Stock Incentive Plans

3 Months Ended

Mar. 31, 2019

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 entitled 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, 326,786 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 as of March 31, 2019, 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 RSUs outstanding
At January 1, 2019		295,067			69,083		$	12.10		99,570		50,176
Granted		(925	)		—			—		—		925
Exercised/issued		—			—			—		—		(1,000	)
Cancelled/forfeited		32,644			(32,644	)		12.95		—		—
At March 31, 2019		326,786			36,439		$	11.33		99,570		50,101

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 March 31, 2019, there was $50,280 of intrinsic value arising from 34,000 stock options exercisable or outstanding.

The Company uses the Black-Scholes option pricing model to value stock options. The Company uses 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. The forfeiture rate of 28.99% is based on the history of forfeited options. The expense is allocated using the straight-line method. For the three months ended March 31, 2019 and 2018, the Company recorded $7,000 and $17,000, respectively, of stock option compensation expense. As of March 31, 2019, the Company had $59,000 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 1.50 years.

A summary of the Company’s non-vested options during the three months ended March 31, 2019, is presented below:

	Options		Weighted- average exercise price
Non-vested options at January 1, 2019		21,992	$	6.86
Granted		—		—
Vested		—		—
Canceled/forfeited		—		—
Non-vested options at March 31, 2019		21,992	$	6.86

Pursuant to an employment agreement, the Company granted 30,902 and 59,098 RSUs to a key executive in 2018 and 2017, respectively.

The following table summarizes the award vesting terms for the remaining unvested RSUs under this grant:

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

The RSUs vest in the amounts set forth above 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 daily expected stock price volatility is based on a three-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 Company did not record any RSU expense for the three months ended March 31, 2019. For the three months ended March 31, 2018, the Company recorded $90,000 of RSU expense. As of March 31, 2019, there was approximately $7,000 of unrecognized compensation cost related to the non-vested RSUs.

A summary of the Company’s RSUs during the three months ended March 31, 2019, is presented below:

	RSUs outstanding			Weighted average price at time of grant		Aggregate intrinsic value
Non-vested RSUs as of January 1, 2019		50,176		$	6.31
Granted		925			7.95
Vested		(1,000	)		7.77
Cancelled		—			—
Non-vested RSUs at March 31, 2019		50,101		$	6.32	$	316,368

For the three months ended March 31, 2019 and 2018, the Company recorded $4,000 and $57,000, 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. For the three months ended March 31, 2019, no restricted stock shares were issued to our directors. For the three months ended March 31, 2018, 6,592 shares of restricted stock were issued to our directors. As of March 31, 2019 and December 31, 2018, outstanding non-vested restricted stock shares were 2,454.