Equity Incentive Plans and Stock-Based Compensation

Stock Option Plans

The Company has two stock option plans under which grants are currently outstanding: the 2006 Equity Incentive Plan (the “2006 Plan”) and the 2015 Equity Incentive Plan (the “2015 Plan”). On April 23, 2015, the Company's stockholders approved the 2015 Plan, which authorizes 4,000,000 shares for future issuance plus the number of shares that remained available for grant under the 2006 Plan as of the effective date of the 2015 Plan. The 2015 Plan became effective and replaced the 2006 Plan on April 23, 2015. The 2015 Plan was the Company’s only plan for providing stock-based incentive awards to eligible employees, executive officers, non-employee directors and consultants as of December 31, 2017. Grants under all plans typically have a requisite service period of 60 months or 48 months, have straight-line vesting schedules and expire not more than 10 years from date of grant. No further awards will be made under the 2006 Plan, but the 2006 Plan will continue to govern awards previously granted under it. In addition, any shares subject to stock options or other awards granted under the 2006 Plan that on or after the effective date of the 2015 Plan are forfeited, cancelled, exchanged or surrendered or terminate under the 2006 Plan will become available for grant under the 2015 Plan. The Board will periodically review actual share consumption under the 2015 Plan and may make a request for additional shares as needed.

The 2006 Plan was approved by the stockholders in May 2006. The 2006 Plan, as amended, provides for the issuance of the following types of incentive awards: (i) stock options; (ii) stock appreciation rights; (iii) restricted stock; (iv) restricted stock units; (v) performance shares and performance units; and (vi) other stock or cash awards. This plan provides for the granting of awards at less than fair market value of the common stock on the date of grant, but such grants would be counted against the numerical limits of available shares at a ratio of 1.5 to 1.0. The Board of Directors reserved 8,400,000 shares in March 2006 for issuance under this plan, subject to stockholder approval. Upon stockholder approval of this Plan on May 10, 2006, the 1997 Stock Option Plan (the "1997 Plan") was replaced and the 1999 Non-statutory Stock Option Plan (the "1999 Plan") was terminated. There are no outstanding options from the 1997 Plan or 1999 Plan as of December 31, 2017. On April 30, 2009 and April 26, 2012, stockholders approved an additional 6,500,000 shares on each date for issuance under the 2006 Plan. Additionally, on April 24, 2014, stockholders approved an additional 10,000,000 shares for issuance under the 2006 Plan. Those who were eligible for awards under the 2006 Plan included employees, directors and consultants who provide services to the Company and its affiliates. These options typically have a requisite service period of 60 months or 48 months, have straight-line vesting schedules, and expire ten years from date of grant.

As of December 31, 2017, 5,051,147 shares of the 35,400,000 shares approved under the plans remain available for grant. The 2015 Plan is now the Company’s only plan for providing stock-based incentive compensation to eligible employees, directors and consultants.

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, 2014	10,724,228
Increase in shares approved for issuance	4,000,000
Stock options granted	(362,335)
Stock options forfeited	1,624,823
Stock options expired under former plans	(657,878)
Nonvested equity stock and stock units granted (1) (2)	(4,537,797)
Nonvested equity stock and stock units forfeited (1)	382,504
Total shares available for grant as of December 31, 2015	11,173,545
Stock options granted	(500,000)
Stock options forfeited	1,081,107
Stock options expired under former plans	(412,467)
Nonvested equity stock and stock units granted (1) (3)	(5,316,675)
Nonvested equity stock and stock units forfeited (1)	1,279,858
Total shares available for grant as of December 31, 2016	7,305,368
Stock options granted	(558,426)
Stock options forfeited	1,978,042
Nonvested equity stock and stock units granted (1) (4)	(5,007,947)
Nonvested equity stock and stock units forfeited (1)	1,334,110
Total shares available for grant as of December 31, 2017	5,051,147

______________________________________


(1)	For purposes of determining the number of shares available for grant under the 2015 Plan against the maximum number of shares authorized, each restricted stock granted reduces the number of shares available for grant by 1.5 shares and each restricted stock forfeited increases shares available for grant by 1.5 shares.


