Cash and cash equivalents are also invested in deposits with certain financial institutions and may, at times, exceed federally insured limits. Acacia has not experienced any significant losses on its deposits of cash and cash equivalents. Two licensees individually accounted for 66 % and 16 % of revenues recognized during the year ended December 31, 2021. Three licensees individually accounted for 64 %, 10 % and 7 % of revenues recognized during the year ended December 31, 2020. Historically, Acacia has not had material foreign operations. Based on the jurisdiction of the entity obligated to satisfy payment obligations pursuant to the applicable license revenue arrangement, for the years ended December 31, 2021 and 2020, 69 % and 8 %, respectively, of revenues were attributable to licensees domiciled in foreign jurisdictions. During the fourth quarter of 2021, Acacia generated substantial revenue from a paid-up licensee domiciled in an Asia-Pacific country. Refer to Note 19 for additional information regarding revenue from customers by geographic region. Two licensees individually represented approximately 59 % and 41 % of accounts receivable at December 31, 2021. Two licensees individually represented approximately 62 % and 21 % of accounts receivable at December 31, 2020. Industrial Operations No single Printronix customer accounted for more than 10% of revenue during the period from October 7, 2021 through December 31, 2021. Printronix has foreign operations, refer to Note 19 for additional information regarding net sales to customers by geographic region. Accounts receivable from one customer represented 11 % of accounts receivable as of December 31, 2021. Exposure to credit risk is limited by the large number of customers comprising the remainder of the Printronix customer base and by periodic customer credit evaluations performed by Printronix. No Printronix vendor accounted for 10% or more of purchases during the period from October 7, 2021 through December 31, 2021. Accounts payable to one vendor represented 14 % of accounts payable as of December 31, 2021. Cash and Cash Equivalents Acacia considers all highly liquid securities with original maturities of three months or less when purchased to be cash equivalents. For the periods presented, Acacia’s cash equivalents are comprised of investments in AAA rated money market funds that invest in first-tier only securities, which primarily include domestic commercial paper and securities issued or guaranteed by the U.S. government or its agencies. F-15 Table of Contents Equity Securities at Fair Value Investments in equity securities are reported at fair value on a recurring basis, with related realized and unrealized gains and losses in the value of such securities recorded in the consolidated statements of operations in other income or (expense). Dividend income is included in other income or (expense). Refer to Note 11 for additional information related to fair value measurements. Equity securities at fair value for the periods presented were comprised of the following: Security Type Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value (In thousands) December 31, 2021: Equity securities - Life Sciences Portfolio (Note 4) $ 56,037 $ 262,811 $ ( 1,488 ) $ 317,360 Equity securities 43,822 2,068 ( 1,472 ) 44,418 Total $ 99,859 $ 264,879 $ ( 2,960 ) $ 361,778 December 31, 2020: Equity securities - Life Sciences Portfolio (Note 4) $ 32,765 $ 72,689 $ ( 583 ) $ 104,871 Equity securities 4,086 1,410 ( 1,264 ) 4,232 Total $ 36,851 $ 74,099 $ ( 1,847 ) $ 109,103 Debt Securities Investments in debt securities were reported at fair value on a recurring basis, with related realized and unrealized gains and losses recorded in the consolidated statements of operations in other income or (expense). Realized and unrealized gains and losses were recorded based on the specific identification method. Interest is included in other income or (expense). During the year ended December 31, 2020, we sold our investments in debt securities, resulting in proceeds from the sales and maturities of $ 118.5 million. Equity Securities Without Readily Determinable Fair Value For equity securities that do not have a readily determinable fair value, the Company elected to report them under the measurement alternative. They are reported at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment of the same issuer. The fair values of the private company securities were estimated based on recent financing transactions and secondary market transactions and factoring in any adjustments for illiquidity or preference of these securities. Changes in fair value are reported in the consolidated statements of operations in other income or (expense). To date, the Company has not recorded any impairments nor upward or downward adjustments on our equity securities without readily determinable fair values held as of December 31, 2021. Refer to Note 4 for additional information. Equity Method Investments Equity investments in common stock and in-substance common stock without readily determinable fair values in companies over which the Company has the ability to exercise significant influence, are accounted for using the equity method of accounting. Acacia includes its proportionate share of earnings and/or losses of its equity method investees in earnings on equity investment in joint venture in the consolidated statements of operations. Refer to Note 4 for additional information. Investments in preferred stock with substantive liquidation preferences are accounted for at cost, (subject to impairment considerations, as described below, if any), as adjusted for the impact of changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. In-substance common stock is an investment in an entity that has risk and reward characteristics that are substantially similar to that entity's common stock. An investment in preferred stock with substantive liquidation preferences over common stock, is not substantially similar to common stock, and therefore is not considered in-substance common stock. A liquidation preference is substantive if the F-16 Table of Contents investment has a stated liquidation preference that is significant, from a fair value perspective, in relation to the purchase price of the investment. A liquidation preference in an investee that has sufficient subordinated equity from a fair value perspective is substantive because, in the event of liquidation, the investment will not participate in substantially all of the investee's losses, if any. The initial determination of whether an investment is substantially similar to common stock is made on the initial date of investment if the Company has the ability to exercise significant influence over the operating and financial policies of the investee. That determination is reconsidered if (i) contractual terms of the investment are changed, (ii) there is a significant change in the capital structure of the investee, including the investee's receipt of additional subordinated financing, or (iii) the Company obtains an additional interest in an investment, resulting in the method of accounting for the cumulative interest being based on the characteristics of the investment at the date at which the Company obtains the additional interest. Investment at Fair Value On an individual investment basis, Acacia may elect to account for investments in companies where the Company has the ability to exercise significant influence over operating and financial policies of the investee, at fair value. If the fair value method is applied to an investment that would otherwise be accounted for under the equity method of accounting, it is applied to all of the financial interests in the same entity that are eligible items (i.e., common stock and warrants). We elected the fair value method for our investment in Veritone, Inc. (“Veritone”) upon acquisition of the investment. Since March 2021, we have no more investment in Veritone stocks and warrants. Refer to Note 5 for additional information. Impairment of Investments Acacia reviews its investments quarterly for indicators of other-than-temporary impairment. This determination requires significant judgment. In making this judgment, Acacia considers available quantitative and qualitative evidence in evaluating potential impairment of its investments. If the cost of an investment exceeds its fair value, Acacia evaluates, among other factors, general market conditions and the duration and extent to which the fair value is less than cost. Acacia also considers specific adverse conditions related to the financial health of and business outlook for the investee, including industry and sector performance, changes in technology, and operational and financing cash flow factors. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded in the consolidated statements of operations and a new cost basis in the investment is established. Accounts Receivable and Allowance for Doubtful Accounts Intellectual Property Operations Acacia performs credit evaluations of its licensees with significant receivable balances, if any, and has not experienced any significant credit losses. Accounts receivable are recorded at the executed contract amount and generally do not bear interest. Collateral is not required. An allowance for doubtful accounts may be established to reflect the Company’s best estimate of probable losses inherent in the accounts receivable balance, and is reflected as a contra-asset account on the balance sheets and a charge to general and administrative expenses in the consolidated statements of operations for the applicable period. The allowance is determined based on known troubled accounts, historical experience, and other currently available evidence. There was no allowance for doubtful accounts established as of December 31, 2021 and 2020. Industrial Operations Printronix's accounts receivable are recorded at the invoiced amount and do not bear interest. Printronix performs initial and periodic credit evaluations on customers and adjusts credit limits based upon payment history and the customer’s current creditworthiness. The allowance for doubtful accounts is determined by evaluating individual customer receivables, based on contractual terms, reviewing the financial condition of customers, and from the historical experience of write-offs. Receivable losses are charged against the allowance when management believes the account has become uncollectible. Subsequent recoveries, if any, are credited to the allowance. As of December 31, 2021, Printronix's combined allowance for doubtful accounts and allowance for sales returns was $ 78,000 . Inventories Printronix's inventories, which include material, labor and overhead costs, are valued at the lower of cost or net realizable value. Cost is determined at standard cost adjusted on a first-in, first-out basis for variances. Cost includes shipping and handling fees and other costs, including freight insurance and customs duties for international shipments, which are F-17 Table of Contents subsequently expensed to cost of sales. Printronix evaluates and records a provision to reduce the carrying value of inventory for estimated excess and obsolete stocks based upon forecasted demand, planned obsolescence and market conditions. Refer to Note 6 for additional information. Long-Term Restricted Cash Restricted cash relates primarily to the proceeds received from the issuance of Series A Redeemable Convertible Preferred Stock which are held in an escrow account (refer to Note 10). Such amounts were to be released to the Company upon, among other things, (i) the consummation of a suitable investment or acquisition by the Company or (ii) the conversion of Series A Redeemable Convertible Preferred Stock into common stock. During October 2021, the Company consummated a suitable acquisition, and accordingly $ 35.0 million was released to the Company. Property, Plant and Equipment Property and equipment are recorded at cost. Major additions and improvements that materially extend useful lives of property and equipment are capitalized. Maintenance and repairs are charged against the results of operations as incurred. When these assets are sold or otherwise disposed of, the asset and related depreciation are relieved, and any gain or loss is included in the consolidated statements of operations for the period of sale or disposal. Refer to Note 7 for additional information. Depreciation and amortization is computed on a straight-line basis over the following estimated useful lives of the assets: Machinery and equipment 2 to 10 years Furniture and fixtures 3 to 5 years Computer hardware and software 3 to 5 years Leasehold improvements 2 to 5 years (Lesser of lease term or useful life of improvement) Goodwill and Other Intangible Assets Goodwill represents the excess of the acquisition price of a business over the fair value of identified net assets of that business. We evaluate goodwill for impairment at least annually. When evaluating goodwill for impairment, we estimate the fair value of the reporting unit. Several methods may be used to estimate a reporting unit’s fair value, including, but not limited to, discounted projected future net earnings or net cash flows and multiples of earnings. If the carrying amount of a reporting unit, including goodwill, exceeds the estimated fair value, then the excess is charged to earnings as an impairment loss. Refer to Notes 3 and 8 for additional information. Acacia's patents include the cost of patents or patent rights acquired from third-parties or obtained in connection with business combinations. Acacia's patent costs are amortized utilizing the straight-line method over their estimated useful lives, ranging from five to ten years . Refer to Note 8 for additional information. Printronix's intangible assets consist of trade names and trademarks, patents and customer and distributor relationships. These definite-lived intangible assets, at the time of acquisition, are recorded at fair value and are stated net of accumulated amortization. Printronix currently amortizes the definite-lived intangible assets on a straight-line basis over their estimated useful lives of seven years . Refer to Notes 3 and 8 for additional information. Leases The Company’s leases primarily consist of facility leases which are classified as operating leases. The Company assesses whether an arrangement contains a lease at inception. The Company recognizes a lease liability to make contractual payments under all leases with terms greater than twelve months and a corresponding right-of-use asset, representing its right to use the underlying asset for the lease term. Lease expense is recognized on a straight-line basis over the lease term. Refer to Note 13 for additional information. Impairment of Long-lived Assets The Company reviews long-lived assets, patents and other intangible assets for potential impairment annually (quarterly for patents) and when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In the event the expected undiscounted future cash flows resulting from the use of the asset is less than the carrying amount of F-18 Table of Contents the asset, an impairment loss is recorded in an amount equal to the excess of the asset’s carrying value over its fair value. If an asset is determined to be impaired, the loss is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows. In the event that management decides to no longer allocate resources to a patent portfolio, an impairment loss equal to the remaining carrying value of the asset is recorded. Fair value is generally estimated using the “Income Approach,” focusing on the estimated future net income-producing capability