Equity Incentive Plans and Stock-Based Compensation

As of September 30, 2017, 5,287,247 shares of the 35,400,000 cumulative shares approved under both the current 2015 Equity Incentive Plan (the “2015 Plan”) and past 2006 Equity Incentive Plan (the “2006 Plan”) remain available for grant, which included an increase of 4,000,000 shares approved under the 2015 Plan. On April 23, 2015, the Company's stockholders approved the 2015 Plan, which authorizes 4,000,000 shares for future issuance plus the number of shares that remained available for grant under the 2006 Plan as of the effective date of the 2015 Plan. The 2015 Plan became effective and replaced the 2006 Plan on April 23, 2015. The 2015 Plan was the Company’s only plan for providing stock-based incentive awards to eligible employees, executive officers, non-employee directors and consultants as of September 30, 2017. No further awards will be made under the 2006 Plan, but the 2006 Plan will continue to govern awards previously granted under it. In addition, any shares subject to stock options or other awards granted under the 2006 Plan that on or after the effective date of the 2015 Plan are forfeited, cancelled, exchanged or surrendered or terminate under the 2006 Plan will become available for grant under the 2015 Plan.

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, 2016	7,305,368
Stock options granted	(498,426	)
Stock options forfeited	1,858,653
Nonvested equity stock and stock units granted (1) (2)	(4,376,615	)
Nonvested equity stock and stock units forfeited (1)	998,267
Total available for grant as of September 30, 2017	5,287,247

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(1)	For purposes of determining the number of shares available for grant under the 2015 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.


(2)	Amount includes 394,853 shares that have been reserved for potential future issuance related to certain performance unit awards granted in the first and third quarters of 2017 and discussed under the section titled "Nonvested Equity Stock and Stock Units" below.

General Stock Option Information

The following table summarizes stock option activity under the 2006 Plan and 2015 Plan for the nine months ended September 30, 2017 and information regarding stock options outstanding, exercisable, and vested and expected to vest as of September 30, 2017.



	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, 2016	7,008,833		$	9.34
Options granted	498,426		$	12.74
Options exercised	(989,613	)	$	7.12
Options forfeited	(1,858,653	)	$	10.54
Outstanding as of September 30, 2017	4,658,993		$	9.69	5.64	$	19,594
Vested or expected to vest at September 30, 2017	4,592,934		$	9.66	5.46	$	19,533
Options exercisable at September 30, 2017	3,621,650		$	9.13	4.87	$	17,843

No stock options that contain a market condition were granted during the three and nine months ended September 30, 2017. As of September 30, 2017 and December 31, 2016, there were 50,000 and 1,135,000, respectively, stock options outstanding that require the Company to achieve minimum market conditions in order for the options to become exercisable. The fair values of the options granted with a market condition were calculated, on their respective grant dates, using a binomial valuation model, which estimates the potential outcome of reaching the market condition based on simulated future stock prices.

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value for in-the-money options at September 30, 2017, based on the $13.35 closing stock price of Rambus’ common stock on September 29, 2017 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, 2017 was 4,156,223 and 3,132,148, respectively.

Employee Stock Purchase Plan

Under the 2015 Employee Stock Purchase Plan ("2015 ESPP"), the Company issued 361,994 shares at a price of $10.33 per share during the nine months ended September 30, 2017. Under the 2015 ESPP, the Company issued 340,349 shares at a price of $8.96 per share during the nine months ended September 30, 2016. As of September 30, 2017, 1,089,649 shares under the 2015 ESPP remain available for issuance.

Stock-Based Compensation

For the nine months ended September 30, 2017 and 2016, 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 the 2015 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 months ended September 30, 2017, the Company did not grant any stock options. During the nine months ended September 30, 2017, the Company granted 498,426 stock options with an estimated total grant-date fair value of $2.1 million. During the three and nine months ended September 30, 2017, the Company recorded stock-based compensation expense related to stock options of $0.7 million and $2.1 million, respectively.

During the three months ended September 30, 2016, the Company did not grant any stock options. During the nine months ended September 30, 2016, the Company granted 440,000 stock options with an estimated total grant-date fair value of $2.1 million. During the three and nine months ended September 30, 2016, the Company recorded stock-based compensation expense related to stock options of $1.0 million and $3.3 million, respectively.

As of September 30, 2017, there was $4.0 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, 2017 was $18.9 million.

The total intrinsic value of options exercised was $1.9 million and $5.7 million for the three and nine months ended September 30, 2017, respectively. The total intrinsic value of options exercised was $3.0 million and $7.0 million for the three and nine months ended September 30, 2016, 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, 2017, net proceeds from employee stock option exercises totaled approximately $7.1 million.

