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Equity Incentive Plans and Stock-Based Compensation
9 Months Ended
Sep. 30, 2011
Equity Incentive Plans and Stock-Based Compensation 
Equity Incentive Plans and Stock-Based Compensation

5. Equity Incentive Plans and Stock-Based Compensation

 

Stock Option Plans

 

As of September 30, 2011, 3,029,461 shares of the 14,900,000 shares approved under the 2006 Plan remain available for grant. The 2006 Plan is the Company’s only plan for providing stock-based incentive compensation to eligible employees, executive officers, non-employee directors and consultants.

 

A summary of shares available for grant under the Company’s plans is as follows:

 

 

 

Shares Available
for Grant

 

Shares available as of December 31, 2010

 

5,348,162

 

Stock options granted

 

(2,199,761

)

Stock options forfeited

 

770,903

 

Stock options expired under former plans

 

(471,913

)

Nonvested equity stock and stock units granted (1)

 

(440,331

)

Nonvested equity stock and stock units forfeited (1)

 

22,401

 

Total available for grant as of September 30, 2011

 

3,029,461

 

 

 

(1)       For purposes of determining the number of shares available for grant under the 2006 Plan against the maximum number of shares authorized, each restricted stock granted reduces the number of shares available for grant by 1.5 shares and each restricted stock forfeited increases shares available for grant by 1.5 shares.

 

General Stock Option Information

 

The following table summarizes stock option activity under the 1997, 1999 and 2006 Plans for the nine months ended September 30, 2011 and information regarding stock options outstanding, exercisable, and vested and expected to vest as of September 30, 2011.

 

 

 

Options Outstanding

 

Weighted

 

 

 

 

 

Number of
Shares

 

Weighted
Average
Exercise Price
Per Share

 

Average
Remaining
Contractual
Term (in years)

 

Aggregate
Intrinsic
Value

 

 

 

(Dollars in thousands, except per share amounts)

 

Outstanding as of December 31, 2010

 

13,969,383

 

$

18.85

 

 

 

 

 

Options granted

 

2,199,761

 

19.27

 

 

 

 

 

Options exercised

 

(757,888

)

8.50

 

 

 

 

 

Options forfeited

 

(770,903

)

13.42

 

 

 

 

 

Outstanding as of September 30, 2011

 

14,640,353

 

19.74

 

5.67

 

$

10,378

 

Vested or expected to vest at September 30, 2011

 

14,098,821

 

19.77

 

5.55

 

10,063

 

Options exercisable at September 30, 2011

 

10,196,979

 

20.22

 

4.47

 

6,990

 

 

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value for in-the-money options at September 30, 2011, based on the $14.00 closing stock price of Rambus’ Common Stock on September 30, 2011 on the NASDAQ Global Select Market, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options outstanding and exercisable as of September 30, 2011 was 2,112,007 and 1,364,081, respectively.

 

Employee Stock Purchase Plans

 

Under the 2006 Employee Stock Purchase Plan (“ESPP”), the Company issued 146,034 shares at a price of $16.50 per share during the nine months ended September 30, 2011. The Company issued 161,293 shares at a price of $13.56 per share during the nine months ended September 30, 2010. As of September 30, 2011, 439,734 shares under the 2006 ESPP remained available for issuance.

 

Stock-Based Compensation

 

For the nine months ended September 30, 2011 and 2010, the Company maintained stock plans covering a broad range of potential equity grants including stock options, nonvested equity stock and equity stock units and performance based instruments. In addition, the Company sponsors an ESPP, whereby eligible employees are entitled to purchase Common Stock semi-annually, by means of limited payroll deductions, at a 15% discount from the fair market value of the Common Stock as of certain specified dates.

 

Stock Options

 

During the three and nine months ended September 30, 2011, Rambus granted 487,550 and 2,199,761 stock options, respectively, with an estimated total grant-date fair value of $4.6 million and $22.9 million, respectively. During the three and nine months ended September 30, 2011, Rambus recorded stock-based compensation expense related to stock options of $5.0 million and $15.2 million, respectively.

 

During the three and nine months ended September 30, 2010, Rambus granted 93,300 and 1,818,623 stock options, respectively, with an estimated total grant-date fair value of $1.0 million and $23.9 million, respectively. During the three and nine months ended September 30, 2010, Rambus recorded stock-based compensation expense related to stock options of $5.6 million and $17.3 million, respectively.

 

As of September 30, 2011, there was $39.3 million of total unrecognized compensation cost, net of expected forfeitures, related to non-vested stock-based compensation arrangements granted under the stock option plans. That cost is expected to be recognized over a weighted-average period of 3.4 years. The total fair value of shares vested as of September 30, 2011 was $142.0 million.

