Equity Incentive Plans and Stock-Based Compensation

As of March 31, 2014, 700,058 shares of the 21,400,000 shares approved under the 2006 Equity Incentive Plan (the “2006 Plan”) remain available for grant which included an increase of 6,500,000 shares approved by stockholders on April 26, 2012. The 2006 Plan is now the Company’s only plan for providing stock-based incentive awards to eligible employees, executive officers, non-employee directors and consultants; however, the 1997 Stock Option Plan (the “1997 Plan”) will continue to govern awards previously granted under that plan.

A summary of shares available for grant under the Company’s plans is as follows:



	Shares Available for Grant
Shares available as of December 31, 2013	2,527,428
Stock options granted	(1,797,462	)
Stock options forfeited	269,083
Stock options expired under former plans	(9,900	)
Nonvested equity stock and stock units granted (1)	(308,712	)
Nonvested equity stock and stock units forfeited (1)	19,621
Total available for grant as of March 31, 2014	700,058

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(1)	For purposes of determining the number of shares available for grant under the 2006 Plan against the maximum number of shares authorized, each share of restricted stock granted reduces the number of shares available for grant by 1.5 shares and each share of restricted stock forfeited increases shares available for grant by 1.5 shares.

General Stock Option Information

The following table summarizes stock option activity under the 1997 Plan and 2006 Plan for the three months ended March 31, 2014 and information regarding stock options outstanding, exercisable, and vested and expected to vest as of March 31, 2014.



	Options Outstanding
	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
	(In thousands, except per share amounts)
Outstanding as of December 31, 2013	11,377,146		$	11.32
Options granted	1,797,462		$	8.78
Options exercised	(206,843	)	$	6.73
Options forfeited	(269,083	)	$	15.20
Outstanding as of March 31, 2014	12,698,682		$	10.95	6.13	$	36,153
Vested or expected to vest at March 31, 2014	11,752,766		$	11.25	5.91	$	32,643
Options exercisable at March 31, 2014	6,303,547		$	14.94	3.74	$	10,850

No stock options that contain a market condition were granted during the three months ended March 31, 2014. The fair values of the options granted with a market condition were calculated using a binomial valuation model, which estimates the potential outcome of reaching the market condition based on simulated future stock prices. As of both March 31, 2014 and December 31, 2013, there were 1,315,000 stock options outstanding that require the Company to achieve minimum market conditions in order for the options to become exercisable.

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value for in-the-money options at March 31, 2014, based on the $10.75 closing stock price of Rambus’ common stock on March 31, 2014 on the NASDAQ Global Select Market, which would have been received by the option holders had all option holders exercised their options as of that date. The total number of in-the-money options outstanding and exercisable as of March 31, 2014 was 8,833,026 and 2,656,578, respectively.

Employee Stock Purchase Plan

No purchases were made under the 2006 Employee Stock Purchase Plan (“ESPP”) during the three months ended March 31, 2014 and 2013, respectively. As of March 31, 2014, 19,232 shares under the ESPP remain available for issuance. On September 27, 2013, the Company filed a Registration Statement on Form S-8, registering 1,500,000 additional shares under the ESPP in connection with the commencement of the next subscription period under the ESPP. On April 24, 2014, the Company held its 2014 Annual Meeting of Stockholders where an amendment to the ESPP to increase the number of shares of common stock reserved for issuance under the ESPP by 1,500,000 shares was approved.

Stock-Based Compensation

For the three months ended March 31, 2014 and 2013, the Company maintained stock plans covering a broad range of potential equity grants including stock options, nonvested equity stock and equity stock units and performance based instruments. In addition, the Company sponsors an ESPP, whereby eligible employees are entitled to purchase common stock semi-annually, by means of limited payroll deductions, at a 15% discount from the fair market value of the common stock as of specific dates.

Stock Options

During the three months ended March 31, 2014 and 2013, the Company granted 1,797,462 and 1,619,437 stock options, respectively, with an estimated total grant-date fair value of $7.0 million and $3.8 million, respectively. During the three months ended March 31, 2014 and 2013, the Company recorded stock-based compensation expense related to stock options of $2.2 million and $3.1 million, respectively.

