7. STOCK INCENTIVE PLANS

The Company sponsored a stock option plan, the Rubicon Technology Inc. 2001 Equity Plan as amended (the “2001 Plan”), which allowed for the granting of incentive and nonqualified stock options for the purchase of common stock. The maximum number of shares that may be awarded or sold under the 2001 Plan was 144,967 shares. Each option granted under the 2001 Plan entitled the holder to purchase one share of common stock at the specified option exercise price. The exercise price of each incentive stock option granted could not be less than the fair market value on the grant date. Management and the Board of Directors (the “Board”) determined vesting periods and expiration dates at the time of the grant. On August 2, 2011, the 2001 Plan expired. Any existing options under the 2001 Plan remain outstanding in accordance with their current terms under the 2001 Plan.

In August 2007, the Company adopted the Rubicon Technology Inc. 2007 Stock Incentive Plan, which was amended and restated effective in March 2011 (the “2007 Plan”), and which allowed for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance awards and bonus shares. The maximum number of shares that could be awarded under the 2007 Plan was 440,769 shares. Options granted under the 2007 Plan entitle the holder to purchase shares of the Company’s common stock at the specified option exercise price, which could not be less than the fair market value of the common stock on the grant date. On June 24, 2016, the plan terminated with the adoption of the Rubicon Technology, Inc. 2016 Stock Incentive Plan, (the “2016 Plan”). Any existing awards under the 2007 Plan remain outstanding in accordance with their current terms under the 2007 Plan.

In June 2016, the Company’s stockholders approved adoption of the 2016 Plan effective as of March 17, 2016, which allows for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, RSUs, performance awards and bonus shares. The Compensation Committee of the Board administers the 2016 Plan. The committee determines the type of award to be granted, the fair market value, the number of shares covered by the award, and the time when the award vests and may be exercised.

Pursuant to the 2016 Plan, 222,980 shares of the Company’s common stock plus any shares subject to outstanding awards under the 2007 Plan that subsequently expire unexercised, are forfeited without the delivery of shares or are settled in cash, will be available for issuance under the 2016 Plan. The 2016 Plan will automatically terminate on March 17, 2026, unless the Company terminates it sooner.

The Company uses the Black-Scholes option pricing model to value stock options issued after January 1, 2006. The Company uses a three-year historical stock price average to determine its volatility assumptions. The assumed risk-free rates were based on U.S. Treasury rates in effect at the time of grant with a term consistent with the expected option lives. The expected term is based upon the vesting term of the Company’s options, a review of a peer group of companies, and expected exercise behavior. The forfeiture rate is based on past history of forfeited options. The expense is allocated using the straight-line method. For the three months ended March 31, 2017 and 2016, the Company recorded $205,000 and $161,000, respectively, of stock option compensation expense. As of March 31, 2017, the Company had $459,000 of total unrecognized compensation cost related to non-vested stock option awards granted under the Company’s stock-based plans that it expects to recognize over a weighted-average period of 2.74 years.

The Company used a Monte Carlo simulation model valuation technique to determine the fair value of 59,098 RSUs granted to a key executive pursuant to an employment agreement in March 2017 because the awards vest based upon achievement of market price targets. The RSUs vest in the amounts set forth below on the first date the 15-trading day average closing price of the Company’s common stock equals or exceeds the corresponding target price for the common stock before March 15, 2021.

Number of restricted stock units	Target price
15,000	$	6.50
15,000	$	8.00
15,000	$	9.50
14,098	$	11.00

When the terms of the negotiation of the terms of the employment agreement began, the closing price of the common stock was $5.50. On the date of grant, the closing price of the common stock was $6.30.

The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award and calculates the fair value of each RSU. The Company used the following assumptions in determining the fair value of the RSUs:

Daily expected stock price volatility	4.4237	%
Daily expected mean return on equity	(0.2226	%)
Daily expected dividend yield	0.0	%
Average daily risk free interest rate	0.0063	%

The daily expected stock price volatility is based on a four-year historical volatility of the Company’s common stock. The daily expected dividend yield is based on annual expected dividend payments. The average daily risk-free interest rate is based on the three-year treasury yield as of the grant date. Each of the tranches is calculated to have its own fair value and requisite service period. The fair value of each tranche is amortized over the requisite or derived service period which is up to four years. These RSUs had a grant date fair value of $322,623.

The following table summarizes the activity of the stock incentive and equity plans as of March 31, 2017 and changes during the three months then ended:

	Shares available for grant			Number of options outstanding			Weighted- average option exercise price		Number of restricted stock and board shares issued		Number of restricted stock units outstanding
At January 1, 2017		243,218			253,541		$	37.30		76,483		12,584
Granted		(65,261	)		—			—		6,162		59,098
Exercised/issued		—			—			—		—		(4,158	)
Cancelled/forfeited		20,575			(20,587	)		67.39		—		—
At March 31, 2017		198,532			232,954		$	34.65		82,645		67,524

The Company’s aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the fair value of the Company’s common stock. Based on the fair market value of the common stock at March 31, 2017 and 2016, there was no intrinsic value for options outstanding.

A summary of the Company’s non-vested options during the three months ended March 31, 2017 is presented below:

	Options			Weighted- average exercise price
Non-vested at January 1, 2017		148,983		$	10.20
Granted		—			—
Vested		(27,258	)		14.88
Forfeited		(7,625	)		10.71
Non-vested at March 31, 2017		114,100		$	9.05

For the three months ended March 31, 2017 and 2016, the Company recorded $136,000 and $71,000, respectively, of restricted stock unit (“RSU”) expense. As of March 31, 2017, there was $355,000 of unrecognized compensation cost related to the non-vested RSUs. This cost is expected to be recognized over a weighted-average period of 0.82 years.

A summary of the Company’s restricted stock units is as follows:

	RSUs outstanding			Weighted average price at time of grant		Aggregate intrinsic value
Non-vested restricted stock units as of January 1, 2017		12,584		$	16.00
Granted		59,098			6.50
Vested		(4,158	)		13.80
Cancelled		—			—
Non-vested at March 31, 2017		67,524		$	7.82	$	528,095

For the three months ended March 31, 2017 and 2016, the Company recorded $57,000 and $138,000, respectively, of stock compensation expense related to restricted stock.

An analysis of restricted stock issued is as follows:

Non-vested restricted stock as of January 1, 2017	16,470
Granted	6,162
Vested	(15,280	)
Non-vested restricted stock as of March 31, 2017	7,352