Employee Stock Purchase Plan

For the three and nine months ended September 30, 2017, the Company recorded compensation expense related to the 2015 ESPP of $0.4 million and $1.3 million, respectively. For the three and nine months ended September 30, 2016, the Company recorded compensation expense related to the 2015 ESPP of $0.3 million and $1.1 million, respectively. As of September 30, 2017, there was $0.1 million of total unrecognized compensation cost related to stock-based compensation arrangements granted under the 2015 ESPP. That cost is expected to be recognized over one month.

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, 2017 calculated in accordance with accounting for share-based payments were $0.2 million and $0.8 million, respectively. 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, 2016 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 Plan
	Nine Months Ended
	September 30,
	2017			2016
Stock Option Plan
Expected stock price volatility	32		%	36		%
Risk free interest rate	1.8% - 1.9%			1.7		%
Expected term (in years)	5.3 - 5.4			6.1
Weighted-average fair value of stock options granted to employees	$	4.12		$	4.66

There were no stock options granted during the three months ended September 30, 2017 and 2016.



	Employee Stock Purchase Plan
	Nine Months Ended
	September 30,
	2017			2016
Employee Stock Purchase Plan
Expected stock price volatility	27		%	33		%
Risk free interest rate	0.98		%	0.41		%
Expected term (in years)	0.5			0.5
Weighted-average fair value of purchase rights granted under the purchase plan	$	2.87		$	2.86

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, 2017, the Company granted nonvested equity stock units totaling 463,346 and 2,654,508 shares under the 2015 Plan. During the three and nine months ended September 30, 2016, the Company granted nonvested equity stock units totaling 884,724 and 2,909,364 shares under the 2015 Plan. 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 1 year. For the three and nine months ended September 30, 2017, the nonvested equity stock units were valued at the date of grant giving them a fair value of approximately $6.0 million and $34.1 million. For the three and nine months ended September 30, 2016, the nonvested equity stock units were valued at the date of grant giving them a fair value of approximately $12.6 million and $37.6 million. During the first quarters of 2017 and 2016, the Company granted performance unit awards to certain Company executive officers with vesting subject to the achievement of certain performance conditions. The ultimate number of performance units that can be earned can range from 0% to 150% of target depending on performance relative to target over the applicable period. The shares earned will vest on the third anniversary of the date of grant. The Company's shares available for grant have been reduced to reflect the shares that could be earned at 150% of target.

During the third quarter of 2017, the Company granted performance unit awards to a Company executive officer with vesting subject to the achievement of certain performance and market conditions. The ultimate number of performance units that can be earned can range from 0% to 150% of target depending on performance relative to target over the applicable period. The shares that will become eligible to vest will be measured over a three-year period ending on December 31, 2019, unless the performance period is shortened because of a change of control of the Company or a termination of the executive officer’s employment without cause. The Company's shares available for grant have been reduced to reflect the shares that could be earned at 150% of target. The fair value of the market condition of these performance units was calculated, on its respective grant date, using a binomial valuation model, which estimates the potential outcome of reaching the market condition based on simulated future stock prices. The stock-based compensation expense related to these awards will be recorded over the respective requisite service period of approximately 2.4 years. During the three months ended September 30, 2017, the achievement of the performance condition for these performance units was considered probable, and as a result, the Company recognized an immaterial amount of stock-based compensation expense related to these performance unit awards.

During the three and nine months ended September 30, 2017, the Company recorded $1.2 million and $3.1 million, respectively, of stock-based compensation expense related to all outstanding nonvested performance unit awards. During the three and nine months ended September 30, 2016, the Company recorded $0.7 million and $2.0 million, respectively, of stock-based compensation expense related to all outstanding nonvested performance unit awards.

For the three and nine months ended September 30, 2017, the Company recorded stock-based compensation expense of approximately $5.9 million and $16.7 million related to all outstanding nonvested equity stock grants. For the three and nine months ended September 30, 2016, the Company recorded stock-based compensation expense of approximately $4.1 million and $10.9 million related to all outstanding nonvested equity stock grants. Unrecognized stock-based compensation related to all nonvested equity stock grants, net of estimated forfeitures, was approximately $46.4 million at September 30, 2017. 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, 2017:



Nonvested Equity Stock and Stock Units	Shares		Weighted- Average Grant-Date Fair Value
Nonvested at December 31, 2016	4,863,056		$	12.33
Granted	2,654,508		$	12.84
Vested	(835,776	)	$	12.23
Forfeited	(636,732	)	$	12.51
Nonvested at September 30, 2017	6,045,056		$	12.55