of the patent portfolios over their estimated remaining economic useful life. Estimates of future after-tax cash flows are converted to present value through “discounting,” including an estimated rate of return that accounts for both the time value of money and investment risk factors. Estimated cash inflows are typically based on estimates of reasonable royalty rates for the applicable technology, applied to estimated market data. Estimated cash outflows are based on existing contractual obligations, such as contingent legal fee and inventor royalty obligations, applied to estimated license fee revenues, in addition to other estimates of out-of-pocket expenses associated with a specific patent portfolio’s licensing and enforcement program. The analysis also contemplates consideration of current information about the patent portfolio including, status and stage of litigation, periodic results of the litigation process, strength of the patent portfolio, technology coverage and other pertinent information that could impact future net cash flows. Refer to Note 8 for additional information. Series A and B Warrants The fair value of the Series A and B Warrants are estimated using a Black-Scholes option-pricing model. Refer to Notes 10 and 11 for additional information related to the Series A and B Warrants and their fair value measurements. Embedded Derivatives Embedded derivatives that are required to be bifurcated from their host contract are valued separately from the host instrument. A binomial lattice framework is used to estimate the fair value of the embedded derivative in the Series A Redeemable Convertible Preferred Stock issued by the Company in 2019. Refer to Notes 10 and 11 for additional information related to the embedded derivatives and their fair value measurements. Contingent Liabilities The Company, from time to time, is involved in certain legal proceedings. Based upon consultation with outside counsel handling its defense in these matters and the Company’s analysis of potential outcomes, if the Company determines that a loss arising from such matters is probable and can be reasonably estimated, an estimate of the contingent liability is recorded in its consolidated financial statements. If only a range of estimated loss can be determined, an amount within the range that, based on estimates, assumptions and judgments, reflects the most likely outcome, is recorded as a contingent liability in the consolidated financial statements. In situations where none of the estimates within the estimated range is a better estimate of probable loss than any other amount, the Company records the low end of the range. Any such accrual would be charged to expense in the appropriate period. Litigation expenses for these types of contingencies are recognized in the period in which the litigation services were provided. Refer to Note 13 for additional information. Fair Value of Financial Instruments The carrying value of cash and cash equivalents, restricted cash, accounts receivables and current liabilities approximates their fair values due to their short-term maturities. Fair Value Measurements U.S. GAAP defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date, and also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. Refer to Note 11 for additional information. F-19 Table of Contents Treasury Stock Repurchases of the Company’s outstanding common stock are accounted for using the cost method. The applicable par value is deducted from the appropriate capital stock account on the formal or constructive retirement of treasury stock. Any excess of the cost of treasury stock over its par value is charged to additional paid-in capital and reflected as treasury stock in the consolidated balance sheets. Refer to Note 14 for additional information. Engineering and Development Engineering and development costs are expensed as incurred and consist of labor, supplies, consulting and other costs related to developing and improving Printronix's products. Advertising Printronix expenses advertising costs, including promotional literature, brochures and trade shows, as incurred. Advertising expense was approximately $ 52,000 during the period from October 7, 2021 through December 31, 2021, and is included in sales and marketing expenses in the 2021 consolidated statement of operations. Stock-Based Compensation The compensation cost for all stock-based awards is measured at the grant date, based on the fair value of the award, and is recognized as an expense on a straight-line basis over the employee’s requisite service period (generally the vesting period of the equity award) which is generally one to three years . The fair value of restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) are determined by the product of the number of shares or units granted and the grant date market price of the underlying common stock. The fair value of each option award is estimated on the date of grant using a Black-Scholes option-pricing model. Forfeitures are accounted for as they occur. Refer to Note 15 for additional information. Foreign Currency Gains and Losses In connection with our Printronix business, the U.S. dollar is the functional currency for all of the foreign subsidiaries. Transactions that are recorded in currencies other than the U.S. dollar may result in transaction gains or losses at the end of the reporting period and when trade receipts and payments occur. For these subsidiaries, the assets and liabilities have been re-measured at the end of the period for changes in exchange rates, except inventories and property, plant and equipment, which have been remeasured at historical average rates. The consolidated statements of operations have been reevaluated at average rates of exchange for the reporting period, except cost of sales and depreciation, which have been reevaluated at historical rates. All foreign currency exchange activity is recorded in the consolidated statements of operations. Income Taxes Income taxes are accounted for using an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in Acacia’s consolidated financial statements or consolidated income tax returns. A valuation allowance is established to reduce deferred tax assets if all, or some portion, of such assets will more than likely not be realized, or if it is determined that there is uncertainty regarding future realization of such assets. Under U.S. GAAP, a tax position is a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax positions are recognized only when it is more likely than not (likelihood of greater than 50%), based on technical merits, that the position will be sustained upon examination. Tax positions that meet the more likely than not threshold are measured using a probability weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. Refer to Note 17 for additional information. Income Per Share For periods in which the Company generates net income, the Company computes basic net income per share attributable to common stockholders using the two-class method required for capital structures that include participating securities. Under the two-class method, securities that participate in non-forfeitable dividends, such as the Company’s outstanding unvested restricted stock and Series A Redeemable Convertible Preferred Stock, are considered participating securities and are F-20 Table of Contents allocated a portion of the Company’s earnings. For periods in which the Company generates a net loss, net losses are not allocated to holders of the Company’s participating securities as the security holders are not contractually obligated to share in the Company’s losses. Basic net income/loss per share of common stock is computed by dividing net income/loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net income/loss per share of common stock is computed by dividing net income/loss attributable to common stockholders by the weighted average number of common and dilutive common equivalent shares outstanding for the period using the treasury stock method or the as-converted method, or the two-class method for participating securities, whichever is more dilutive. Potentially dilutive common stock equivalents consist of stock options, restricted stock units, unvested restricted stock, Series A Redeemable Convertible Preferred Stock, Series A Warrants and Series B Warrants. Refer to Note 18 for additional information. Recent Accounting Pronouncements Recently Adopted In December of 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.” The update removed certain exceptions to the general principles in Topic 740 in U.S. GAAP. The Company adopted the update on January 1, 2021. The adoption of the update did not have a material effect on the Company’s financial position, results of operations or financial statement disclosures. Not Yet Adopted In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” to replace the incurred loss methodology with an expected credit loss model that requires consideration of a broader range of information to estimate credit losses over the lifetime of the asset, including current conditions and reasonable and supportable forecasts in addition to historical loss information, to determine expected credit losses. Pooling of assets with similar risk characteristics and the use of a loss model are also required. Also, in April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” to clarify the inclusion of recoveries of trade receivables previously written off when estimating an allowance for credit losses. The amendments in these updates will be effective for the Company on January 1, 2023, with early adoption permitted. Management is currently evaluating the impact that the amendments in these updates may have on the Company’s consolidated financial statements. In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,” to simplify the accounting for convertible instruments by eliminating large sections of the existing guidance in this area. It also eliminates several triggers for derivative accounting, including a requirement to settle certain contracts by delivering registered shares. This update reduces the number of accounting models for convertible instruments, revises the derivatives scope exception, and provides targeted improvements for earnings per share. Upon adoption, companies have the option to apply a modified or full retrospective transition approach. The amendments in this update will currently be effective for the Company on January 1, 2024, with early adoption permitted. Management is currently evaluating the impact that the amendments in this update may have on the Company’s consolidated financial statements. In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” to require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with “Revenue from Contracts with Customers (Topic 606).” At the acquisition date, an acquirer should account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts. The amendments in this update should be applied prospectively and will be effective for the Company on January 1, 2023, with early adoption permitted. Management is currently evaluating the impact that the amendments in this update may have on the Company’s consolidated financial statements. F-21 Table of Contents 3. ACQUISITION On October 7, 2021, we entered into a Stock Purchase Agreement and acquired all of the issued and outstanding shares of capital stock of Printronix. Printronix became a consolidated subsidiary of our operations as of this date. Printronix provides multi-technology printing solutions for the industrial, financial and logistics transportation industries. Printronix is engaged in the business of selling (i) line matrix printers, serial dot matrix printers, impact printers and related consumables and parts, (ii) continuous form paper, (iii) printer management tools and (iv) services related to the foregoing throughout the world. The products are generally used in industrial settings such as manufacturing plants and distribution centers. Printronix has a manufacturing site located in Malaysia and third-party configuration sites located in the United States, Singapore, and Holland, along with sales and support locations around the world to support its global network of users, channel partners and strategic alliances. The following unaudited pro forma summary presents consolidated information, as if the business combination had occurred on January 1, 2020: Years Ended December 31, 2021 2020 (Unaudited, in thousands) Pro forma: Revenues $ 119,725 $ 67,663 Net income attributable to Acacia Research Corporation 153,641 106,919 We had material, nonrecurring pro forma adjustments directly attributable to the business combination included in the above pro forma revenues and net income. These adjustments included an increase of $ 2.8 million in property and equipment related to the finalization of the valuations and an increase of $ 1.9 million related to finished goods inventory. The adjustments also included a decrease of $ 557,000 in deferred revenue. In 2021, we incurred $ 457,000 of acquisition-related costs. These expenses are included in general and administrative expenses for the year ended December 31, 2021 and are reflected in pro forma net income for the year ended December 31, 2020, in the table above. F-22 Table of Contents The following table summarizes the consideration transferred to acquire Printronix and the recognized amounts of identifiable assets acquired and liabilities assumed at the acquisition date (in thousands): Fair value of consideration transferred: Cash $ 35,937 Transaction expenses paid to Sellers 1,405 Other purchase price adjustments ( 200 ) Total consideration 37,142 Identifiable assets acquired and liabilities assumed: Cash and cash equivalents 3,892 Trade receivables 8,281 Inventories 10,837 Prepaid expenses and other current assets 2,786 Property, plant and equipment, net 4,261 Leased right-of-use assets 1,590 Customer relationships 5,300 Trade names and trademarks 3,430 Patents 3,400 Other assets 752 Trade and other payables ( 7,849 ) Deferred revenue ( 1,941 ) Long-term lease liabilities ( 1,590 ) Other long-term liabilities ( 3,477 ) Total identifiable net assets 29,672 Goodwill $ 7,470 Intangible Assets and Liabilities As of December 31, 2021, management has finalized the valuations of all acquired assets and liabilities assumed in the acquisition. Goodwill of $ 7.5 million represents the excess of the consideration transferred over the estimated fair values of assets acquired and liabilities assumed. The goodwill recognized is primarily attributed to the assembled workforce of Printronix and new customer relationships that did not exist at the time of the transaction. None of the goodwill resulting from the acquisition is deductible for tax purposes. All of the goodwill acquired is allocated to the Printronix reporting unit. Other intangible assets include $ 5.3 million of customer relationships, $ 3.4 million of patents, and $ 3.4 million of trade names and trademarks, all with weighted average useful lives of 7 years. Refer to Note 8 for additional information. The fair values of all intangibles were estimated using the income approach. Specifically, the multi-period excess earnings method was applied in the valuation of the customer relationships, and the relief-from-royalty method was applied in the valuation of the patents and trade names. These fair value measurements are based on significant inputs unobservable in the market and, therefore, represent a Level 3 measurement as defined in ASC 820. The key assumptions in applying the multi-period excess earnings method include the discount rate, attrition rate, estimated profit margin and contributory asset charges. The key assumptions in applying the relief-from-royalty method include the applicable projected revenues, discount rate, remaining economic life or rate of obsolescence and estimated royalty rate. Refer to Note 11 for additional information related to fair value measurements. 