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Settlement Agreement with Samsung | 9 Months Ended
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Sep. 30, 2011
Settlement Agreement with Samsung |
Settlement Agreement with Samsung |
3. Settlement Agreement with Samsung On January 19, 2010, the Company, Samsung and certain related entities of Samsung entered into a Settlement Agreement (the “Settlement Agreement”) to release all claims against each other with respect to all outstanding litigation between them and certain other potential claims. Pursuant to the Settlement Agreement, the Company and Samsung entered into a Semiconductor Patent License Agreement on January 19, 2010 (the “License Agreement”), under which Samsung licenses from the Company non-exclusive rights to certain Rambus patents over the next five years. In addition, as part of the Settlement Agreement, Samsung purchased approximately 9.6 million shares of common stock of Rambus for cash pursuant to the terms of a Stock Purchase Agreement dated January 19, 2010 (the “Stock Purchase Agreement”). The Stock Purchase Agreement provided Samsung a one-time put right, beginning 18 months after the date of the Stock Purchase Agreement and extending to 19 months after the date of the Stock Purchase Agreement, to elect to sell back to the Company up to 4.8 million of the shares at the original issue price of $20.885 per share. On July 20, 2011, the Company received notice from Samsung exercising their option to put back to the Company approximately 4.8 million shares of the Company’s common stock for cash of $100.0 million. In August 2011, the Company paid $100.0 million to Samsung in exchange for the shares which were retired. The difference between the amount recorded as contingently redeemable common stock and the cash paid was recorded in additional paid-in capital. See Note 8, “Stockholders’ Equity and Contingently Redeemable Common Stock,” for further discussion. Finally, pursuant to the Settlement Agreement, the Company and Samsung signed a non-binding memorandum of understanding relating to discussions around a new generation of memory technologies. The Samsung settlement is a multiple element arrangement for accounting purposes. For the multiple element arrangement, the Company identified each element of the arrangement and determined when those elements should be recognized. Using the accounting guidance from multiple element revenue arrangements, the Company allocated the consideration to each element using the estimated fair value of the elements. The Company considered several factors in determining the accounting fair value of the elements of the Samsung settlement which included a third party valuation using an income approach, the Black-Scholes-Merton (“BSM”) option pricing model and a residual approach (collectively the “Fair Value”). The inputs and assumptions used in this valuation were from a market participant perspective and included projected revenue, royalty rates, estimated discount rates, useful lives and income tax rates, among others. The development of a number of these inputs and assumptions in the model requires a significant amount of management judgment and is based upon a number of factors, including the selection of industry comparables, market growth rates and other relevant factors. Changes in any number of these assumptions may have had a substantial impact on the Fair Value as assigned to each element. These inputs and assumptions represent management’s best estimates at the time of the transaction. During the first three quarters of 2011, the Company received cash consideration of $74.4 million from Samsung. The amount was allocated between revenue ($68.2 million) and gain from settlement ($6.2 million) based on the estimated Fair Value for the remaining elements. The remaining $325.0 million is expected to be paid in successive quarterly payments of approximately $25.0 million (subject to adjustments per the terms of the License Agreement), concluding in the last quarter of 2014. The cash receipts through September 30, 2011 and the remaining future cash receipts from the agreements with Samsung are expected to be recognized as follows assuming no adjustments to the payments under the terms of the agreements in the future periods:
(in millions) |  | Received in 2010 |  | Nine months Ended September 30, 2011 |  | Remainder of 2011 |  | 2012 |  | 2013 |  | 2014 |  | Estimated Fair Value |
Revenue |  | $ | 181.2 |  | $ | 68.2 |  | $ | 25.0 |  | $ | 100.0 |  | $ | 100.0 |  | $ | 100.0 |  | $ | 574.4 |
Gain from settlement |  | 126.8 |  | 6.2 |  | — |  | — |  | — |  | — |  | 133.0 |
Purchase of Rambus Common Stock |  | 192.0 |  | — |  | — |  | — |  | — |  | — |  | 192.0 |
Total |  | $ | 500.0 |  | $ | 74.4 |  | $ | 25.0 |  | $ | 100.0 |  | $ | 100.0 |  | $ | 100.0 |  | $ | 899.4 |

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