(2)	Amount includes 238,980 shares that had been reserved for potential future issuance related to certain performance unit awards discussed under the section titled "Nonvested Equity Stock and Stock Units" below.


(3)	Amount includes 300,003 shares that had been reserved for potential future issuance related to certain performance unit awards discussed under the section titled "Nonvested Equity Stock and Stock Units" below.


(4)	Amount includes 394,853 shares that have been reserved for potential future issuance related to certain performance unit awards discussed under the section titled "Nonvested Equity Stock and Stock Units" below.

General Stock Option Information

The following table summarizes stock option activity under the stock option plans for the years ended December 31, 2017, 2016 and 2015 and information regarding stock options outstanding, exercisable, and vested and expected to vest as of December 31, 2017.



	Options Outstanding			Weighted Average Remaining Contractual Term
	Number of Shares	Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
	(Dollars in thousands, except per share amounts)
Outstanding as of December 31, 2014	11,441,646	$	10.73
Options granted	362,335	$	11.27
Options exercised	(1,184,141)	$	7.42
Options forfeited	(1,624,823)	$	17.22
Outstanding as of December 31, 2015	8,995,017	$	10.01
Options granted	500,000	$	12.29
Options exercised	(1,405,077)	$	7.27
Options forfeited	(1,081,107)	$	18.98
Outstanding as of December 31, 2016	7,008,833	$	9.34
Options granted	558,426	$	12.95
Options exercised	(1,278,856)	$	7.34
Options forfeited	(1,978,042)	$	10.68
Outstanding as of December 31, 2017	4,310,361	$	9.78	5.51	$	20,967
Vested or expected to vest at December 31, 2017	4,250,520	$	9.74	5.46	$	20,876
Options exercisable at December 31, 2017	3,428,595	$	9.11	4.75	$	19,331

During the years ended December 31, 2017, 2016 and 2015, no stock options that contain a market condition were granted. During the year ended December 31, 2012, 1,795,000 stock options that contain a market condition were granted. These options vest in three years if specified stock prices are achieved. As of December 31, 2017 and 2016, there were zero and 1,135,000, respectively, stock options outstanding that require the Company to achieve minimum market conditions in order for the options to become exercisable. 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.

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value for in-the-money options at December 31, 2017, based on the $14.22 closing stock price of Rambus’ Common Stock on December 29, 2017 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 December 31, 2017 was 3,833,131 and 3,020,652, respectively.

The following table summarizes the information about stock options outstanding and exercisable as of December 31, 2017:



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$4.13 – $5.39	75,665	4.7	$	4.60	75,665	$	4.60
$5.46 – $5.46	447,780	5.1	$	5.46	447,780	$	5.46
$5.49 – $5.63	237,068	2.4	$	5.63	237,068	$	5.63
$5.76 – $5.76	596,669	4.5	$	5.76	596,669	$	5.76
$6.83 – $8.73	407,628	3.3	$	7.77	407,628	$	7.77
$8.76 – $8.76	674,798	6.1	$	8.76	635,447	$	8.76
$9.18 – $11.92	433,979	6.4	$	11.21	323,859	$	11.17
$11.93 – $12.31	498,356	8.1	$	12.26	201,321	$	12.28
$12.33 – $12.33	1,478	0.1	$	12.33	1,478	$	12.33
$12.80 – $23.60	936,940	5.9	$	15.50	501,680	$	17.60
$4.13 – $23.60	4,310,361	5.5	$	9.78	3,428,595	$	9.11

Employee Stock Purchase Plans

During the years ended December 31, 2017 and 2016, the Company had one employee stock purchase plan, the 2015 Employee Stock Purchase Plan (“2015 ESPP”). During the year ended December 31, 2015, the Company had two employee stock purchase plans, the 2015 ESPP and the 2006 Employee Stock Purchase Plan (“2006 ESPP”).

On April 23, 2015, the Company's stockholders approved the 2015 ESPP which reserves 2,000,000 shares of the Company's common stock for purchase. The 2006 ESPP remained in effect until the Company’s November 2, 2015 offering period, at which time the 2015 ESPP became effective.

In March 2006, the Company adopted the 2006 ESPP, as amended, and reserved 1,600,000 shares, subject to stockholder approval which was received on May 10, 2006. On April 26, 2012, an additional 1,500,000 shares were approved by stockholders. 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.

