Equity Incentive Plans and Stock-Based Compensation

As of September 30, 2013, 2,270,044 shares of the 21,400,000 shares approved under the 2006 Equity Incentive Plan (the “2006 Plan”) remain available for grant which included an increase of 6,500,000 shares approved by stockholders on April 26, 2012. The 2006 Plan is now the Company’s only plan for providing stock-based incentive awards to eligible employees, executive officers, non-employee directors and consultants; however, the 1997 Stock Option Plan (the “1997 Plan”) and the 1999 Non-statutory Stock Option Plan (the “1999 Plan”) will continue to govern awards previously granted under those plans.

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, 2012	2,729,159
Stock options granted	(1,897,887	)
Stock options forfeited	2,330,448
Stock options expired under former plans	(625,369	)
Nonvested equity stock and stock units granted (1)	(524,844	)
Nonvested equity stock and stock units forfeited (1)	258,537
Total available for grant as of September 30, 2013	2,270,044

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(1)	For purposes of determining the number of shares available for grant under the 2006 Plan against the maximum number of shares authorized, each share of restricted stock granted reduces the number of shares available for grant by 1.5 shares and each share of 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 Plan, 1999 Plan and 2006 Plan for the nine months ended September 30, 2013 and information regarding stock options outstanding, exercisable, and vested and expected to vest as of September 30, 2013.



	Options Outstanding
	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
	(In thousands, except per share amounts)
Outstanding as of December 31, 2012	13,094,815		$	12.79
Options granted	1,897,887		5.80
Options exercised	(268,493	)	6.84
Options forfeited	(2,330,448	)	12.10
Outstanding as of September 30, 2013	12,393,761		11.98		5.61	$	26,070
Vested or expected to vest at September 30, 2013	11,652,306		12.34		5.45	23,406
Options exercisable at September 30, 2013	6,562,258		16.87		3.49	5,877

No stock options that contain a market condition were granted during the three and nine months ended September 30, 2013. The fair values of the options granted with a market condition were calculated using a binomial valuation model, which estimates the potential outcome of reaching the market condition based on simulated future stock prices. As of September 30, 2013 and December 31, 2012, there were 1,445,000 and 1,535,000 stock options outstanding, respectively, that require the Company to achieve minimum market conditions in order for the options to become exercisable.

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value for in-the-money options at September 30, 2013, based on the $9.40 closing stock price of Rambus’ common stock on September 30, 2013 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, 2013 was 7,645,637 and 2,268,480, respectively.

Employee Stock Purchase Plan

Under the 2006 Employee Stock Purchase Plan (“ESPP”), the Company issued 652,272 shares at a price of $4.28 per share during the nine months ended September 30, 2013. The Company issued 169,398 shares at a price of $4.21 per share during the nine months ended September 30, 2012. As of September 30, 2013, 430,243 shares under the ESPP remain available for issuance. On September 27, 2013, the Company filed a Registration Statement on Form S-8, registering 1,500,000 additional shares under the ESPP in connection with the commencement of the next subscription period under the ESPP. Issuance of these additional shares will be subject to shareholder approval amending the ESPP to increase the number of shares reserved for issuance by 1,500,000 shares at the Company’s next annual meeting of shareholders in April 2014.

Stock-Based Compensation

For the nine months ended September 30, 2013 and 2012, 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 specific dates.

Stock Options

During the three and nine months ended September 30, 2013, the Company granted 141,575 and 1,897,887 stock options, respectively, with an estimated total grant-date fair value of $0.6 million and $4.7 million, respectively. During the three and nine months ended September 30, 2013, the Company recorded stock-based compensation expense related to stock options of $2.5 million and $8.1 million, respectively.

During the three and nine months ended September 30, 2012, the Company granted 2,590,711 and 7,592,911 stock options (including options granted in the stock option exchange program and options granted that contain a market condition), respectively, with an estimated total grant-date fair value of $3.2 million and $32.3 million, respectively. During the three and nine months ended September 30, 2012, the Company recorded stock-based compensation expense related to stock options of $3.6 million and $11.9 million, respectively.