4. EQUITY SECURITIES PORTFOLIO INVESTMENT On April 3, 2020, the Company entered into an Option Agreement with LF Equity Income Fund (“Seller”), which included general terms through which the Company was provided the option to purchase life sciences equity securities in a portfolio F-23 Table of Contents of public and private companies (“Life Sciences Portfolio”) for an aggregate purchase price of £ 223.9 million, approximately $ 277.5 million at the exchange rate on April 3, 2020. On June 4, 2020, the Company executed the Transaction Agreement between Link Fund Solutions Limited, Seller, and the Company. Pursuant to the Transaction Agreement, the Company agreed to purchase from Seller and Seller agreed to transfer to the Company the specified equity securities of all companies in the Life Sciences Portfolio at set prices at various future dates. The transfer dates would vary among the Life Sciences Portfolio companies as the Transaction Agreement gives the Company the exclusive right to determine when to call for transfer of each security, and because each Life Sciences Portfolio company (or its existing equity holders) may be required to approve the transfer due to rights of first refusals and other company-specific terms and conditions. Thus, the execution of the Transaction Agreement resulted in forward contracts for the Company to purchase equity securities in each public and private company at a specified price on a future date. In accordance with the Transaction Agreement, the Company transferred the total purchase price of £ 223.9 million into an escrow account. Upon the transfer of equity securities in the Life Sciences Portfolio to the Company, the associated funds were released from the escrow account to Seller based on the consideration amount assigned to the equity securities for such Life Sciences Portfolio company in the Transaction Agreement. As of December 31, 2020, all of the equity securities in the Life Sciences Portfolio were transferred to the Company pursuant to the Transaction Agreement. The Company has sold a portion of the equity securities of such Life Sciences Portfolio while retaining an interest in a number of operating businesses, including a controlling interest in one of the companies. For accounting purposes, the total purchase price of the Life Sciences Portfolio was allocated to the individual equity securities based on their individual fair values as of April 3, 2020, in order to establish an appropriate cost basis for each of the acquired securities. The fair values of the public company securities were based on their quoted market price. The fair values of the private company securities were estimated based on recent financing transactions and secondary market transactions and factoring in a discount for the illiquidity of these securities. As of December 31, 2021 and 2020, the total fair value of the remaining Life Sciences Portfolio investment was $ 343.1 million and $ 267.8 million, respectively. During the year ended December 31, 2020, Seller returned a total of £ 4.5 million of the Company’s prepaid investment upon the failure to obtain the approval of the existing equity holders, pursuant to their rights of first refusals, of one of the companies in connection with the transfer of its securities. In addition, due to an ownership restriction applicable to one of the companies, the Company sold a small portion of an equity securities derivative for £ 33,000 before the remaining shares of such company could be transferred to us. The Company recognized a net gain of $ 2.8 million related to the returned prepaid investments and sale of the derivative. Changes in the fair value of Acacia’s investment in the Life Sciences Portfolio are recorded as unrealized gains or losses in the consolidated statements of operations. The consolidated statements of operations reflected the following net realized and unrealized gains from our Life Sciences Portfolio: Years Ended December 31, 2021 2020 (In thousands) Change in fair value of equity securities of public companies $ 188,875 $ 72,104 Change in fair value of equity securities without readily determinable fair value — 103,751 Conversion of equity securities without readily determinable fair value to equity securities of public companies ( 102,067 ) — Gain (loss) on sale of equity securities of public companies 115,172 ( 3,930 ) Gain on sale of prepaid investment and derivative — 2,845 Net realized and unrealized gain $ 201,980 $ 174,770 On October 13, 2021, Adaptix Limited issued $ 4.0 million in limited unsecured notes due in 2026 to Ratcliffe 2 Ltd., a subsidiary of Merton Healthcare Holdco II LLC. The interest rate on the notes is 8 percent per year. During the year ended December 31, 2021, we recorded $ 69,000 in interest income related to the notes. The receivable was $ 4.0 million and is included in other non-current assets on the consolidated balance sheet as of December 31, 2021. As part of the Company’s acquisition of equity securities in the Life Sciences Portfolio, the Company acquired a majority interest in the equity securities of MalinJ1 ( 63.9 %), which were transferred to the Company on December 3, 2020. The F-24 Table of Contents acquisition of the MalinJ1 securities was accounted for as an asset acquisition as there was a change of control of MalinJ1 and substantially all of the fair value of the assets acquired was concentrated in a single identifiable asset, an investment in Viamet Pharmaceuticals Holdings, LLC (“Viamet”). As such, the cost basis of the MalinJ1 securities was used to allocate to the Viamet investment, the single identifiable asset, and no goodwill was recognized. The Company through its consolidation of MalinJ1 accounts for the Viamet investment under the equity method as MalinJ1 owns 41.0 % of outstanding shares of Viamet. During the year ended December 31, 2021, our consolidated earnings on equity investment was $ 3.5 million, included in the consolidated statement of operations, and distributions received amounted to approximately $ 2.4 million to Acacia and approximately $ 1.2 million to noncontrolling interests. 5. INVESTMENT AT FAIR VALUE During 2016 and 2017, Acacia made certain investments in Veritone. As a result of these transactions, Acacia received an aggregate total of 4,119,521 shares of Veritone common stock and warrants to purchase a total of 1,120,432 shares of Veritone common stock at an exercise price of $ 13.61 per share expiring between 2020 and 2027. During 2018, Acacia sold 2,700,000 shares Veritone common stock and recorded a realized loss of $ 19.1 million. During 2019, Acacia sold 1,121,071 shares Veritone common stock and recorded a realized loss of $ 9.2 million. During the year ended December 31, 2020, Acacia sold all remaining 298,450 shares of Veritone common stock and recorded a realized loss of $ 3.3 million. During the year ended December 31, 2020, Acacia exercised 963,712 warrants and recorded a realized gain of $ 11.5 million. During the year ended December 31, 2021, Acacia exercised all remaining 156,720 warrants and recorded a realized gain of $ 3.6 million. The Company no longer has an investment in Veritone common stock and warrants. Unrealized and realized gains or losses from our investment in Veritone are recorded in the change in fair value of investment and gain on sale of investment, respectively, in the consolidated statements of operations. The consolidated statements of operations reflected the following net realized and unrealized gains: Years Ended December 31, 2021 2020 (In thousands) Change in fair value of investment, warrants $ ( 2,752 ) $ 1,996 Change in fair value of investment, common stock — 3,478 Gain on sale of investment, warrants 3,591 11,503 Loss on sale of investment, common stock — ( 3,316 ) Net realized and unrealized gain $ 839 $ 13,661 6. INVENTORIES Printronix's inventories consisted of the following: December 31, 2021 (In thousands) Raw materials $ 3,207 Subassemblies and work in process 1,712 Finished goods 4,011 Inventories $ 8,930 F-25 Table of Contents 7. PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, net consisted of the following: December 31, 2021 2020 (In thousands) Machinery and equipment $ 2,077 $ — Furniture and fixtures 1,036 144 Computer hardware and software 614 152 Leasehold improvements 1,034 120 4,761 416 Accumulated depreciation and amortization ( 578 ) ( 146 ) Property, plant and equipment, net $ 4,183 $ 270 Total depreciation and amortization expense in the consolidated statements of operations was $ 438,000 and $ 119,000 for the years ended December 31, 2021 and 2020, respectively. Our Intellectual Property Operations includes depreciation and amortization in general and administrative expenses, and our Industrial Operations, for the period from October 7, 2021 through December 31, 2021, allocates depreciation and amortization to all applicable operating expense categories. 8. GOODWILL AND OTHER INTANGIBLE ASSETS, NET Changes in the carrying amount of goodwill consisted of the following: Year Ended December 31, 2021 (In thousands) Beginning balance $ — Acquisition of business 7,470 Impairment losses — Ending balance $ 7,470 The ending balance of goodwill includes no accumulated impairment losses to date. Refer to Note 3 for additional information related to the Printronix acquisition. Other intangible assets, net consisted of the following: December 31, 2021 Weighted Average Amortization Period Gross Carrying Amount Accumulated Amortization Net Book Value (In thousands) Patents: Intellectual property operations 6 years $ 331,403 $ ( 294,341 ) $ 37,062 Industrial operations 7 years 3,400 ( 112 ) 3,288 Total patents 334,803 ( 294,453 ) 40,350 Customer relationships - industrial operations 7 years 5,300 ( 174 ) 5,126 Trade name and trademarks - industrial operations 7 years 3,430 ( 113 ) 3,317 Total $ 343,533 $ ( 294,740 ) $ 48,793 F-26 Table of Contents December 31, 2020 Weighted Average Amortization Period Gross Carrying Amount Accumulated Amortization Net Book Value (In thousands) Patents: Intellectual property operations 7 years $ 336,834 $ ( 319,922 ) $ 16,912 Total patents $ 336,834 $ ( 319,922 ) $ 16,912 Total intangible asset amortization expense in the consolidated statements of operations was $ 10.3 million and $ 4.7 million for the years ended December 31, 2021 and 2020, respectively. The Company did not record charges related to the impairment of intangible assets for the years ended December 31, 2021 and 2020. There was approximately $ 152,000 in accelerated amortization of intangible assets for the year ended December 31, 2021 and none in 2020. During 2021, Acacia reduced its gross patent costs and accumulated amortization by approximately $ 35.0 million for patents that were fully amortized. Intellectual Property Operations amortization of patents is expensed in cost of revenues and Industrial Operations amortization, for the period from October 7, 2021 through December 31, 2021, is expensed in general and administrative expenses. The following table presents the scheduled annual aggregate amortization expense (in thousands): Years Ending December 31, 2022 $ 12,136 2023 12,068 2024 10,692 2025 8,348 2026 2,483 Thereafter 3,066 Total $ 48,793 During the year ended December 31, 2021, Acacia accrued certain patent and patent rights acquisition costs, of which $ 5.0 million is due February 18, 2023. Such amount is included in other long-term liabilities in the consolidated balance sheet as of December 31, 2021. 9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consisted of the following: December 31, 2021 2020 (In thousands) Accrued legal expenses $ — $ 2,284 Customer deposit 3,000 — Income taxes payable 506 — Product warranty liability, current 84 — Service contract costs 307 — Short-term lease liability 935 589 Other accrued liabilities 957 834 Total $ 5,789 $ 3,707 F-27 Table of Contents 10. STARBOARD INVESTMENT Series A Redeemable Convertible Preferred Stock On November 18, 2019, the Company entered into a Securities Purchase Agreement with Starboard Value LP (“Starboard”) and certain funds and accounts affiliated with, or managed by, Starboard (collectively, the “Buyers”) pursuant to which the Company issued (i) 350,000 shares of Series A Redeemable Convertible Preferred Stock with a par value of $ 0.001 per share and a stated value of $ 100 per share, and (ii) Series A Warrants to purchase up to 5 million shares of the Company’s common stock to the Buyers. The Securities Purchase Agreement also established the terms of certain senior secured notes and additional Series B Warrants which may be issued to Starboard in the future. On June 4, 2020, the Company entered into a Supplemental Agreement, as defined below under “Senior Secured Notes”, with certain contractual agreements affecting the Series A Redeemable Convertible Preferred Stock, reflected below. The Series A Redeemable Convertible Preferred Stock can be converted into a number of shares of common stock equal to (i) the stated value thereof plus accrued and unpaid dividends, divided by (ii) the conversion price of $ 3.65 (subject to certain anti-dilution adjustments). Holders may elect to convert the Series A Redeemable Convertible Preferred Stock into common stock at any time. The Company may elect to convert the Series A Redeemable Convertible Preferred Stock into shares of Common Stock any time on or after November 15, 2025, provided that the closing price of the Company’s common stock equals or exceeds 190 % of the conversion price for 30 consecutive trading days and assuming certain other conditions of the common stock have been met. Holders have the option to redeem all or a portion of the Series A Redeemable Convertible Preferred Stock during the period of May 15, 2022 through August 15, 2022, provided that there is not outstanding at least $ 50.0 million aggregate principal of senior secured notes to the Buyers pursuant to the Securities Purchase Agreement at the time of the redemption. Holders also have the option to redeem all or a portion of the Series A Redeemable Convertible Preferred Stock during the period of November 15, 2024 through February 15, 2025. Additionally, holders have the option to redeem all or a portion of the Series A Redeemable Convertible Preferred Stock upon the occurrence of (i) a change of control or (ii) various other triggering events, such as the suspension from trading or delisting of the Company’s common stock. If the Series A Redeemable Convertible Preferred Stock is redeemed at the option of the holders, the redemption price may include a make-whole amount or a stated premium, depending on the redemption scenario. The Company may redeem all, and not less than all, of the Series A Redeemable Convertible Preferred Stock (i) upon a change of control or (ii) during the period of May 15, 2022 through August 15, 2022, provided that there is not outstanding at least $ 50.0 million aggregate principal of the senior secured notes at the time of the redemption, and assuming certain conditions of the common stock have been met. If the Series A Redeemable Convertible Preferred Stock is redeemed at the option of the Company, the redemption price would include a make-whole amount or a 15 % premium depending on the circumstances. If any Series A Redeemable Convertible Preferred Stock remains outstanding on November 15, 2027, the Company shall redeem such Series A Redeemable Convertible Preferred Stock in cash. In all