Stock Incentive Plans

12 Months Ended

Dec. 31, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK INCENTIVE PLANS

7. STOCK INCENTIVE PLANS

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 following table summarizes the activity of the stock incentive and equity plans:

	Shares available for grant			Number of options outstanding			Weighted- average option exercise price		Number of restricted stock shares issued			Number of restricted stock units outstanding
Outstanding at January 1, 2016		73,227			285,157		$	70.67		20,146			45,402
Authorized		190,000
Granted		(153,769	)		94,362			6.34		59,407			—
Exercised/issued		—			—			—		—			(13,368	)
Canceled/forfeited		133,760			(125,978	)		89.63		(3,070	)		(19,450	)
Outstanding at December 31, 2016		243,218			253,541			37.31		76,483			12,584
Granted		(85,071	)		—			—		21,209			63,862
Exercised/issued		—			(938	)		6.10		—			(53,625	)
Canceled/forfeited		116,347			(127,039	)		51.85		—			(437	)
Outstanding at December 31, 2017		274,494			125,564		$	19.53		97,692			22,384

The following table sets forth option grants made during 2016 with intrinsic value calculated based on grant date fair value. No options were granted during 2017.

Date of grant	Number of options granted		Exercise price		Intrinsic value per share
January – April 2016		5,112		$7.30 - $11.40		—
September 2016		89,250	$	6.10		—

There is no intrinsic value because the exercise price per share of each option was equal to the fair value of the common stock on the date of grant.

At December 31, 2017, the exercise prices of outstanding options were as follows:

Exercise price	Number of options outstanding		Average remaining contractual life (years)		Number of options exercisable
$6.10 - $13.50		97,594		7.44		51,860
$40.10 - $52.00		23,197		1.70		22,089
$77.50 - $121.10		2,012		3.28		2,012
$194.90 - $326.70		2,761		1.79		2,761
		125,564		4.31		78,722

The weighted average grant date fair value of the options that became vested in the years ended 2017 and 2016 was $614,000 and $928,000, respectively.

The following table summarizes the activity of non-vested options:

	Non-vested options			Weighted- average option exercise price
Non-vested at January 1, 2016		125,196		$	22.32
Granted		94,362			6.34
Vested		(33,011	)		28.10
Cancelled		(37,564	)		25.10
Non-vested at December 31, 2016		148,983			10.20
Vested		(47,618	)		12.89
Cancelled		(54,523	)		9.50
Non-vested at December 31, 2017		46,842		$	8.26

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 value of the common stock at December 31, 2017 and 2016, there was no aggregate intrinsic value for options outstanding and exercisable.

For the year ended December 31, 2016, the Company used historical stock prices as the basis for 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 for the year ended December 31, 2016 is based upon the Company’s median average life of its options. The forfeiture rate is based on past history of forfeited options. The expense is being allocated using the straight-line method. For the years ended December 31, 2017 and 2016, the Company recorded $277,000 and $527,000, respectively, of stock option compensation expense. As of December 31, 2017, the Company has $177,000 of total unrecognized compensation cost related to non-vested options granted under the Company’s stock-based plans that it expects to recognize over a weighted-average period of 1.92 years.

For the year ended December 31, 2016, the assumptions used for the estimated fair value at the date of option grant using the Black-Scholes option-pricing model were as follows:

	2016
Weighted average fair value per option	$	6.34
Expected term		5.1 years
Risk free interest rate		1.24% -1.73%
Volatility		65	%
Dividend yield		None
Forfeiture rate		23.1	%

The Company used a Monte Carlo simulation model valuation technique to determine the fair value of 59,098 RSUs granted in March 2017 to a key executive pursuant to an employment agreement because the awards vest based upon achievement of market price targets of the Company’s common stock. 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

During the twelve months ended December 31, 2017, the first three tranches of the grant vested.

When the negotiation of the terms of the employment agreement began, the closing price of the common stock was approximately $5.50 per share. On the date of grant, the closing price of the Company’s common stock was $6.30 per share.

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.

A summary of the Company’s RSUs is as follows:

	RSUs outstanding			Weighted average price at time of grant		Aggregate intrinsic value
Non-vested restricted stock units as of January 1, 2016		45,402		$	19.18
Vested		(13,368	)		16.01
Cancelled		(19,450	)		23.45
Non-vested restricted stock units as of December 31, 2016		12,584			16.00
Granted		63,862			6.46
Vested		(53,625	)		9.41
Cancelled		(437	)		11.30
Non-vested at December 31, 2017		22,384		$	4.65	$	178,553

The fair value of each RSU is the market price on the date of grant and is being recorded as compensation expense ratably over the vesting terms. For the years ended December 31, 2017 and 2016, the Company recorded $460,000 and $262,000 of RSU expense, respectively. The RSUs are forfeited by a participant upon termination for any reason and there is no proportionate or partial vesting in the periods between the vesting dates. As of December 31, 2017, there was $71,000 of unrecognized compensation cost related to the non-vested restricted stock units. This cost is expected to be recognized over a weighted-average period of 0.41 years.

An analysis of restricted stock issued is as follows:

Non-vested restricted stock as of January 1, 2016	1,520
Granted	59,407
Vested	(41,387	)
Cancelled/forfeited	(3,070	)
Non-vested restricted stock as of December 31, 2016	16,470
Granted	21,209
Vested	(32,775	)
Non-vested restricted stock as of December 31, 2017	4,904

For the years ended December 31, 2017 and 2016, the Company recorded $160,000 and $559,000, respectively, of stock compensation expense related to restricted stock.