As of September 30, 2013, there was $20.4 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 2.4 years. The total fair value of shares vested as of September 30, 2013 was $71.8 million.

The total intrinsic value of options exercised was $0.6 million and $0.7 million for the three and nine months ended September 30, 2013, respectively. The total intrinsic value of options exercised was $0.1 million and $0.2 million for the three and nine months ended September 30, 2012, 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, 2013, net proceeds from employee stock option exercises totaled approximately $1.8 million.

Employee Stock Purchase Plan

For the three and nine months ended September 30, 2013, the Company recorded compensation expense related to the ESPP of $0.4 million and $1.4 million, respectively. For the three and nine months ended September 30, 2012, the Company recorded compensation expense related to the ESPP of $0.6 million and $1.9 million, respectively. As of September 30, 2013, 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, 2013 and 2012 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 Black-Scholes-Merton (“BSM”) option-pricing model assuming a dividend yield of 0% and the additional weighted-average assumptions as listed in the table below.

The following table presents the weighted-average assumptions used to estimate the fair value of stock options granted that contain only service conditions in the periods presented.



	Stock Option Plans
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013		2012
Stock Option Plans
Expected stock price volatility	45		%	65		%	45-47%		60-68%
Risk free interest rate	1.5		%	0.6		%	0.8-1.5%		0.6-0.9%
Expected term (in years)	5.5			5.5			5.4-5.5		5.5 –5.7
Weighted-average fair value of stock options granted to employees	$	4.00		$	3.06		$	2.48	$	3.61



	Employee Stock Purchase Plan
	Nine Months Ended
	September 30,
	2013			2012
Employee Stock Purchase Plan
Expected stock price volatility	48		%	63		%
Risk free interest rate	0.1		%	0.2		%
Expected term (in years)	0.5			0.5
Weighted-average fair value of purchase rights granted under the purchase plan	$	1.94		$	1.61

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No shares were issued under the Employee Stock Purchase Plan during the three months ended September 30, 2013 and 2012.

Nonvested Equity Stock and Stock Units

The Company grants nonvested equity stock units to officers, employees and directors. During the three and nine months ended September 30, 2013, the Company granted nonvested equity stock units totaling 44,944 and 349,896 shares under the 2006 Plan, respectively. During the three and nine months ended September 30, 2012, the Company granted nonvested equity stock units totaling 46,856 and 506,753 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. For the three and nine months ended September 30, 2013, the nonvested equity stock units were valued at the date of grant giving them a fair value of approximately $0.4 million and $2.1 million, respectively. For the three and nine months ended September 30, 2012, the nonvested equity stock units were valued at the date of grant giving them a fair value of approximately $0.2 million and $3.5 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, 2013 and 2012, the achievement of certain performance conditions for certain performance equity stock units was considered probable, and as a result, the Company recognized immaterial amounts of stock-based compensation expense related to these performance stock units for these periods.

For the three and nine months ended September 30, 2013, the Company recorded stock-based compensation expense of approximately $0.5 million and $2.4 million, respectively, related to all outstanding unvested equity stock grants. For the three and nine months ended September 30, 2012, the Company recorded stock-based compensation expense of approximately $1.0 million and $4.3 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 $3.6 million at September 30, 2013. This amount is expected to be recognized over a weighted average period of 2.5 years.

The following table reflects the activity related to nonvested equity stock and stock units for the nine months ended September 30, 2013:



Nonvested Equity Stock and Stock Units	Shares		Weighted- Average Grant-Date Fair Value
Nonvested at December 31, 2012	922,491		$	10.24
Granted	349,896		6.02
Vested	(350,650	)	11.45
Forfeited	(172,349	)	10.67
Nonvested at September 30, 2013	749,388		7.60