redemption scenarios, the redemption price for the Series A Redeemable Convertible Preferred Stock includes the stated value plus accrued and unpaid dividends. In addition, depending on the redemption scenario, the redemption price may also include a make-whole amount or stated premium as described above. When the Company issues Notes, the Holder may exchange the Series A Redeemable Convertible Preferred Stock for (i) Notes and (ii) Series B Warrants to purchase common stock. The Series A Redeemable Convertible Preferred Stock accrues cumulative dividends quarterly at annual rate of 3.0 % on the stated value. Upon certain triggering events, the dividend rate will increase to 7.0% if the triggering event occurs before an approved investment or 10.0% on the stated value if the triggering event occurs after an approved investment. In connection with the approved investment in June 2020, the Company and the Buyers agreed that the dividend rate on the Series A Redeemable Convertible Preferred Stock would accrue at 3.0% so long as no triggering event occurs and the Company maintains $ 35.0 million in escrow. Series A Redeemable Convertible Preferred Stock also participates on an as-converted basis in any regular or special dividends paid to common stockholders. During October 2021, the Company consummated a suitable acquisition, accordingly $ 35.0 million was released to the Company from escrow (refer to Note 3). Upon consummation of the approved acquisition in October 2021, the dividend rate increased to 8.0 % on the stated value. There are no accrued and unpaid dividends as of December 31, 2021. F-28 Table of Contents Holders of the Series A Redeemable Convertible Preferred Stock have the right to vote with common stockholders on an as-converted basis on all matters. Holders of Series A Redeemable Convertible Preferred Stock will also be entitled to a separate class vote with respect to amendments to the Company’s organizational documents that generally have an adverse effect on the Series A Redeemable Convertible Preferred Stock. Upon liquidation of the Company, holders of Series A Redeemable Convertible Preferred Stock have a liquidation preference over holders of our common stock and will be entitled to receive, prior to any distribution to holders of our common stock, an amount equal to the greater of (i) the stated value plus accrued and unpaid dividends or (ii) the amount that would have been received if the Series A Redeemable Convertible Preferred Stock had been converted into common stock immediately prior to the liquidation event at the then effective conversion price. The Company determined that certain features of the Series A Redeemable Convertible Preferred Stock should be bifurcated and accounted for as a derivative. Each of these features are bundled together as a single, compound embedded derivative. During 2019, total proceeds received and transaction costs incurred from the issuance of the Series A Redeemable Convertible Preferred Stock amounted to $ 35.0 million and $ 1.3 million, respectively. Proceeds received were allocated based on the fair value of the instrument without the Series A Warrants and of the Series A Warrants themselves at the time of issuance. The proceeds allocated to the Series A Redeemable Convertible Preferred Stock were then further allocated between the host preferred stock instrument and the embedded derivative, with the embedded derivative recorded at fair value and the Series A Redeemable Convertible Preferred Stock recorded at the residual amount. The portion of the proceeds allocated to the Series A Warrants, embedded derivative, and Series A Redeemable Convertible Preferred Stock was $ 4.8 million, $ 21.2 million, and $ 8.9 million, respectively. Transaction costs were also allocated between the Series A Redeemable Convertible Preferred Stock and the Series A Warrants on the same basis as the proceeds. The transaction costs allocated to the Series A Redeemable Convertible Preferred Stock were treated as a discount to the Series A Redeemable Convertible Preferred Stock. The transaction costs allocated to the Series A Warrants were expensed as incurred. The Company classifies the Series A Redeemable Convertible Preferred Stock as mezzanine equity as the instrument will become redeemable at the option of the holder in various scenarios or otherwise on November 15, 2027. As it is probable that the Series A Redeemable Convertible Preferred Stock will become redeemable, the Company accretes the instrument to its redemption value using the effective interest method and recognizes any changes against additional paid in capital in the absence of retained earnings. Accretion for the years ended December 31, 2021 and 2020 was $ 3.8 million and $ 2.8 million, respectively. In connection with the issuance of the Series A Redeemable Convertible Preferred Stock, the Company executed a Registration Rights Agreement with Starboard and the Buyers and a Governance Agreement with Starboard and certain affiliates of Starboard. Under the Registration Rights Agreement, the Company agreed to provide certain registration rights with respect to the Series A Redeemable Convertible Preferred Stock and shares of common stock issued upon conversion. In accordance with the Governance Agreement, the Company agreed to (i) increase the size of the Board of Directors from six to seven members, (ii) appoint Jonathan Sagal as a director of the Company, (iii) grant Starboard the right to recommend two additional directors for appointment to the board, (iv) form a Strategic Committee of the Board tasked with sourcing and performing due diligence on potential acquisition targets, (v) appoint certain directors to the Strategic Committee, and (vi) appoint a director to the Nominating and Corporate Governance Committee. The following features of the Series A Redeemable Convertible Preferred Stock are required to be bifurcated from the host preferred stock and accounted for separately as an embedded derivative: (i) the right of the holders to redeem the shares (the “put option”), (ii) the right of the holders to receive common stock upon conversion of the shares (the “conversion option”), (iii) the right of the Company to redeem the shares (the “call option”), and (iv) the change in dividend rate upon consummation of an approved investment or a triggering event (the “contingent dividend rate feature”). These features are required to be accounted for separately from the Series A Redeemable Convertible Preferred Stock because the features were determined to be not clearly and closely related to the debt-like host and also did not meet any other scope exceptions for derivative accounting. Therefore, these features are bundled together and are accounted for as a single, compound embedded derivative liability. Accordingly, we have recorded an embedded derivative liability representing the combined fair value of each of these features. The embedded derivative liability is adjusted to reflect fair value at each period end with changes in fair value F-29 Table of Contents recorded other income or (expense) in the “Change in fair value of the Series A and B warrants and embedded derivatives” financial statement line item of the consolidated statements of operations. As of December 31, 2021 and 2020, the fair value of the Series A embedded derivative was $ 18.4 million and $ 26.7 million, respectively. Series A Warrants On November 18, 2019, in connection with the issuance of the Series A Redeemable Convertible Preferred Stock, the Company issued detachable Series A Warrants to acquire up to 5 million shares of common stock at a price of $ 3.65 per share (subject to certain anti-dilution adjustments) at any time during a period of eight years beginning on the instrument’s issuance date of the Series A Warrants. The fair value of the Series A Warrants was $ 4.8 million upon issuance. The Series A Warrants will be recognized at fair value at each reporting period until exercised, with changes in fair value recognized in other income or (expense) in the consolidated statements of operations. As of December 31, 2021 and 2020, the fair value of the Series A Warrants was $ 11.3 million and $ 6.6 million, respectively. As of December 31, 2021, the Series A Warrants have not been exercised. The Series A Warrants are classified as a liability in accordance with ASC 480, "Distinguishing Liabilities from Equity", as the agreement provides for net cash settlement upon a change in control, which is outside the control of the Company. Series B Warrants On February 25, 2020, pursuant to the terms of the Securities Purchase Agreement with Starboard and the Buyers, the Company issued Series B Warrants to purchase up to 100 million shares of the Company’s common stock at an exercise price (subject to certain price-based anti-dilution adjustments) of either (i) $ 5.25 per share, if exercising by cash payment, within 30 months from the issuance date (i.e., August 25, 2022); or (ii) $ 3.65 per share, if exercising by cancellation of a portion of Notes. The Company issued the Series B Warrants for an aggregate purchase price of $ 4.6 million. The Series B Warrants expire on November 15, 2027. In connection with the issuance of the Notes on June 4, 2020, the terms of certain of the Series B Warrants were amended to permit the payment of the lower exercise price of $ 3.65 through the payment of cash, rather than only through the cancellation of Notes outstanding, at any time until the expiration date of November 15, 2027. 31,506,849 of the Series B Warrants are subject to this adjustment with the remaining balance of 68,493,151 Series B Warrants continuing under their original terms. As of December 31, 2021, the Series B Warrants have not been exercised. The Series B Warrants will be recognized at fair value at each reporting period until exercised, with changes in fair value recognized in other income or (expense) in the consolidated statements of operations. As of December 31, 2021 and 2020, the fair value of the Series B Warrants was $ 96.4 million and $ 52.3 million, respectively. The Series B Warrants are classified as a liability in accordance with ASC 480, "Distinguishing Liabilities from Equity", as the agreement provides for net cash settlement upon a change in control, which is outside the control of the Company. Senior Secured Notes On June 4, 2020, pursuant to the Securities Purchase Agreement dated November 18, 2019 with Starboard and the Buyers, the Company issued $ 115.0 million in Notes to the Buyers. Also on June 4, 2020, in connection with the issuance of the Notes, the Company entered into a Supplemental Agreement with Starboard (the “Supplemental Agreement”), as discussed further below. On June 30, 2020, the Company entered into an Exchange Agreement (the “Exchange Agreement”) with Merton Acquisition HoldCo LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“Merton”) and Starboard, on behalf of itself and on behalf of certain funds and accounts under its management, including the holders of the Notes. Pursuant to the Exchange Agreement, the holders of the Notes exchanged the entire outstanding principal amount for new senior notes (the “New Notes”) issued by Merton having an aggregate outstanding original principal amount of $ 115.0 million. The New Notes bear interest at a rate of 6.00 % per annum and had a maturity date of December 31, 2020. The New Notes are fully guaranteed by the Company and are secured by an all-assets pledge of the Company and Merton and non-recourse equity pledges of each of the Company’s material subsidiaries. Pursuant to the Exchange Agreement, the New Notes (i) are deemed to be “Notes” for purposes of the Securities Purchase Agreement, (ii) are deemed to be “June 2020 Approved F-30 Table of Contents Investment Notes” for purposes of the Supplemental Agreement, and with the Company agreeing to redeem $ 80.0 million principal amount of the New Notes by September 30, 2020 and $ 35.0 million principal amount of the New Notes by December 31, 2020, and (iii) are deemed to be “Notes” for the purposes of the Series B Warrants, and therefore may be tendered pursuant to a Note Cancellation under the Series B Warrants on the terms set forth in the Series B Warrants and the New Notes. Delivery of notes in the form of the New Notes will also satisfy the delivery of Exchange Notes pursuant to Section 16(i) of the Certificate of Designations of the Company’s Series A Convertible Preferred Stock, par value $ 0.001 per share. The New Notes will not be deemed to be “Notes” for the purposes of the Registration Rights Agreement, dated as of November 18, 2019, by and among the Company, Starboard and the Buyers. Because the New Notes are to be settled within twelve months pursuant to their terms, they are classified as current liabilities in the consolidated balance sheets. The Company capitalized $ 4.6 million in lender fees and $ 0.5 million in other issuance costs associated with the issuance of the Notes. The $ 4.6 million of lender fees were initially recognized as long-term deferred debt issuance costs and were included in other non-current assets in the consolidated balance sheets up to and as of September 30, 2021, and were to be amortized to interest expense until November 15, 2027, the original maturity/expiration date of the transactions governed by the Starboard investment. During the fourth quarter of 2021, it was determined the correct deferred debt issuance costs amortization period was the approximate seven month period ended December 31, 2020, the initial redemption date of the Notes. Accordingly, the Company has adjusted the related prior period consolidated financial statements to reflect this correction. Refer to Note 20 " Correction of Immaterial Error " for additional information. The $ 0.5 million issuance costs are recognized as a discount on the Notes and will be amortized to interest expense over the contractual life of the Notes. There was $ 1,338,000 and $ 863,000 accrued and unpaid interest on the New Notes as of December 31, 2021 and 2020, respectively. On January 29, 2021, the Company redeemed $ 50.0 million of the New Notes and on March 31, 2021, the Company reissued $ 50.0 million of the New Notes. On June 30, 2021, the Company issued $ 30.0 million in additional New Notes (the “June 2021 Merton Notes”) and amended the maturity date of the New Notes to October 15, 2021. On September 30, 2021, the Company issued $ 35.0 million in additional New Notes (the “September 2021 Merton Notes”) and amended the maturity date of the New Notes to December 1, 2021. The June and September 2021 Merton Notes cannot be used to exercise Series B Warrants issued to Starboard Value. On November 30, 2021, the Company amended the maturity date of the New Notes to January 31, 2022. The total principal amount outstanding of New Notes as of December 31, 2021 and 2020 was $ 180.0 million and $ 115.0 million, respectively. The New Notes interest rate remains at 6.00 % per annum as of December 31, 2021. On January 31, 2022, the Company amended the maturity date of the New Notes to April 15, 2022, and agreed to repay an aggregate of $ 15.0 million principal amount of the New Notes, resulting in a principal amount outstanding of $ 165.0 million. Modifications to Series A Redeemable Convertible Preferred Stock and Series B Warrants The June 4, 2020 Supplemental Agreement also provided for (i) a waiver of increased dividends under the original terms of the Series A Redeemable Convertible Preferred Stock that would have otherwise accrued due to the Company’s use of the $ 35.0 million proceeds received from Starboard and the Buyers upon the issuance of the Series A Redeemable Convertible Preferred Stock in November 2019, (ii) the replacement of original optional redemption rights for the Series A Redeemable Convertible Preferred Stock provided to both the Company and the holders that otherwise would have been nullified through the issuance of the Notes, and (iii) an amendment to the terms of the previously issued Series B Warrants to permit the payment of the lower exercise price of $ 3.65 through the payment of cash, rather than only through the cancellation of Notes outstanding, at any time until the expiration of the Series B Warrants on November 15, 2027. 