Stock Incentive Plans

9 Months Ended

Sep. 30, 2018

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

STOCK INCENTIVE PLANS

6. 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, 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 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 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. 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 of 24.43% is based on the history of forfeited options. The expense is allocated using the straight-line method. For the three and nine months ended September 30, 2018, the Company recorded $8,000 and $38,000, respectively, of stock option compensation expense. For the three and nine months ended September 30, 2017, the Company recorded $20,000 and $258,000, respectively, of stock option compensation expense. As of September 30, 2018, the Company had $56,000 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 1.17 years.

Pursuant to an employment agreement in March 2017, which was subsequently amended on May 12, 2017, the Company granted 30,902 and 59,098 RSUs to a key executive in the nine months ended September 30, 2018 and 2017, respectively.

The following table summarizes the award vesting terms for the RSUs granted on January 1, 2018:

Number of RSUs	Target price
902	$	11.00
15,000	$	12.50
15,000	$	14.00

The following table summarizes the award vesting terms for the RSUs granted on March 17, 2017:

Number of RSUs	Target price
15,000	$	6.50
15,000	$	8.00
15,000	$	9.50
14,098	$	11.00

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 May 12, 2021. At the time 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 Company used a Monte Carlo simulation model valuation technique to determine the fair value of RSUs granted because the awards vest based upon achievement of market price targets. 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:

	Granted
	January 2018			March 2017
Daily expected stock price volatility		4.2806	%		4.4237	%
Daily expected mean return on equity		(0.2575	)%		(0.2226	)%
Daily expected dividend yield		0.0	%		0.0	%
Average daily risk-free interest rate		0.0078	%		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. The RSUs granted in January 2018 and March 2017 had a grant date fair value of $209,000 and $323,000, respectively.

The following table summarizes the activity of the stock incentive and equity plans as of September 30, 2018, and changes during the nine 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 RSUs outstanding
At January 1, 2018		274,494			125,564		$	19.53		97,692		22,384
Granted		(36,953	)		—			—		1,878		35,075
Exercised/issued		—			—			—		—		(3,477	)
Cancelled/forfeited		65,902			(62,919	)		32.64		—		(2,983	)
At September 30, 2018		303,443			62,645		$	12.54		99,570		50,999

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 September 30, 2018 and 2017, there was no intrinsic value for options outstanding.

A summary of the Company’s non-vested options during the nine months ended September 30, 2018, is presented below:

	Options			Weighted- average exercise price
Non-vested options at January 1, 2018		46,842		$	8.26
Granted		—			—
Vested		(7,942	)		6.97
Forfeited		(23,813	)		9.07
Non-vested options at September 30, 2018		15,087		$	7.66

For the three and nine months ended September 30, 2018, the Company recorded $50,000 and $256,000, respectively, of RSU expense. For the three and nine months ended September 30, 2017, the Company recorded $94,000 and $418,000, respectively, of RSU expense. As of September 30, 2018, there was $46,000 of unrecognized compensation cost related to the non-vested RSUs. This cost is expected to be recognized over a weighted-average period of 0.37 years.

A summary of the Company’s RSUs during the nine months ended September 30, 2018, is presented below:

	RSUs outstanding			Weighted average price at time of grant		Aggregate intrinsic value
Non-vested RSUs as of January 1, 2018		22,384		$	4.65
Granted		35,075			7.89
Vested		(3,477	)		7.05
Cancelled		(2,983	)		8.88
Non-vested RSUs at September 30, 2018		50,999		$	6.46	$	329,614

For the three and nine months ended September 30, 2018, the Company recorded $4,000 and $65,000, respectively, of stock compensation expense related to restricted stock. For the three and nine months ended September 30, 2017, the Company recorded $49,000 and $110,000, respectively, of stock compensation expense related to restricted stock.

The Company’s board of directors are compensated partially in cash and partially in restricted stock. As such, for the nine months ended September 30, 2018, 1,878 shares of restricted common stock were issued to outside directors.

An analysis of restricted stock issued is as follows:

Non-vested restricted stock as of January 1, 2018	4,904
Granted	1,878
Vested	(4,328	)
Non-vested restricted stock as of September 30, 2018	2,454