Stock Plans

The Company has two active stock-based compensation plans as of September 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 or non-employee directors.

Stock Options

During the three and nine months ended September 30, 2016, no stock options were granted. During the three and nine months ended September 30, 2015, the Company granted 58,641 and 321,844 stock options, respectively, which had an average grant date fair value per share of $2.44 and $2.32, respectively. Compensation expense recognized for stock options for the three months ended September 30, 2016 and 2015 was $49,000 and $75,000, respectively. Compensation expense recognized for stock options for the nine months ended September 30, 2016 and 2015 was $134,000 and $156,000, respectively. The fair value of the stock options granted during the three and nine months ended September 30, 2015 was estimated using the Black-Scholes valuation model with the following weighted average assumptions:



	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2015		2015
Expected dividend yield	—	%	—	%
Expected volatility	60	%	61	%
Risk-free interest rate	1.60	%	1.59	%
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 nine months ended September 30, 2016 or 2015. During the three months ended September 30, 2016 and 2015, compensation expense related to RSAs was $0.2 million and $0.5 million, respectively. During the nine months ended September 30, 2016 and 2015, compensation expense recognized for RSAs was $0.2 million and $1.5 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 September 30, 2016, the Company granted 49,116 service-based RSUs with an average grant date fair value of $5.09 per share. During the nine months ended September 30, 2016, the Company granted 1,236,747 RSUs of which 904,028 were service-based RSUs with an average grant date fair value of $5.56 per share and 332,719 were PSUs with an average grant date fair value of $7.50 per share.

During the three months ended September 30, 2015, the Company granted 40,190 service-based RSUs with an average grant date value of $4.72 per share. During the nine months ended September 30, 2015, the Company granted 808,285 RSUs of which 593,454 were service-based RSUs with an average grant date value of $6.98 per share and 214,831 were PSUs with an average grant date fair value of $7.19 per share.

For the nine months ended September 30, 2016, PSUs granted included 286,495 market-condition restricted stock units. No market-condition PSUs were granted during the three months ended September 30, 2016. 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% depending on the Company’s stock price performance and the recipients must remain employed through the end of each performance 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:



	Nine Months Ended
	September 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 RSUs for the three and nine months ended September 30, 2016 and 2015 (in thousands):



	Three Months Ended September 30,					Nine Months Ended September 30,
RSU Type	2016		2015			2016		2015
Service-based	$	544	$	400		$	1,613	$	975
Performance objectives	30		(60		)	71		(28		)
Market-condition	250		34			621		102
	$	824	$	374		$	2,305	$	1,049

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 September 30, 2016 and 2015 was $53,000 and $60,000, respectively, and was $189,000 and $200,000, respectively, for the nine months ended September 30, 2016 and 2015. The fair value of the ESPP shares for the three and nine months ended September 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 Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Expected dividend yield	—		%	—		%	—		%	—		%
Expected volatility	54		%	68		%	58		%	58		%
Risk-free interest rate	0.36		%	0.01		%	0.45		%	0.08		%
Expected term (in years)	0.5			0.5			0.5			0.5
Fair value per share	$	1.59		$	1.54		$	2.04		$	1.74

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 objectives. 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. During the third quarter of 2016, the Company decreased its estimate of bonus achievement related to the plan. The Company recorded $(31,000) and $0.9 million of stock compensation expense for these bonuses during the three and nine months ended September 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 September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Cost of revenue	$	146	$	186	$	643	$	539
Selling, general and administrative	799		708		2,436		1,732
Research and development	152		161		680		635
Total stock-based compensation expense	$	1,097	$	1,055	$	3,759	$	2,906