31,506,849 of the Series B Warrants are subject to this adjustment with the remaining balance of 68,493,151 Series B Warrants continuing under their original terms. We analyzed the amendments to the Series A Redeemable Convertible Preferred Stock and determined that the amendments were not significant. Therefore, the amendments are accounted for as a modification on a prospective basis. The incremental fair value of the Series B Warrants associated with the modification of their terms in connection with the issuance of the Notes was $ 1.3 million and is recognized as a discount on the Notes and will be amortized to interest expense over the contractual life of the Notes. For the years ended December 31, 2021 and 2020, $ 103,000 and $ 1.2 million, respectively, was amortized to interest expense. As of December 31, 2021, $ 68,000 is remaining to be amortized until the maturity date of April 15, 2022. F-31 Table of Contents 11. FAIR VALUE MEASUREMENTS U.S. GAAP defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date, and also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. The three-level hierarchy of valuation techniques established to measure fair value is defined as follows: (i) Level 1 - Observable Inputs : Quoted prices in active markets for identical investments; (ii) Level 2 - Pricing Models with Significant Observable Inputs : Other significant observable inputs, including quoted prices for similar investments, interest rates, credit risk, etc.; and (iii) Level 3 - Unobservable Inputs : Unobservable inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Management estimates include certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs, including the entity’s own assumptions in determining the fair value of derivatives and certain investments. Whenever possible, the Company is required to use observable market inputs (Level 1) when measuring fair value. In such cases, the level at which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The assessment of the significance of a particular input requires judgment and considers factors specific to the asset or liability being measured. In certain cases, inputs used to measure fair value may fall into different levels of the fair value hierarchy. The Company holds the following types of financial instruments at fair value on a recurring basis as of December 31, 2021 and 2020: Equity Securities at Fair Value. Equity securities includes investments in public company common stock and are recorded at fair value based on the quoted market price of each share on the valuation date. The fair value of these securities are within Level 1 of the valuation hierarchy. Equity investments that do not have regular market pricing, but for which fair value can be determined based on other data values or market prices, are recorded at fair value within Level 2 of the valuation hierarchy. At December 31, 2021, our Level 2 equity securities include an investment measured with an applied pricing model that includes significant observable inputs to the public company common stock value. The fair value of this Level 2 equity security investment as of December 31, 2021 was estimated based on a discount of 3 percent determined using the following significant inputs to the pricing model: expected term of restriction of 3 months and volatility of approximately 45 percent. Investments at Fair Value - Warrants. Acacia’s equity investment in Veritone warrants was recorded at fair value based on the Black-Scholes option-pricing model (Level 2). Refer to Note 5 for additional information. Series A Warrants. Series A Warrants are recorded at fair value, using Black-Scholes option-pricing model (Level 3). In the quarter ended March 31, 2021, there was a change in estimate with regard to the calculation of the volatility assumption used in the Black-Scholes option-pricing model. As a result, the Series A Warrants are now measured as Level 3 as opposed to Level 2 as measured previously. The fair value of the Series A Warrants as of December 31, 2021 was estimated based on the following significant assumptions: volatility of 30 percent, risk-free rate of 1.33 percent, term of 5.79 years and a dividend yield of 0 percent. The fair value of the Series A Warrants as of December 31, 2020 was estimated based on the following significant assumptions: volatility of 29 percent, risk-free rate of 0.62 percent, term of 6.79 years and a dividend yield of 0 percent. Refer to the " Embedded derivative liabilities" discussion below for additional information on assumptions. Series B Warrants. Series B Warrants are recorded at fair value, using Black-Scholes option-pricing model (Level 3). In the quarter ended March 31, 2021, there was a change in methodology used to an acceptable Black-Scholes option-pricing model from a Monte Carlo valuation technique used to value the Series B Warrants as of December 31, 2020. The fair value of the Series B Warrants as of December 31, 2021 was estimated based on the following significant assumptions: (1) volatility of 30 percent, risk-free rate of 1.34 percent, term of 5.88 years and a dividend yield of 0 percent, and (2) volatility of 25 percent, risk-free rate of 0.25 percent, term of 0.65 years and a dividend yield of 0 percent. The fair value of the F-32 Table of Contents Series B Warrants as of December 31, 2020 was estimated based on the following significant assumptions: (1) volatility of 29 percent, risk-free rate of 0.63 percent, term of 6.87 years, a dividend yield of 0 percent and a discount for lack of marketability of 10.00 percent, and (2) volatility of 50 percent, risk-free rate of 0.12 percent, term of 1.65 years, a dividend yield of 0 percent and a discount for lack of marketability of 10.00 percent. Refer to the " Embedded derivative liabilities" discussion below for additional information on assumptions. Embedded derivative liabilities. Embedded derivatives that are required to be bifurcated from their host contract are evaluated and valued separately from the host instrument. A binomial lattice framework is used to estimate the fair value of the embedded derivative in the Series A Redeemable Convertible Preferred Stock issued by the Company in 2019 (Level 3). The binomial model utilizes the Tsiveriotis and Fernandes implementation in which a convertible instrument is split into two separate components within a single lattice framework: a cash-only component which is subject to the selected risk-adjusted discount rate and an equity component which is subject only to the risk-free rate. The model considers the (i) implied volatility of the value of our common stock, (ii) appropriate risk-free interest rate, (iii) credit spread, (iv) dividend yield, (v) dividend accrual (and a step-up in rates), and (vi) event probabilities of the various conversion and redemption scenarios. The volatility of the Company’s common stock is estimated by analyzing the Company’s historical volatility, implied volatility of publicly traded stock options, and the Company’s current asset composition and financial leverage. The selected volatility, as described below, represents a haircut from the Company’s actual realized historical volatility. A volatility haircut is a concept used to describe a commonly observed occurrence in which the volatility implied by market prices involving options, warrants, and convertible debt is lower than historical actual realized volatility. The assumed base case term used in the valuation model is the period remaining until November 15, 2027, the Series A Redeemable Convertible Preferred Stock maturity date. The risk-free interest rate is based on the yield on the U.S. Treasury with a remaining term equal to the expected term of the conversion and early redemption options. The significant assumptions utilized in the Company’s valuation of the embedded derivative at December 31, 2021 are as follows: volatility of 30 percent, risk-free rate of 1.30 percent, term of 5.87 years , a dividend yield of 0 percent and a discount rate of 9.60 percent. The significant assumptions utilized in the Company’s valuation of the embedded derivative at December 31, 2020 are as follows: volatility of 29 percent, risk-free rate of 0.62 percent, term of 6.87 years, a discount rate of 19.25 percent and a dividend yield of 0 percent . The fair value measurement of the embedded derivative is sensitive to these assumptions and changes in these assumptions could result in a materially different fair value measurement. F-33 Table of Contents Financial assets and liabilities measured at fair value on a recurring basis were as follows: Level 1 Level 2 Level 3 Total (In thousands) Assets December 31, 2021: Equity securities at fair value $ 113,630 $ 248,148 $ — $ 361,778 Total $ 113,630 $ 248,148 $ — $ 361,778 December 31, 2020: Equity securities at fair value $ 109,103 $ — $ — $ 109,103 Investment at fair value - warrants — 2,752 — 2,752 Total $ 109,103 $ 2,752 $ — $ 111,855 Liabilities December 31, 2021: Series A warrants $ — $ — $ 11,291 $ 11,291 Series A embedded derivative liabilities — — 18,448 18,448 Series B warrants — — 96,378 96,378 Total $ — $ — $ 126,117 $ 126,117 December 31, 2020: Series A warrants $ — $ 6,640 $ — $ 6,640 Series A embedded derivative liabilities — — 26,728 26,728 Series B warrants — — 52,341 52,341 Total $ — $ 6,640 $ 79,069 $ 85,709 The following table sets forth a summary of the changes in the estimated fair value of the Company’s Level 3 liabilities, which are measured at fair value as a on a recurring basis: Series A Warrant Liabilities Series A Embedded Derivative Liabilities Series B Warrant Liabilities Total (In thousands) Balance at December 31, 2019 $ — $ 17,974 $ — $ 17,974 Issuance of Series B warrants — — 4,600 4,600 Remeasurement to fair value — 8,754 47,741 56,495 Balance at December 31, 2020 — 26,728 52,341 79,069 Transfer to Level 3 6,640 — — 6,640 Remeasurement to fair value 4,651 ( 8,280 ) 44,037 40,408 Balance at December 31, 2021 $ 11,291 $ 18,448 $ 96,378 $ 126,117 In accordance with U.S. GAAP, from time to time, the Company measures certain assets at fair value on a nonrecurring basis. The Company reviews the carrying value of equity securities without readily determinable fair value, equity method investments and patents on a quarterly basis for indications of impairment, and other long-lived assets at least annually. When indications of potential impairment are identified, the Company may be required to determine the fair value of those assets and record an adjustment for the carrying amount in excess of the fair value determined. Any fair value determination would be based on valuation approaches, which are appropriate under the circumstances and utilize Level 2 and Level 3 measurements as required. In connection with our Printronix acquisition, nonrecurring Level 3 valuations were performed for certain intangible assets, refer to Note 3 for additional information. F-34 Table of Contents 12. RELATED PARTY TRANSACTIONS During 2019, Acacia purchased shares of common stock of Drive Shack, Inc. (“Drive Shack”) for an aggregate purchase price of $ 2.4 million. At the time, Drive Shack and Clifford Press, Chief Executive Officer and director of Acacia, were related parties as Mr. Press was a board member of Drive Shack until June 2021. The market value of the investment was $ 1.4 million as of December 31, 2020. During the year ended December 31, 2021, Acacia sold its investment receiving proceeds of $ 1.8 million and recognized a loss of $ 515,000 . The Company reimbursed an aggregate amount of $ 408,000 as of December 31, 2021 to a former executive officer in connection with legal fees incurred following such officer’s departure from the Company. 13. COMMITMENTS AND CONTINGENCIES Facility Leases Acacia primarily leases office facilities under operating lease arrangements that will end in various years through February 2025. On June 7, 2019, Acacia entered into a building lease agreement with Jamboree Center 4 LLC. Pursuant to the lease, we have leased approximately 8,293 square feet of office space in Irvine, California. The lease commenced on August 1, 2019. The term of the lease is 60 months from the commencement date, provides for annual rent increases, and does not provide us the right to early terminate or extend our lease terms. On January 7, 2020, Acacia entered into a building lease agreement with Sage Realty Corporation. Pursuant to the lease, we have leased approximately 4,600 square feet of office space for our corporate headquarters in New York, New York. The lease commenced on February 1, 2020. The term of the lease is 24 months from the commencement date, provides for annual rent increases, and does not provide us the right to early terminate or extend our lease terms. During August 2021, we entered into a first amendment of the New York office lease, to commence for a period of three years upon landlords’ substantial completion of adequate substitution space. On January 25, 2022, the substitution space was substantially completed and the new expiration date is February 28, 2025. Printronix conducts its foreign and domestic operations using leased facilities under non-cancelable operating leases that expire at various dates through February 2028. The significant Printronix leases are as follows: • On November 10, 2020, Printronix entered into a building lease agreement with PPC Irvine Center Investment, LLC for office space in Irvine, California. The lease commenced on April 1, 2021. The term of the lease is 65 months from the commencement date, provides for annual rent increases and provides the right to early terminate the lease under certain circumstances, as well as extend the lease term. • On September 30, 2019, Printronix entered into a building lease agreement with Dynamics Sing Sdn. Bhd for warehouse/manufacturing space in Johor, Malaysia. The lease commenced on December 29, 2019. The term of the lease is 48 months from the commencement date, has no annual rent increases and provides the right to early terminate or extend our lease term. The Malaysia factory lease has two renewal options for an additional four years and one additional renewal option for two years . • On November 28, 2019, Printronix entered into a building lease agreement with PF Grand Paris for office space in Paris, France. The lease commenced on March 1, 2019. The term of the lease is 109 months from the commencement date, has no annual rent increases and provides the right to early terminate the lease under certain circumstances, however does not provide for an extension of the lease term. • On November 1, 2020, Printronix entered into a building lease agreement with Shanghai SongYun Enterprise Management Center for office space in Shanghai, China. The lease commenced on November 1, 2020. The term of the lease is 48 months from the commencement date, has no annual rent increases and provides the right to early terminate or extend the lease term. The Company's operating lease costs, including Printronix for the period from October 7, 2021 through December 31, 2021, were $ 851,000 , and $ 603,000 for the years ended December 31, 2021 and 2020, respectively. F-35 Table of Contents The table