 

The total intrinsic value of options exercised was $1.7 million and $5.7 million for the three and nine months ended September 30, 2011, respectively. The total intrinsic value of options exercised was $1.9 million and $7.1 million for the three and nine months ended September 30, 2010, respectively. Intrinsic value is the total value of exercised shares based on the price of the Company’s common stock at the time of exercise less the cash received from the employees to exercise the options.

 

During the nine months ended September 30, 2011, net proceeds from employee stock option exercises totaled approximately $6.4 million.

 

Employee Stock Purchase Plans

 

For the three and nine months ended September 30, 2011, the Company recorded compensation expense related to the ESPP of $0.5 million and $1.3 million, respectively. For the three and nine months ended September 30, 2010, the Company recorded compensation expense related to the ESPP of $0.4 million and $1.3 million, respectively. As of September 30, 2011, there was $0.1 million of total unrecognized compensation cost related to stock-based compensation arrangements granted under the ESPP. That cost is expected to be recognized over one month.

 

There were no tax benefits realized as a result of employee stock option exercises, stock purchase plan purchases, and vesting of equity stock and stock units for the three and nine months ended September 30, 2011 and 2010 calculated in accordance with accounting for share-based payments.

 

Valuation Assumptions

 

The fair value of stock awards is estimated as of the grant date using the BSM option-pricing model assuming a dividend yield of 0% and the additional weighted-average assumptions as listed in the following tables:

 

 

 

Stock Option Plans

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

Stock Option Plans

 

 

 

 

 

 

 

 

 

Expected stock price volatility

 

75

%

60

%

50-75%

 

60-69%

 

Risk free interest rate

 

2.3

%

2.3

%

2.3-2.8%

 

2.3-3.2%

 

Expected term (in years)

 

6.1

 

6.1

 

6.0 - 6.1

 

5.9 – 6.1

 

Weighted-average fair value of stock options granted

 

$

9.48

 

$

10.88

 

$10.43

 

$13.15

 

 

 

 

Employee Stock Purchase Plan

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2011*

 

2010*

 

2011

 

2010

 

Employee Stock Purchase Plan

 

 

 

 

 

 

 

 

 

Expected stock price volatility

 

—

 

—

 

56

%

54

%

Risk free interest rate

 

—

 

—

 

0.1

%

0.3

%

Expected term (in years)

 

—

 

—

 

0.5

 

0.5

 

Weighted-average fair value of purchase rights granted under the purchase plan

 

—

 

—

 

$

5.96

 

$

7.46

 

 

 

* No shares were issued under the Employee Stock Purchase Plans during the three months ended September 30, 2011 and 2010, respectively.

 

Nonvested Equity Stock and Stock Units

 

The Company grants nonvested equity stock units to certain officers, employees and directors. During the three months and nine months ended September 30, 2011, the Company granted nonvested equity stock units totaling 80,000 shares and 293,554 shares under the 2006 Plan, respectively. These awards have a service condition, generally a service period of four years, except in the case of grants to directors, for which the service period is one year. The nonvested equity stock units were valued at the date of grant giving them a fair value of approximately $1.1 million and $5.6 million, respectively. The Company occasionally grants nonvested equity stock units to its employees with vesting subject to the achievement of certain performance conditions. During the three and nine months ended September 30, 2011, the achievement of certain performance conditions for certain performance equity stock units was considered probable, and as a result, the Company recognized an insignificant amount of stock-based compensation expense related to these performance stock units for both periods.

 

For the three and nine months ended September 30, 2011, the Company recorded stock-based compensation expense of approximately $1.8 million and $5.1 million, respectively, related to all outstanding unvested equity stock grants. For the three and nine months ended September 30, 2010, the Company recorded stock-based compensation expense of approximately $1.5 million and $4.6 million, respectively, related to all outstanding unvested equity stock grants. Unrecognized stock-based compensation related to all nonvested equity stock grants, net of estimated forfeitures, was approximately $9.0 million at September 30, 2011. This is expected to be recognized over a weighted average period of 2.0 years.

 

The following table reflects the activity related to nonvested equity stock and stock units for the nine months ended September 30, 2011:

 

Nonvested Equity Stock and Stock Units

 

Shares

 

Weighted-Average
Grant-Date
Fair Value

 

Nonvested at December 31, 2010

 

718,007

 

$

18.23

 

Granted

 

293,554

 

18.99

 

Vested

 

(245,697

)

17.59

 

Forfeited

 

(14,934

)

21.76

 

Nonvested at September 30, 2011

 

750,930

 

18.67