Employees generally will be eligible to participate in the plan if they are employed by Rambus for more than 20 hours per week and more than five months in a fiscal year. Both the 2015 ESPP and 2006 ESPP (when it was in effect) provide for six month offering periods, with a new offering period commencing on the first trading day on or after May 1 and November 1 of each year. Under the plans, employees may purchase stock at the lower of 85% of the beginning of the offering period (the enrollment date), or the end of each offering period (the purchase date). Employees generally may not purchase more than the number of shares having a value greater than $25,000 in any calendar year, as measured at the purchase date.

The Company issued 615,370 shares at a weighted average price of $10.47 per share during the year ended December 31, 2017. The Company issued 548,357 shares at a weighted average price of $9.34 per share during the year ended December 31, 2016. The Company issued 544,391 shares at a weighted average price of $9.36 per share during the year ended December 31, 2015. As of December 31, 2017, 836,273 shares under the ESPP remain available for issuance.

Stock-Based Compensation

Stock Options

During the years ended December 31, 2017, 2016 and 2015, Rambus granted 558,426, 500,000 and 362,335 stock options, respectively, with an estimated total grant-date fair value of $2.3 million, $2.3 million and $1.7 million, respectively. During the years ended December 31, 2017, 2016 and 2015, Rambus recorded stock-based compensation related to stock options of $2.8 million, $4.1 million and $7.2 million, respectively.

As of December 31, 2017, there was $3.4 million of total unrecognized compensation cost, net of expected forfeitures, related to unvested stock-based compensation arrangements granted under the stock option plans. This cost is expected to be recognized over a weighted-average period of 2.5 years. The total fair value of options vested for the years ended December 31, 2017, 2016 and 2015 was $17.3 million, $28.4 million and $41.4 million, respectively.

The total intrinsic value of options exercised was $7.5 million, $8.0 million and $6.8 million for the years ended December 31, 2017, 2016 and 2015, respectively. 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 proceeds received from the employees to exercise the options.

During the years ended December 31, 2017, 2016 and 2015, proceeds from employee stock option exercises totaled approximately $9.4 million, $10.2 million and $8.8 million, respectively.

Employee Stock Purchase Plans

During the years ended December 31, 2017, 2016 and 2015, Rambus recorded stock-based compensation related to the ESPP of $1.7 million, $1.6 million and $1.6 million, respectively. As of December 31, 2017, there was $0.7 million of total unrecognized compensation cost related to stock-based compensation arrangements granted under the ESPP. That cost is expected to be recognized over four months.

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 year ended December 31, 2017 calculated in accordance with accounting for share-based payments were $1.3 million. 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 years ended December 31, 2016 and 2015.

Valuation Assumptions

Rambus estimates the fair value of stock options using the Black-Scholes-Merton model (“BSM”). The BSM model determines the fair value of stock-based compensation and is affected by Rambus’ stock price on the date of the grant as well as assumptions regarding a number of highly complex and subjective variables. These variables include expected volatility, expected life of the award, expected dividend rate, and expected risk-free rate of return. The assumptions for expected volatility and expected life are the two assumptions that significantly affect the grant date fair value. If actual results differ significantly from these estimates, stock-based compensation expense and Rambus’ results of operations could be materially impacted.

The fair value of stock awards is estimated as of the grant date using the BSM option-pricing model assuming a dividend yield of 0% and the additional weighted-average assumptions as listed in the following tables:

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 for Years Ended December 31,
	2017	2016	2015
Stock Option Plans
Expected stock price volatility	24%-32%	34%-36%	41%
Risk free interest rate	1.8%-2.0%	1.3%-1.7%	1.2%
Expected term (in years)	5.3-5.4	5.4-6.1	6.0
Weighted-average fair value of stock options granted	$4.09	$4.59	$4.59



	Employee Stock Purchase Plan for Years Ended December 31,
	2017	2016	2015
Employee Stock Purchase Plan
Expected stock price volatility	25%-27%	31%-33%	34%-42%
Risk free interest rate	0.98%-1.3%	0.41%-0.5%	0.1%-0.3%
Expected term (in years)	0.5	0.5	0.5
Weighted-average fair value of purchase rights granted under the purchase plan	$3.07	$2.88	$3.06

Expected Stock Price Volatility: Given the volume of market activity in its market traded options, Rambus determined that it would use the implied volatility of its nearest-to-the-money traded options. The Company believes that the use of implied volatility is more reflective of market conditions and a better indicator of expected volatility than historical volatility. If there is not sufficient volume in its market traded options, the Company will use an equally weighted blend of historical and implied volatility.