below presents aggregate future minimum payments due under the Company's leases discussed above, reconciled to long-term lease liabilities and short-term lease liabilities (included in accrued expenses and other current liabilities) included in the consolidated balance sheet as of December 31, 2021 (in thousands): Years Ending December 31, 2022 $ 935 2023 949 2024 500 2025 307 2026 242 Thereafter 29 Total minimum payments 2,962 Less: short-term lease liabilities ( 935 ) Long-term lease liabilities $ 2,027 Inventor Royalties and Contingent Legal Expenses In connection with the investment in certain patents and patent rights, certain of Acacia’s operating subsidiaries executed related agreements which grant to the former owners of the respective patents or patent rights, the right to receive inventor royalties based on future net revenues (as defined in the respective agreements) generated as a result of licensing and otherwise enforcing the respective patents or patent portfolios. Acacia’s operating subsidiaries may retain the services of law firms that specialize in patent licensing and enforcement and patent law in connection with their licensing and enforcement activities. These law firms may be retained on a contingent fee basis whereby such law firms are paid on a scaled percentage of any negotiated fees, settlements or judgments awarded based on how and when the fees, settlements or judgments are obtained. Patent Enforcement and Legal Proceedings The Company is subject to claims, counterclaims and legal actions that arise in the ordinary course of business. Management believes that the ultimate liability with respect to these claims and legal actions, if any, will not have a material effect on the Company’s consolidated financial position, results of operations or cash flows. Certain of Acacia’s operating subsidiaries are often required to engage in litigation to enforce their patents and patent rights. In connection with any of Acacia’s operating subsidiaries’ patent enforcement actions, it is possible that a defendant may request and/or a court may rule that an operating subsidiary has violated statutory authority, regulatory authority, federal rules, local court rules, or governing standards relating to the substantive or procedural aspects of such enforcement actions. In such event, a court may issue monetary sanctions against Acacia or its operating subsidiaries or award attorney’s fees and/or expenses to a defendant(s), which could be material. In December 2017, the Federal Court of Canada allowed a counterclaim for invalidity of a patent asserted by Rapid Completions LLC and awarded costs payable by Rapid Completions LLC. During the year ended December 31, 2021, the Company made approximately $ 1.2 million in settlement payments. This settlement was fully paid as of December 31, 2021 and all claims were withdrawn. On September 6, 2019, Slingshot Technologies, LLC, or Slingshot, filed a lawsuit in Delaware Chancery Court against the Company and Acacia Research Group, LLC, or collectively, the Acacia Entities, Monarch Networking Solutions LLC (“Monarch”), Acacia board member Katharine Wolanyk, and Transpacific IP Group, Ltd., or Transpacific. Slingshot alleges that the Acacia Entities and Monarch misappropriated its confidential and proprietary information, purportedly furnished to the Acacia Entities and Monarch by Ms. Wolanyk, in acquiring a patent portfolio from Transpacific after Slingshot’s exclusive option to purchase the same patent portfolio from Transpacific had already expired. Slingshot seeks monetary damages, as well as equitable and injunctive relief related to its alleged right to own the portfolio. On March 15, 2021, the court issued orders granting Monarch’s motion to dismiss for lack of personal jurisdiction and Ms. Wolanyk’s motion to dismiss for lack of subject matter jurisdiction. The remaining parties then commenced discovery, and have since served initial written requests and responses, notices of the depositions of the parties’ corporate designees, and initial F-36 Table of Contents document productions. The Chancery Court has set a two-day trial on liability for April 18–19, 2023, with a third day of trial on damages to follow in the event that Slingshot prevails on liability. The Acacia Entities maintain that Slingshot’s allegations are baseless, that the Acacia Entities neither had access to nor used Slingshot’s information in acquiring the portfolio, that the Acacia Entities acquired the portfolio as a result of the independent efforts of its IP licensing group, and that Slingshot suffered no damages given its exclusive option to purchase the portfolio had already ended and it has proven itself incapable of closing on the portfolio purchase. During the year ended December 31, 2021, Acacia incurred $ 162,000 in operating expenses for settlement and contingency accruals. During the year ended December 31, 2020, operating expenses included a net income for settlement, offset by contingency accruals totaling $ 308,000 , net of prior accruals. At December 31, 2021 and 2020, our contingency accrual balance, included in accrued expenses and other current liabilities in the consolidated balance sheets, was zero and $ 1.3 million, respectively. Guarantees and Indemnifications Certain of Acacia’s operating subsidiaries have made guarantees and indemnities under which they may be required to make payments to a guaranteed or indemnified party, in relation to certain transactions, including revenue transactions in the ordinary course of business. In connection with certain facility leases, Acacia and certain of its operating subsidiaries have indemnified lessors for certain claims arising from the facilities or the leases. Acacia indemnifies its directors and officers to the maximum extent permitted under the laws of the State of Delaware. However, Acacia has a directors and officers insurance policy that may reduce its exposure in certain circumstances and may enable it to recover a portion of future amounts that may be payable, if any. The duration of the guarantees and indemnities varies and, in many cases is indefinite but subject to statute of limitations. The majority of guarantees and indemnities do not provide any limitations of the maximum potential future payments that Acacia could be obligated to make. To date, Acacia has made no payments related to these guarantees and indemnities. Acacia estimates the fair value of its indemnification obligations to be insignificant based on this history and therefore, have not recorded any liability for these guarantees and indemnities in the consolidated balance sheets. Additionally, no events or transactions have occurred that would result in a material liability at December 31, 2021. Printronix posted collateral in the form of a surety bond or other similar instruments, which are issued by independent insurance carriers (the “Surety”), to cover the risk of loss related to certain customs and employment activities. If any of the entities that hold such bonds should require payment from the Surety, Printronix would be obligated to indemnify and reimburse the Surety for all costs incurred. As of December 31, 2021, Printronix had approximately $ 100,000 of these bonds outstanding. Environmental Cleanup Printronix maintained a manufacturing operation in a leased facility in Irvine, California from 1980 to 1994. The facility was used for similar manufacturing operations by another tenant from 1968 to 1977. The manufacturing operations employed by the previous tenant are believed to have resulted in the contamination of soil and groundwater under the facility which included chlorinated volatile organic compounds (“VOCs”). Evidence indicates that the VOCs requiring cleanup were used by the prior tenant and not by Printronix. Printronix worked with the prior tenant, which agreed to share the costs of the activities in an equal percentage with Printronix, and the state regulatory agencies, including the California Department of Toxic Substances Control, to investigate and cleanup the subsurface contamination. A significant soil cleanup project was completed in 2017. In 2020, Printronix executed an agreement with the prior tenant whereby the prior tenant would take 100% responsibility for the costs and process of the cleanup going forward. Printronix is in process of filing for release of such responsibility from a governmental agency and so may currently be found to be secondarily liable if the prior tenant cannot fulfil their responsibilities under the agreement. Accordingly, Printronix no longer takes part in monitoring or paying for any future investigation or cleanup activity. Printronix expects to have no such further costs associated with this facility. During 2020, Printronix was able to recover $ 24,000 from the prior tenant. During the period from October 7, 2021 through December 31, 2021, Printronix incurred no related legal fees. F-37 Table of Contents 14. STOCKHOLDERS’ EQUITY Repurchases of Common Stock On August 5, 2019, Acacia’s Board of Directors approved a stock repurchase program, which authorized the purchase of up to $ 10.0 million of the Company’s common stock through open market purchases, through block trades, through 10b5-1 plans, or by means of private purchases, from time to time, through July 31, 2020. On December 6, 2021, Acacia’s Board of Directors approved a stock repurchase program, which authorized the purchase of up to $ 15.0 million of the Company’s common stock through open market purchases, through block trades, through 10b5-1 plans, or by means of private purchases, from time to time, through December 6, 2022. Stock repurchases, all of which were purchased as part of a publicly announced plan or program, were as follows: Total Number of Shares Purchased Average Price paid per Share Approximate Dollar Value of Shares that May Yet be Purchased under the Program (In thousands) March 20, 2020 - March 31, 2020 576,898 $ 2.28 $ 8,686 April 1, 2020 - April 23, 2020 1,107,639 $ 2.42 $ 6,001 Total repurchases in 2020 1,684,537 $ 2.37 December 10, 2021 - December 31, 2021 784,104 $ 5.12 $ 11,004 During February 2022, we completed the December 2021 program with total common stock purchases of 3,125,819 shares for the aggregate amount of $ 15.0 million. In determining whether or not to repurchase any shares of Acacia’s common stock, Acacia’s Board of Directors consider such factors, among others, as the impact of the repurchase on Acacia’s cash position, as well as Acacia’s capital needs and whether there is a better alternative use of Acacia’s capital. Acacia has no obligation to repurchase any amount of its common stock under the Stock Repurchase Program. Repurchases to date were made in the open market in compliance with applicable SEC rules. The authorization to repurchase shares presented an opportunity to reduce the outstanding share count and enhance stockholder value. Tax Benefits Preservation Plan On March 12, 2019, Acacia’s Board of Directors announced that it had unanimously approved the adoption of a Tax Benefits Preservation Plan (the “Plan”). Our stockholders ratified the adoption of the Plan in July 2019. The purpose of the Plan is to protect the Company’s ability to utilize potential tax assets, such as net operating loss carryforwards and tax credits to offset potential future taxable income. The Plan is designed to reduce the likelihood that the Company will experience an ownership change by discouraging (i) any person or group from acquiring beneficial ownership of 4.9% or more of the Company’s outstanding common stock and (ii) any existing stockholders who, as of the time of the first public announcement of the adoption of the Plan, beneficially own more than 4.9% of the Company’s then-outstanding shares of the Company’s common stock from acquiring additional shares of the Company’s common stock (subject to certain exceptions). There is no guarantee, however, that the Plan will prevent the Company from experiencing an ownership change. In connection with the adoption of the Plan, Acacia’s Board of Directors authorized and declared a dividend distribution of one right for each outstanding share of the Company’s common stock to stockholders of record at the close of business on March 16, 2019. On or after the distribution date, each right would initially entitle the holder to purchase one one-thousandth of a share of the Company’s Series B Junior Participating Preferred Stock, $ 0.001 par value for a purchase price of $ 12.00 . On March 15, 2021 the rights expired pursuant to their terms. F-38 Table of Contents The Company has a provision in its Amended and Restated Certificate of Incorporation, as amended (the “Charter Provision”) which generally prohibits transfers of its common stock that could result in an ownership change. Like the Plan, the purpose of the Charter Provision is to protect the Company’s ability to utilize potential tax assets, such as net operating loss carryforwards and tax credits to offset potential future taxable income. The Charter Provision was approved by the Company’s stockholders on July 15, 2019. 15. 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 one year after grant and generally expire ten years after grant. Stock options with time-based vesting generally vest over three years and restricted shares 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 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. The eligible individuals receiving RSUs shall not have full stockholder rights until they vest. 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). 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, 2021, there were 296,705 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 2016 Plan. At December 31, 2021, there were 2,673,757 shares available for grant under the 2016 Plan. F-39 Table of Contents 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. Acacia’s Board of Directors may amend or modify the Plans at any time, subject to any required stockholder approval. As of December 31, 2021, there are 6,197,070 shares of common stock reserved for issuance under the Plans. 