Stock Plans

The Company has two active stock-based compensation plans as of June 30, 2016: the 2004 Employee Stock Purchase Plan and the 2013 Omnibus Equity Incentive Plan under which incentive stock options, non-qualified stock options, restricted stock awards and restricted stock units can be granted to employees and non-employee directors.

The Company generally issues the majority of employee stock compensation grants in the first quarter of the year; other grants issued during the year are typically for new employees.

Stock Options

During the three and six months ended June 30, 2016, no stock options were granted. During the three and six months ended June 30, 2015, the Company granted 33,546 and 263,203 stock options, respectively, which had an average grant date fair value per share of $2.74 and $3.56, respectively. Compensation expense recognized for stock options for the three months ended June 30, 2016 and 2015 was $4,000 and $57,000, respectively. Compensation expense recognized for stock options for the six months ended June 30, 2016 and 2015 was $85,000 and $80,000, respectively. The fair value of the stock options granted during the three and six months ended June 30, 2015 was estimated using the Black-Scholes valuation model with the following assumptions:



	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2015		2015
Expected dividend yield	—	%	—	%
Expected volatility	60	%	60	%
Risk-free interest rate	1.55	%	1.58	%
Expected term (in years)	5.0		5.0

Restricted Stock Awards

Beginning in 2014, the Company ceased granting restricted stock awards ("RSAs") and began granting restricted stock units ("RSUs") to employees as part of its annual equity incentive award program, therefore, no restricted stock awards were issued during the three and six months ended June 30, 2016 or 2015. During the three months ended June 30, 2016 and 2015, compensation expense related to RSAs was $0.3 million and $0.5 million, respectively. During the six months ended June 30, 2016 and 2015, compensation expense recognized for RSAs was $9,000 and $1.0 million, respectively. During the first quarter of 2016, there were significant reversals of previously recorded expense due to terminations under the Company's restructuring plan as well as other employee terminations.

Restricted Stock Units

Non-employee directors receive annual RSU awards, normally in February of each year, as part of their annual retainer compensation. These awards vest one year from the date of grant provided the non-employee director provides continued service. Additionally, new directors normally receive RSUs upon their election to the board. The Company also grants RSUs to employees as part of its annual equity incentive award program, with vesting typically in equal annual installments over four years of continuous service. Additionally, the Company grants performance-based restricted stock units ("PSUs") to executives with vesting contingent on continued service and achievement of specified performance objectives or relative stock price targets. Each restricted stock unit represents the right to receive one unrestricted share of the Company’s common stock upon vesting.

During the three months ended June 30, 2016, the Company granted 152,417 RSUs of which 122,085 were service-based RSUs with an average grant date fair value of $5.10 per share and 30,332 were PSUs with an average grant date fair value of $7.08 per share. During the six months ended June 30, 2016, the Company granted 1,187,631 RSUs of which 854,912 were service-based RSUs with an average grant date fair value of $5.59 per share and 332,719 were PSUs with an average grant date fair value of $7.50 per share.

During the three months ended June 30, 2015, the Company granted 98,149 RSUs of which 74,275 were service-based RSUs with an average grant date value of $6.00 per share and 23,874 were PSUs with an average grant date fair value of $6.03 per share. During the six months ended June 30, 2015, the Company granted 768,095 RSUs of which 553,264 were service-based RSUs with an average grant date value of $7.14 per share and 214,831 were PSUs with an average grant date fair value of $7.19 per share.

For the three and six months ended June 30, 2016, 30,332 and 286,495, respectively, of the PSUs granted were performance-based market-condition stock units. The market-condition PSUs will be earned based on the level of the Company's stock price performance against a determined market index over one, two and three year performance periods. The market-condition PSUs have the potential to vest between 0% and 200% and the recipients must remain employed through each measurement period in order to vest. The fair value of the market-condition PSUs granted was calculated using a Monte Carlo valuation model with the following assumptions:



	Three and Six Months Ended
	June 30,
	2016
Expected dividend yield	—	%
Expected volatility	62	%
Risk-free interest rate	1.07	%
Expected term (in years)	3.0

The following table summarizes the amount of compensation expense recognized for restricted stock units for the three and six months ended June 30, 2016 and 2015 (in thousands):



	Three Months Ended June 30,					Six Months Ended June 30,
RSU Type	2016		2015			2016		2015
Service-based	$	536	$	363		$	1,069	$	575
Performance-based objectives	29		(27		)	41		32
Market-condition	180		34			371		67
	$	745	$	370		$	1,481	$	674

Employee Stock Purchase Plan

The 2004 Employee Stock Purchase Plan (“ESPP”) permits substantially all employees to purchase common stock through payroll deductions, at 85% of the lower of the trading price of the stock at the beginning or at the end of each six month offering period. The number of shares purchased is based on participants’ contributions made during the offering period.

Compensation expense recognized for the ESPP for the three months ended June 30, 2016 and 2015 was $54,000 and $57,000, respectively, and was $135,000 and $140,000, respectively, for the six months ended June 30, 2016 and 2015. The fair value of the ESPP shares for the three and six months ended June 30, 2016 and 2015 was estimated using the Black-Scholes valuation model for a call and a put option with the following weighted-average assumptions:



	Three and Six Months Ended
	June 30,
	2016			2015
Expected dividend yield	—		%	—		%
Expected volatility	60		%	54		%
Risk-free interest rate	0.49		%	0.11		%
Expected term (in years)	0.5			0.5
Fair value per share	$	2.27		$	5.97

Bonuses to be Settled in Stock

On January 15, 2016, the Compensation Committee of the Board of Directors of the Company adopted the Maxwell Technologies, Inc. Incentive Bonus Plan to enable participants to earn annual incentive bonuses based upon achievement of specified financial and strategic performance. The Company intends to settle bonuses earned under the plan for the fiscal year 2016 performance period with fully vested common stock of the Company in the first quarter of 2017, therefore, $0.3 million and $0.9 million of stock compensation expense was accrued for such bonuses during the three and six months ended June 30, 2016, respectively.

Stock-Based Compensation Expense

Stock-based compensation cost included in cost of revenue; selling, general and administrative expense; and research and development expense is as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2016		2015		2016		2015
Cost of revenue	$	262	$	147	$	497	$	353
Selling, general and administrative	966		657		1,637		1,023
Research and development	231		207		528		474
Total stock-based compensation expense	$	1,459	$	1,011	$	2,662	$	1,850