Risk-free Interest Rate: Rambus bases the risk-free interest rate used in the BSM valuation method on implied yield currently available on the U.S. Treasury zero-coupon issues with an equivalent term. Where the expected terms of Rambus’ stock-based awards do not correspond with the terms for which interest rates are quoted, Rambus uses an approximation based on rates on the closest term currently available.

Expected Term: The expected term of options granted represents the period of time that options granted are expected to be outstanding. The expected term was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. The expected term of ESPP grants is based upon the length of each respective purchase period.

Nonvested Equity Stock and Stock Units

The Company grants nonvested equity stock units to officers, directors and employees. For the years ended December 31, 2017, 2016 and 2015, the Company granted nonvested equity stock units totaling 3,075,396, 3,344,448 and 2,865,878 shares, respectively, under the 2015 Plan and 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. The fair value of nonvested equity stock units at the date of grant was approximately $40.0 million, $42.9 million and $33.3 million, respectively. During the first quarters of 2017, 2016 and 2015, the Company granted performance unit awards to certain Company executive officers with vesting subject to the achievement of certain performance conditions. The ultimate number of performance units that can be earned can range from 0% to 150% of target depending on performance relative to target over the applicable period. The shares earned will vest on the third anniversary of the date of grant. The Company's shares available for grant has been reduced to reflect the shares that could be earned at 150% of target. During the years ended December 31, 2017, 2016 and 2015, the Company recorded $4.4 million, $2.8 million and $1.1 million, respectively, of stock-based compensation expense related to these performance unit awards.

During the third quarter of 2017, the Company granted performance unit awards to a Company executive officer with vesting subject to the achievement of certain performance and market conditions. The ultimate number of performance units that can be earned can range from 0% to 150% of target depending on performance relative to target over the applicable period. The shares that will become eligible to vest will be measured over a three-year period ending on December 31, 2019, unless the performance period is shortened because of a change of control of the Company or a termination of the executive officer’s employment without cause. The Company's shares available for grant have been reduced to reflect the shares that could be earned at 150% of target. The fair value of the market condition of these performance units was calculated, on its respective grant date, using a binomial valuation model, which estimates the potential outcome of reaching the market condition based on simulated future stock prices. The stock-based compensation expense related to these awards will be recorded over the respective requisite service period of approximately 2.4 years. During the year ended December 31, 2017, the achievement of the performance condition for these performance units was considered probable, and as a result, the Company recognized $0.5 million of stock-based compensation expense related to these performance unit awards.

For the years ended December 31, 2017, 2016 and 2015, the Company recorded stock-based compensation expense of approximately $22.9 million, $15.3 million and $6.3 million, respectively, related to all outstanding equity stock grants. Unrecognized stock-based compensation related to all nonvested equity stock grants, net of an estimate of forfeitures, was approximately $44.5 million at December 31, 2017. This cost is expected to be recognized over a weighted average period of 2.3 years.

The following table reflects the activity related to nonvested equity stock and stock units for the three years ended December 31, 2017:



Nonvested Equity Stock and Stock Units	Shares	Weighted-Average Grant-Date Fair Value
Nonvested at December 31, 2014	673,864	$	9.23
Granted	2,865,878	$	11.62
Vested	(276,622)	$	9.94
Forfeited	(255,002)	$	10.64
Nonvested at December 31, 2015	3,008,118	$	11.32
Granted	3,344,448	$	12.84
Vested	(789,864)	$	10.98
Forfeited	(699,646)	$	11.94
Nonvested at December 31, 2016	4,863,056	$	12.33
Granted	3,075,396	$	13.02
Vested	(1,216,476)	$	12.15
Forfeited	(860,627)	$	12.61
Nonvested at December 31, 2017	5,861,349	$	12.68