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, 2019 325,333 $ 4.38 $ 109 4.4 years Granted — $ — $ — Exercised ( 13,333 ) $ 3.60 $ 7 Forfeited/Expired ( 1,917 ) $ 3.99 $ 1 Outstanding at December 31, 2020 310,083 $ 4.41 $ 104 2.2 years Granted 393,750 $ 5.84 $ — Exercised ( 60,000 ) $ 3.36 $ 177 Forfeited/Expired ( 88,416 ) $ 3.97 $ 103 Outstanding at December 31, 2021 555,417 $ 5.61 $ 71 7.3 years Exercisable at December 31, 2021 161,667 $ 5.05 $ 71 1.7 years Expected to vest at December 31, 2021 393,750 $ 5.84 $ — 9.6 years Unrecognized stock-based compensation expense at December 31, 2021 (in thousands) $ 612 Weighted average remaining vesting period at December 31, 2021 2.4 years Stock options granted in 2021 are time-based and will vest in full after three years . During the year ended December 31, 2021, the Company granted 393,750 non-qualified stock options at a grant-date fair value of $ 1.79 per share using the Black-Scholes option-pricing model. The fair value was estimated based on the following assumptions: volatility of 30 percent, risk-free interest rate of 0.92 percent, term of 6.00 years and a dividend yield of 0 percent as the Company does not pay common stock dividends. The volatility of the Company’s common stock is estimated by analyzing the Company’s historical volatility, implied volatility of publicly traded stock options, and the Company’s current asset composition and financial leverage (refer to Note 11 " Embedded derivative liabilities" for additional information). The risk-free rate is based on the term assumption and U.S. Treasury constant maturities as published by the Federal Reserve. The Company currently uses the "simplified" method for determining the term, due to the limited option grant history, which assumes that the exercise date of an option would be halfway between its vesting date and the expiration date. No options were granted during the year ended December 31, 2020. The aggregate fair value of options vested during the years ended December 31, 2021 and 2020 was $ 18,000 and $ 54,000 , respectively. F-40 Table of Contents The following table summarizes nonvested restricted stock activity for the Plans: RSAs RSUs Shares Weighted Average Grant Date Fair Value Units Weighted Average Grant Date Fair Value Nonvested at December 31, 2019 475,619 $ 2.98 900,000 $ 1.42 Granted 592,000 $ 3.52 166,500 $ 3.19 Vested ( 352,762 ) $ 3.12 — $ — Forfeited ( 30,851 ) $ 2.85 ( 80,000 ) $ 3.19 Nonvested at December 31, 2020 684,006 $ 3.38 986,500 $ 1.58 Granted 324,401 $ 5.56 506,500 $ 5.84 Vested ( 394,169 ) $ 3.30 ( 28,834 ) $ 3.19 Forfeited ( 96,669 ) $ 3.77 ( 450,000 ) $ 1.42 Nonvested at December 31, 2021 517,569 $ 4.74 1,014,166 $ 3.73 Unrecognized stock-based compensation expense at December 31, 2021 (in thousands) $ 1,928 $ 2,823 Weighted average remaining vesting period at December 31, 2021 1.6 years 2.3 years RSAs and RSUs granted in 2021 are time-based and will vest in full after one to three years . The aggregate fair value of RSAs vested during the years ended December 31, 2021 and 2020 was $ 1.3 million and $ 1.1 million, respectively. The aggregate fair value of RSUs vested during the year ended December 31, 2021 was $ 92,000 . No RSUs were vested during the year ended December 31, 2020. Certain RSUs were granted in September 2019 with market-based vesting conditions that vest based upon the Company achieving specified stock price targets over a three-year period. The effect of a market condition is reflected in the estimate of the grant-date fair value of the options utilizing a Monte Carlo valuation technique. Compensation expense is recognized with a market-based vesting condition provided that the requisite service is rendered, regardless of when, if ever, the market condition is satisfied. Assumptions utilized in connection with the Monte Carlo valuation technique, that resulted in a fair value of $ 1.42 per unit, included: risk-free interest rate of 1.38 percent, term of 3.00 years, expected volatility of 38 percent and expected dividend yield of 0 percent. The risk-free interest rate was determined based on the yields available on U.S. Treasury zero-coupon issues. The expected stock price volatility was determined using historical volatility. The expected dividend yield was based on expectations regarding dividend payments. During the year ended December 31, 2021, 450,000 RSUs were forfeited, leaving 450,000 units with market-based vesting conditions outstanding and unvested at period end. The remaining units are expected to fully vest on September 3, 2022. Compensation expense for RSUs with market-based vesting conditions for the years ended December 31, 2021 and 2020, was $( 71,000 ) and $ 427,000 , respectively. Compensation expense for share-based awards recognized in general and administrative expenses was comprised of the following: Years Ended December 31, 2021 2020 (In thousands) Options $ 104 $ 37 RSAs 1,521 1,155 RSUs 428 470 Total compensation expense for share-based awards $ 2,053 $ 1,662 Total unrecognized stock-based compensation expense as of December 31, 2021 was $ 5.4 million, which will be amortized over a weighted average remaining vesting period of 2.0 years. F-41 Table of Contents Profits Interest Plan Profits Interest Units (“PIUs”) were accounted for in accordance with ASC 718-10, “Compensation - Stock Compensation.” The vesting conditions did not meet the definition of service, market or performance conditions, as defined in ASC 718. As such, the PIUs were classified as liability awards. Compensation expense was adjusted for changes in fair value prorated for the portion of the requisite service period rendered. Initially, compensation expense was recognized on a straight-line basis over the employee’s requisite service period (generally the vesting period of the equity award) which was five years. Upon full vesting of the award, which occurred during the three months ended September 30, 2017, previously unrecognized compensation expense was immediately recognized in the period. The Company has a purchase option to purchase the vested PIUs that are not otherwise forfeited after termination of continuous service. The exercise price of the purchase option is the fair market value of the PIUs on the date of termination of continuous service. The individuals holding PIUs are no longer employed by the Company. Included in other long-term liabilities in the consolidated balance sheets as of December 31, 2021 and 2020, the PIUs totaled $ 591,000 , which was their fair value as of December 31, 2018 after termination of service. 16. RETIREMENT SAVINGS PLANS AND EXECUTIVE SEVERANCE POLICY Retirement Savings Plans Acacia has an employee savings and retirement plan under Section 401(k) of the Internal Revenue Code. The plan is a defined contribution plan in which eligible employees may elect to have a percentage of their compensation contributed to the plan, subject to certain guidelines issued by the Internal Revenue Service. There were no contributions made by Acacia during the years ended December 31, 2021 and 2020. In the United States of America, Printronix has a 401(k) Savings and Investment Plan, for all eligible U.S. employees, which is designed to be tax deferred in accordance with the provisions of Section 401(k). Printronix matches employee contributions dollar-for-dollar up to the first 1 percent of compensation, and then an additional $ 0.50 to-the-dollar on the next 1 percent of employee compensation. Printronix's contributions have graded-vesting annually and become fully vested to the employee after four full years of employment. During the period from October 7, 2021 through December 31, 2021, Printronix's total contribution to the plan was $ 9,000 . Printronix has statutory obligations to contribute to overseas employee retirement funds or the local social security pension funds in China, Malaysia, Singapore, France, Netherlands and the United Kingdom. During the period from October 7, 2021 through December 31, 2021, Printronix's total contribution overseas was $ 189,000 . Executive Severance Policy Under Acacia’s Amended Executive Severance Policy, full-time employees as of July 2017 and prior with the title of Senior Vice President and higher (“SVP and higher”) are entitled to receive certain benefits upon termination of employment. If employment of an SVP and higher employee is terminated for other than cause or other than on account of death or disability, Acacia will (i) promptly pay to the SVP and higher employee a lump sum amount equal to the aggregate of (a) accrued obligations (i.e., annual base salary through the date of termination to the extent not theretofore paid and any compensation previously deferred (together with any accrued interest or earnings thereon) and any accrued vacation pay, and reimbursable expenses, in each case to the extent not theretofore paid) and (b) three (3) months of base salary for each full year that the SVP and higher employee was employed by Acacia (the “Severance Period”), up to a maximum of twelve (12) months (eighteen (18) months for executive officers of Acacia Research Corporation) of base salary, and (ii) provide to the SVP and higher employee, Acacia paid COBRA coverage for the medical and dental benefits selected in the year in which the termination occurs, for the duration of the Severance Period. Results for the year ended December 31, 2021 and 2020 include $ 332,000 and $ 304,000 of expenses incurred under the executive severance policy. F-42 Table of Contents 17. INCOME TAXES The components of income before income taxes were as follows: Years Ended December 31, 2021 2020 (In thousands) Domestic $ 175,635 $ 108,072 Foreign ( 983 ) — Total $ 174,652 $ 108,072 For purposes of reconciling the Company’s provision for income taxes at the statutory rate and the Company’s income tax expense (benefit) at the effective tax rate, a notional 21% tax rate was applied as follows: Years Ended December 31, 2021 2020 Statutory federal tax rate - expense (benefit) 21 % 21 % Foreign rate differential 5 % ( 1 ) % Nondeductible permanent items ( 1 ) % — % Expired tax attributes 4 % — % Derivative fair value adjustment 5 % 11 % Valuation allowance ( 21 ) % ( 33 ) % Other 1 % 1 % Effective income tax rate 14 % ( 1 ) % Acacia’s income tax (expense) benefit for the periods presented consisted of the following: Years Ended December 31, 2021 2020 (In thousands) Current: State $ ( 15 ) $ ( 66 ) Foreign ( 8,530 ) 1,225 Total current ( 8,545 ) 1,159 Deferred: Federal ( 54,165 ) — State 1,573 — Foreign 332 — Total deferred ( 52,260 ) — Change in valuation allowance 36,518 — Income tax (expense) benefit $ ( 24,287 ) $ 1,159 F-43 Table of Contents The tax effects of temporary differences and carryforwards that give rise to significant portions of deferred tax assets and liabilities consisted of the following: December 31, 2021 2020 (In thousands) Deferred tax assets: Net operating loss and capital loss carryforwards and credits $ 78,428 $ 113,561 Compensation expense for share-based awards 383 497 Fixed assets and intangibles — 677 Basis of investments in affiliates 18 254 Accrued liabilities and other 1,495 432 Lease liability 726 330 State taxes — 15 Total deferred tax assets 81,050 115,766 Valuation allowance ( 40,585 ) ( 76,969 ) Total deferred tax assets, net of valuation allowance 40,465 38,797 Deferred tax liabilities: ROU Asset ( 726 ) ( 330 ) Fixed assets and intangibles ( 2,572 ) — Unrealized gain on investments held at fair value ( 55,696 ) ( 38,374 ) Other ( 23 ) ( 93 ) Total deferred tax liabilities ( 59,017 ) ( 38,797 ) Net deferred tax liabilities $ ( 18,552 ) $ — As of December 31, 2021 and 2020, management assessed the realizability of deferred tax assets and evaluated the need for a valuation allowance for deferred tax assets on a jurisdictional basis. This evaluation utilizes the framework contained in ASC 740, "Income Taxes," wherein management analyzes all positive and negative evidence available at the balance sheet date to determine whether all or some portion of the Company's deferred tax assets will not be realized. Under this guidance, a valuation allowance must be established for deferred tax assets when it is more-likely-than-not that the asset will not be realized. In assessing the realization of the Company's deferred tax assets, management considers all available evidence, both positive and negative. Based upon available evidence, it was concluded on a more-likely-than-not basis that as of December 31, 2021 a valuation allowance of $ 40.6 million was needed for foreign tax credits and certain state tax attributes the Company estimates will expire prior to utilization. As of December 31, 2020, the Company recorded a full valuation allowance of $ 77.0 million. The valuation allowance (decreased)/increased by $( 36.4 ) million and $( 38.1 ) million for the years ended December 31, 2021 and 2020, respectively, as a result of the use of the NOLs and increase in unrealized gains. At December 31, 2021, Acacia had U.S. federal and state income tax net operating loss carryforwards (“NOLs”) totaling approximately $ 172.2 million and $ 38.1 million, respectively. $ 76.4 million of federal NOL carryovers generated in tax years beginning before January 1, 2018 will begin to expire in 2034. Pursuant to the Tax Cuts and Jobs Act enacted by the U.S. federal government in December 2017, for federal income tax purposes, NOL carryovers generated for our tax years beginning January 1, 2018 can be carried forward indefinitely but will be subject to a taxable income limitation. For state income tax purposes, our NOLs will expire between 2024 and 2040. As of December 31, 2021, Acacia had approximately $ 40.5 million of foreign tax credits, expiring between 2022 and 2026. F-44 Table of Contents The following changes occurred in the amount of unrecognized tax benefits: Years Ended December 31, 2021 2020 (In thousands) Beginning balance $ 731 $ 731 Additions for current year tax positions 27 — Additions included in purchase accounting for prior year positions 129 — Reductions for prior year tax positions — — Ending Balance (excluding interest and penalties) 887 731 Interest and penalties — — Total $ 887 $ 731 At December 31, 2021 and 2020, the Company had total unrecognized tax benefits of approximately $ 887,000 and $ 731,000 , respectively. At December 31, 2021 and 2020, $ 110,000 of unrecognized tax benefits are recorded in other long-term liabilities and the remaining amount is included as an offset to deferred tax assets. No interest and penalties have been recorded for the unrecognized tax benefits for the periods presented. At December 31, 2021, if recognized, $ 887,000 of tax benefits would impact the Company’s effective tax rate. The Company does not expect that the liability for unrecognized tax benefits will change significantly within the next 12 months. Acacia recognizes interest and penalties with respect to unrecognized tax benefits in income tax expense (benefit). Acacia has identified no uncertain tax position for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease within 12 months. Acacia is subject to taxation in the U.S. and in various state/foreign jurisdictions and incurs foreign tax withholdings on revenue agreements with licensees in certain foreign jurisdictions. With no material exceptions, Acacia is no longer subject to U.S. federal or state examinations by tax authorities for years before 2017. The Company’s 2017 through 2021 tax years generally remain subject to examination by federal, state and foreign tax authorities. As the Company has incurred losses in most jurisdictions, the taxing authorities can generally challenge 2014 through 2020 losses to determine either the amount of carryforward deduction reported in the open year or the amount of a net operating loss deduction that is absorbed in a closed year and supports the determination of the available net operating loss deduction for the open year under examination. Deferred income taxes have not been provided for undistributed earnings of the Company’s consolidated foreign subsidiaries, as earnings are permanently reinvested, however, no deferred tax liability would be necessary as the parent entity would not be required to include the distribution into income as the amount would be tax free under current law. The Tax Cuts and Jobs Act subjects a US shareholder to tax on GILTI earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740 No. 5. Accounting for Global Intangible Low-Taxed Income, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. We have elected to account for GILTI in the year the tax is incurred. On March 27, 2020, the United States enacted the CARES Act which provides certain income tax benefits including the ability to carryback federal NOLs generated in 2018 through 2020 for an extended five-year period and increased the limitation for the deduction of interest expense from 30 percent to 50 percent of modified taxable income. The CARES Act also provides other economic benefits such as allowing employers to defer payment of the employer’s portion of payroll taxes for 2020 and a refundable employee retention credit of up to $5,000 per eligible employee wages. The Company did not realize benefits from the provisions of the CARES Act including the extended NOL carryback period, the payroll tax