Stock Incentive Plans

12 Months Ended

Dec. 31, 2018

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

STOCK INCENTIVE PLANS

8. 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 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 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 RSUs outstanding
Outstanding at January 1, 2017		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
Granted		(47,953	)		10,000			—		1,878		36,075
Exercised/issued		—			(938	)		6.10		—		(5,300	)
Canceled/forfeited		68,526			(65,543	)		31.66		—		(2,983	)
Outstanding at December 31, 2018		295,067			69,083		$	12.10		99,570		50,176

The following table sets forth option grants made during 2018 with intrinsic value calculated based on grant date fair value.

Date of grant	Number of options granted		Exercise price		Intrinsic value per share
November 2018		10,000	$	7.77		—

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.

No options were granted during 2017.

At December 31, 2018, 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		64,027		7.21		42,035
$40.10 - $44.10		4,255		2.74		4,255
$77.50 - $121.10		312		0.87		312
$194.90 - $226.90		489		1.19		489
		69,083		6.86		47,091

The weighted average grant date fair value of the options that became vested in the years ended 2018 and 2017 was $76,000 and $614,000, respectively.

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

	Non-vested options			Weighted- average option exercise price
Non-vested at January 1, 2017		148,983		$	10.20
Vested		(47,618	)		12.89
Cancelled		(54,523	)		9.50
Non-vested at December 31, 2017		46,842			8.26
Granted		10,000			7.77
Vested		(8,413	)		9.04
Cancelled		(26,437	)		8.99
Non-vested at December 31, 2018		21,992		$	6.86

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, 2018 and 2017, there was no aggregate intrinsic value for options outstanding and exercisable.

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, 2018, is based upon the Company’s median average life of its options. The forfeiture rate is based on the past history of forfeited options. The expense is being allocated using the straight-line method. For the years ended December 31, 2018 and 2017, the Company recorded $47,000 and $277,000, respectively, of stock option compensation expense. As of December 31, 2018, the Company has $79,000 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 1.74 years.

For the year ended December 31, 2018, the assumptions used for the estimated fair value at the date of option grant using the Black-Scholes option-pricing model were as follows:

	2018
Weighted-average fair value per option	$	6.09
Expected term		5.1 years
Risk-free interest rate		2.95	%
Volatility		47	%
Dividend yield		None
Forfeiture rate		24.43	%

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 years ended December 31, 2018 and 2017, respectively.

The following table summarizes the award vesting terms for the RSUs granted in 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 in 2017:

Number of restricted stock units	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. During the twelve months ended December 31, 2017, the first three tranches of the grant vested. No additional tranches vested during the twelve months ended December 31, 2018.

The Company used 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. 

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

	RSUs outstanding			Weighted-average price at time of grant		Aggregate intrinsic value
Non-vested RSUs as of January 1, 2017		12,584		$	16.00
Granted		63,862			6.46
Vested		(53,625	)		9.41
Cancelled		(437	)		11.30
Non-vested RSUs as of December 31, 2017		22,384			4.65
Granted		36,075			7.88
Vested		(5,300	)		8.51
Cancelled		(2,983	)		8.88
Non-vested RSUs at December 31, 2018		50,176		$	6.31	$	396,319

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, 2018 and 2017, the Company recorded $265,000 and $460,000 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, 2018, there was no unrecognized compensation cost related to the non-vested RSUs.

An analysis of restricted stock issued is as follows:

Non-vested restricted stock as of January 1, 2017	16,470
Granted	21,209
Vested	(32,775	)
Non-vested restricted stock as of December 31, 2017	4,904
Granted	1,878
Vested	(4,328	)
Non-vested restricted stock as of December 31, 2018	2,454

For the years ended December 31, 2018 and 2017, the Company recorded $69,000 and $160,000, respectively, of stock compensation expense related to restricted stock.