As of March 31, 2014, there was $19.4 million of total unrecognized compensation cost, net of expected forfeitures, related to non-vested stock-based compensation arrangements granted under the stock option plans. That cost is expected to be recognized over a weighted-average period of 2.5 years. The total fair value of shares vested as of March 31, 2014 was $63.4 million.

The total intrinsic value of options exercised was $0.6 million for the three months ended March 31, 2014. There were no options exercised during the three months ended March 31, 2013. Intrinsic value is the total value of exercised shares based on the price of the Company’s common stock at the time of exercise less the cash received from the employees to exercise the options.

During the three months ended March 31, 2014, net proceeds from employee stock option exercises totaled approximately $1.4 million.

Employee Stock Purchase Plan

For the three months ended March 31, 2014, the Company recorded an immaterial amount of compensation expense related to the ESPP. For the three months ended March 31, 2013, the Company recorded compensation expense related to the ESPP of $0.5 million. As of March 31, 2014, there was an immaterial amount of total unrecognized compensation cost related to stock-based compensation arrangements granted under the ESPP. That cost is expected to be recognized over one month.

There were no tax benefits realized as a result of employee stock option exercises, stock purchase plan purchases, and vesting of equity stock and stock units for the three months ended March 31, 2014 and 2013 calculated in accordance with accounting for share-based payments.

Valuation Assumptions

The fair value of stock awards is estimated as of the grant date using the Black-Scholes-Merton (“BSM”) option-pricing model assuming a dividend yield of 0% and the additional weighted-average assumptions as listed in the table below.

The following table presents the weighted-average assumptions used to estimate the fair value of stock options granted that contain only service conditions in the periods presented.



	Stock Option Plans
	Three Months Ended
	March 31,
	2014			2013
Stock Option Plans
Expected stock price volatility	44		%	47		%
Risk free interest rate	2.1		%	0.9		%
Expected term (in years)	6.1			5.4
Weighted-average fair value of stock options granted to employees	$	3.92		$	2.33

No shares were issued under the Employee Stock Purchase Plan during the three months ended March 31, 2014 and 2013.

Nonvested Equity Stock and Stock Units

The Company grants nonvested equity stock units to officers, employees and directors. During the three months ended March 31, 2014, the Company granted nonvested equity stock units totaling 205,808 shares under the 2006 Plan. During the three months ended March 31, 2013, the Company granted nonvested equity stock units totaling 276,496 under the 2006 Plan. These awards have a service condition, generally a service period of four years, except in the case of grants to directors, for which the service period is one year. For the three months ended March 31, 2014, the nonvested equity stock units were valued at the date of grant giving them a fair value of approximately $1.8 million. For the three months ended March 31, 2013, the nonvested equity stock units were valued at the date of grant giving them a fair value of approximately $1.5 million. In prior years, the Company granted nonvested equity stock units to its employees with vesting subject to the achievement of certain performance conditions. During the three months ended March 31, 2014, the Company did not record any stock-based compensation expense related to these performance stock units as they have been forfeited. During the three months ended March 31, 2013, the achievement of certain performance conditions for certain performance equity stock units was considered probable, and as a result, the Company recognized an immaterial amount of stock-based compensation expense related to these performance stock units for this period.

For the three months ended March 31, 2014, the Company recorded stock-based compensation expense of approximately $0.7 million related to all outstanding unvested equity stock grants. For the three months ended March 31, 2013, the Company recorded stock-based compensation expense of approximately $1.3 million related to all outstanding unvested equity stock grants. Unrecognized stock-based compensation related to all nonvested equity stock grants, net of estimated forfeitures, was approximately $4.3 million at March 31, 2014. This amount is expected to be recognized over a weighted average period of 2.6 years.

The following table reflects the activity related to nonvested equity stock and stock units for the three months ended March 31, 2014:



Nonvested Equity Stock and Stock Units	Shares		Weighted- Average Grant-Date Fair Value
Nonvested at December 31, 2013	629,649		$	8.56
Granted	205,808		$	8.79
Vested	(117,828	)	$	9.56
Forfeited	(13,078	)	$	6.67
Nonvested at March 31, 2014	704,551		$	8.49