deferral, and the employee retention credit. On December 27, 2020, the United States enacted the Consolidated Appropriations Act which extended many of the benefits of the CARES Act that were scheduled to expire. The Company does not expect a material impact from the Consolidated Appropriations Act on its consolidated financial statements and related disclosures. F-45 Table of Contents On March 11, 2021 the United States enacted the American Rescue Plan Act of 2021. This Act includes various income and payroll tax measures. The Company does not expect a material impact from the American Rescue Plan on its consolidated financial statements and related disclosures. On June 29, 2020, the state of California passed Assembly Bill 85 which suspends the California net operating loss deduction for the 2020-2022 tax years and the R&D credit usage for the same period (for credit usages in excess of $5.0 million). The Company does not expect a material impact from Assembly Bill 85 on its financial statements and related disclosures. F-46 Table of Contents 18. INCOME/LOSS PER SHARE The following table presents the calculation of basic and diluted income/loss per share of common stock: Years Ended December 31, 2021 2020 (In thousands, except share and per share data) Numerator: Net income attributable to Acacia Research Corporation $ 149,197 $ 109,231 Dividend on Series A redeemable convertible preferred stock ( 1,452 ) ( 1,381 ) Accretion of Series A redeemable convertible preferred stock ( 3,829 ) ( 2,835 ) Undistributed earnings allocated to participating securities ( 25,112 ) ( 18,169 ) Net income attributable to common stockholders - Basic 118,804 86,846 Add: Dividend on Series A redeemable convertible preferred stock 1,452 — Add: Accretion of Series A redeemable convertible preferred stock 3,829 — Less: Change in fair value of Series A redeemable convertible preferred stock embedded derivative ( 8,280 ) — Less: Change in fair value of Series A warrants — ( 1,348 ) Less: Change in fair value of dilutive Series B warrants 44,037 ( 5,557 ) Add: Interest expense associated with Starboard Notes, net of tax 4,658 1,889 Add: Undistributed earnings allocated to participating securities 25,112 18,169 Reallocation of undistributed earnings to participating securities ( 1,388 ) ( 15,105 ) Net income attributable to common stockholders - Diluted $ 188,224 $ 84,894 Denominator: Weighted average shares used in computing net income per share attributable to common stockholders - Basic 48,797,290 48,840,829 Potentially dilutive common shares: Series A Preferred Stock 9,589,041 — Restricted stock units 758,682 637,044 Stock options 37,167 2,952 Series A Warrants — 77,592 Series B Warrants 39,288,690 7,876,711 Weighted average shares used in computing net income per share attributable to common stockholders - Diluted 98,470,870 57,435,128 Basic net income per common share $ 2.43 $ 1.78 Diluted net income per common share $ 1.91 $ 1.48 Anti-dilutive potential common shares excluded from the computation of diluted net income per common share: Equity-based incentive awards 393,750 206,916 Series A warrants 5,000,000 — Series B warrants — 68,493,151 Total 5,393,750 68,700,067 F-47 Table of Contents 19. SEGMENT REPORTING As of December 31, 2021, the Company operates and reports its results in two reportable segments: Intellectual Property Operations and Industrial Operations. Historically, the Company has managed and reported under a single reporting segment. In October 2021, the Company acquired Printronix, which comprises all of the operations of the Company’s Industrial Operations reportable segment and led to the identification of the additional reporting segment. The Company reports segment information based on the management approach and organizes its businesses based on products and services. The management approach designates the internal reporting used by the chief operating decision maker for decision making and performance assessment as the basis for determining the Company’s reportable segments. The performance measure of the Company’s reportable segments is primarily income or (loss) from operations. Income or (loss) from operations for each segment includes all revenues, cost of revenues, gross profit and other operating expenses directly attributable to the segment. Other than Acacia's equity securities investments, specific asset information is not included in managements review at this time. The Company’s Intellectual Property Operations segment invests in IP and related absolute return assets, and engages in the licensing and enforcement of patented technologies. Through our Patent Licensing, Enforcement and Technologies Business we are a principal in the licensing and enforcement of patent portfolios, with our operating subsidiaries obtaining the rights in the patent portfolio or purchasing the patent portfolio outright. We assume all responsibility for advancing operational expenses while pursuing a patent licensing and enforcement program, and when applicable, share net licensing revenue with our patent partners as that program matures, on a prearranged and negotiated basis. We may also provide upfront capital to patent owners as an advance against future licensing revenue. Currently, on a consolidated basis, our operating subsidiaries own or control the rights to multiple patent portfolios, which include U.S. patents and certain foreign counterparts, covering technologies used in a variety of industries. We generate revenues and related cash flows from the granting of IP rights for the use of patented technologies that our operating subsidiaries control or own. The Company’s Industrial Operations segment generates operating income by designing and manufacturing printers and consumable products for various industrial printing applications. Printers consist of hardware and embedded software and may be sold with maintenance service agreements. Consumable products include inked ribbons which are used in Printronix’s printers. Printronix’s products are primarily sold through channel partners, such as dealers and distributors, to end-users. The Industrial Operations reporting segment did not exist prior to the acquisition of Printronix in October 2021. Therefore, as of and for the year ended December 31, 2020, the consolidated results represented the results of the Company’s single reporting segment. F-48 Table of Contents The Company's segment information, including Printronix's operations from October 7, 2021 through December 31, 2021, is as follows: Year Ended December 31, 2021 Intellectual Property Operations Industrial Operations Total (In thousands) Revenues: License fees $ 76,043 $ — $ 76,043 Printers and parts — 4,961 4,961 Consumable products — 5,973 5,973 Services — 1,070 1,070 Total revenues 76,043 12,004 88,047 Cost of revenues: Inventor royalties 1,142 — 1,142 Contingent legal fees 12,074 — 12,074 Litigation and licensing expenses 5,462 — 5,462 Amortization of patents 9,851 — 9,851 Other patent portfolio expense (income) 162 — 162 Cost of sales — 7,407 7,407 Total cost of revenues 28,691 7,407 36,098 Segment gross profit 47,352 4,597 51,949 Other operating expenses: Engineering and development expenses — 200 200 Sales and marketing expenses — 1,538 1,538 Amortization of intangible assets — 399 399 General and administrative expenses 6,177 2,398 8,575 Total other operating expenses 6,177 4,535 10,712 Segment operating income $ 41,175 $ 62 41,237 Parent general and administrative expenses 26,692 Operating income 14,545 Total other income 160,107 Income before income taxes $ 174,652 For comparability purposes, Acacia's year ended December 31, 2020 general and administrative expenses, as reported in the consolidated statement of operations, were $ 24.5 million, and included parent general and administrative expenses of $ 19.5 million, which derives a comparative Intellectual Property Operations general and administrative expense amount of approximately $ 5.0 million. F-49 Table of Contents December 31, 2021 (In thousands) Equity securities investments: Equity securities at fair value $ 361,778 Equity securities without readily determinable fair value 5,816 Investment securities - equity method investments 30,934 Total 398,528 Other parent assets 172,726 Segment total assets: Intellectual property operations 175,286 Industrial operations 52,316 Total assets $ 798,856 The Company's revenues, including Printronix's net sales from October 7, 2021 through December 31, 2021, and long-lived tangible assets, by geographic area are presented below. Acacia's revenues are attributed to licensees domiciled in foreign jurisdictions. Printronix's net sales to external customers are attributed to geographic areas based upon the final destination of products shipped. The Company, primarily through its Printronix subsidiary, has identified three global regions for marketing its products and services: Americas, Europe, Middle East and Africa, and Asia-Pacific. Assets are summarized based on the location of held assets. Year Ended December 31, 2021 Intellectual Property Operations Industrial Operations Total (In thousands) Revenues by geographic area: United States $ 23,256 $ 4,937 $ 28,193 Canada and Latin America 402 251 653 Total Americas 23,658 5,188 28,846 Europe, Middle East and Africa 1,841 2,589 4,430 China — 1,910 1,910 India — 1,076 1,076 Asia-Pacific, excluding China and India 50,544 1,241 51,785 Total Asia-Pacific 50,544 4,227 54,771 Total revenues $ 76,043 $ 12,004 $ 88,047 F-50 Table of Contents December 31, 2021 Intellectual Property Operations Industrial Operations Total (In thousands) Long-lived tangible assets by geographic area: United States $ 204 $ 473 $ 677 Malaysia — 3,203 3,203 Other foreign countries — 303 303 Total $ 204 29782000 $ 3,979 $ 4,183 F-51 Table of Contents 20. CORRECTION OF IMMATERIAL ERROR The Company identified and recorded an adjustment to the current and prior periods related to the estimated amortization period of deferred debt issuance costs. Pursuant to the Securities Purchase Agreement dated November 18, 2019 with Starboard and the Buyers, an upfront fee was payable by the Company upon the first closing of Senior Secured Notes. The fee was defined as 1.25 % of the maximum $ 365.0 million principal amount of the Senior Secured Notes issuable under the Securities Purchase Agreement. The Company paid and capitalized this upfront fee of $ 4.6 million upon the issuance of our Senior Secured Notes in June 2020 (refer to Note 10). The lender fees were initially recognized as long-term deferred debt issuance costs and were included in other non-current assets in the consolidated balance sheets up to and as of September 30, 2021, and were to be amortized to interest expense until November 15, 2027, the original maturity/expiration date of the transactions governed by the Starboard investment. During the fourth quarter of 2021, it was determined the correct deferred debt issuance costs amortization period was the approximate seven month period ended December 31, 2020, the initial redemption date of the Notes. Accordingly, the Company has adjusted the related prior period consolidated financial statements to reflect this correction to the periods presented below. In accordance with Staff Accounting Bulletin ("SAB") No. 99, “Materiality,” and SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” the Company evaluated the error a nd determined that the related impact did not materially misstate previously issued consolidated financial statements. Although the Company concluded that the misstatement was n ot material to its previously issued consolidated financial statements, the Company has determined it is appropriate to adjust its previously issued consolidated financial statements to correct for the error . The following are the relevant line items from the Company's consolidated financial statements illustrating the effect of the corrections to the periods presented: As of and for the Year Ended December 31, 2020 As Previously Reported Adjustments As Adjusted (In thousands, except per share data) Balance Sheet: Other non-current assets (excluding property, plant and equipment) $ 4,718 $ ( 4,213 ) $ 505 Total assets 515,520 ( 4,213 ) 511,307 Accumulated deficit ( 326,708 ) ( 4,213 ) ( 330,921 ) Total stockholders' equity 292,529 ( 4,213 ) 288,316 Statement of Operations: Interest expense on Senior Secured Notes $ ( 5,923 ) $ ( 4,213 ) $ ( 10,136 ) Total other income 131,803 ( 4,213 ) 127,590 Net income attributable to Acacia Research Corporation 113,444 ( 4,213 ) 109,231 Income per share: Basic net income per common share $ 1.85 $ ( 0.07 ) $ 1.78 Diluted net income per common share $ 1.54 $ ( 0.06 ) $ 1.48 Statement of Cash Flows: Net income including noncontrolling interests in subsidiaries $ 113,444 $ ( 4,213 ) $ 109,231 Amortization of debt discount and issuance costs 2,838 4,213 7,051 Net cash used in operating activities ( 19,620 ) — ( 19,620 ) F-52 Table of Contents As of and for the Three Months Ended March 31, 2021 As Previously Reported Adjustments As Adjusted (Unaudited and in thousands, except per share data) Balance Sheet: Other non-current assets $ 4,834 $ ( 4,060 ) $ 774 Total assets 568,958 ( 4,060 ) 564,898 Accumulated deficit ( 491,326 ) ( 4,060 ) ( 495,386 ) Total stockholders' equity 128,148 ( 4,060 ) 124,088 Statement of Operations: Interest expense on Senior Secured Notes $ ( 1,310 ) $ 153 $ ( 1,157 ) Total other expense ( 158,032 ) 153 ( 157,879 ) Net loss attributable to Acacia Research Corporation ( 164,618 ) 153 ( 164,465 ) Loss per share: Basic and diluted net loss per common share $ ( 2.81 ) $ — $ ( 2.81 ) Statement of Cash Flows: Net loss including noncontrolling interests in subsidiaries $ ( 163,718 ) $ 153 $ ( 163,565 ) Amortization of debt discount and issuance costs 702 ( 153 ) 549 Net cash used in operating activities ( 6,120 ) — ( 6,120 ) As of and for the Six Months Ended June 30, 2021 As Previously Reported Adjustments As Adjusted (Unaudited and in thousands, except per share data) Balance Sheet: Other non-current assets $ 4,653 $ ( 3,907 ) $ 746 Total assets 627,732 ( 3,907 ) 623,825 Accumulated deficit ( 471,819 ) ( 3,907 ) ( 475,726 ) Total stockholders' equity 147,103 ( 3,907 ) 143,196 Statement of Operations: Interest expense on Senior Secured Notes $ ( 3,070 ) $ 306 $ ( 2,764 ) Total other expense ( 139,653 ) 306 ( 139,347 ) Net loss attributable to Acacia Research Corporation ( 145,111 ) 306 ( 144,805 ) Loss per share: Basic and diluted net loss per common share $ ( 3.03 ) $ 0.01 $ ( 3.02 ) Statement of Cash Flows: Net loss including noncontrolling interests in subsidiaries $ ( 144,205 ) $ 306 $ ( 143,899 ) Amortization of debt discount and issuance costs 128 ( 306 ) ( 178 ) Net cash used in operating activities ( 6,197 ) — ( 6,197 ) F-53 Table of Contents As of and for the Nine Months Ended September 30, 2021 As Previously Reported Adjustments As Adjusted (Unaudited and in thousands, except per share data) Balance Sheet: Other non-current assets $ 4,482 $ ( 3,754 ) $ 728 Total assets 749,834 ( 3,754 ) 746,080 Accumulated deficit ( 382,215 ) ( 3,754 ) ( 385,969 ) Total stockholders' equity 235,862 ( 3,754 ) 232,108 Statement of Operations: Interest expense on Senior Secured Notes $ ( 5,601 ) $ 459 $ ( 5,142 ) Total other expense ( 37,316 ) 459 ( 36,857 ) Net loss attributable to Acacia Research Corporation ( 55,507 ) 459 ( 55,048 ) Loss per share: Basic and diluted net loss per common share $ ( 1.21 ) $ 0.01 $ ( 1.20 ) Statement of Cash Flows: Net loss including noncontrolling interests in subsidiaries $ ( 54,601 ) $ 459 $ ( 54,142 ) Amortization of debt discount and issuance costs 460 ( 459 ) 1 Net cash used in operating activities ( 7,602 ) — ( 7,602 ) F-54