Stock Plans

Equity Incentive Plans

The Company has two active share-based compensation plans as of December 31, 2017: the 2004 Employee Stock Purchase Plan (“ESPP”) and the 2013 Omnibus Equity Incentive Plan (the “Incentive Plan”), as approved by the stockholders. Under the Incentive Plan, incentive stock options, non-qualified stock options, restricted stock awards (“RSAs”) and restricted stock units (“RSUs”) have been granted to employees and non-employee directors. Generally, these awards vest over periods of one to four years. In addition, equity awards have been issued to senior management where vesting of the award is tied to Company performance or market conditions. The Company’s policy is to issue new shares of its common stock upon the exercise of stock options, vesting of restricted stock units, granting of restricted stock awards or ESPP purchases.

The Company’s Incentive Plan currently provides for an equity incentive pool of 6,400,000 shares. Shares reserved for issuance are replenished by forfeited shares from the Incentive Plan. Additionally, equity awards forfeited under the Company’s former 2005 equity incentive plan and shares that were available under other predecessor plans are included in the total shares available for issuance under the Incentive Plan.

For the year ended December 31, 2017, the tax benefit associated with stock option exercises, restricted stock unit vesting, restricted stock grants, and disqualifying dispositions of both incentive stock options and stock issued under the Company’s ESPP, was approximately $4.2 million.

Stock Options

The Company grants stock options to its employees, executive management and directors on a discretionary basis. The following table summarizes total aggregate stock option activity for the year ended December 31, 2017 (in thousands, except for per share data):



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Balance at December 31, 2016	414		$	8.97
Granted	50		5.56
Cancelled	(103	)	10.56
Balance at December 31, 2017	361		$	8.05	5.72	$	67
Vested or expected to vest at December 31, 2017	354		$	8.09	5.68	$	65
Exercisable at December 31, 2017	220		$	9.20	4.39	$	30

The weighted-average grant date fair value of stock options granted during the years ended December 31, 2017 and 2015 was $2.97 and $3.34, respectively. No stock options were granted during the year ended December 31, 2016. The total intrinsic value of options exercised during the year ended December 31, 2015 was $16,000. There were no option exercises for the years ended December 31, 2017 and 2016.

The fair value of the stock options granted during the years ended December 31, 2017 and 2015 was estimated using the Black-Scholes valuation model using the following assumptions:



	Years Ended December 31,
	2017		2015
Expected dividends	—	%	—	%
Expected volatility range	58% to 59%		60% to 61%
Expected volatility weighted average	59	%	60	%
Risk-free interest rate	1.9	%	1.6	%
Expected life/term weighted average (in years)	5.5		4.9

The expected dividend yield is zero because the Company has never paid cash dividends and has no present intention to pay cash dividends. The expected term is based on the Company’s historical experience from previous stock option grants. Expected volatility is based on the historical volatility of the Company’s stock measured over a period commensurate with the expected option term. The Company does not consider implied volatility due to the low volume of publicly traded options in the Company’s stock. The risk-free interest rate is derived from the zero coupon rate on U.S. Treasury instruments with a term comparable to the option’s expected term.

As of December 31, 2017, there was $0.3 million of total unrecognized compensation cost related to stock options. The cost is expected to be recognized over a weighted average period of 1.1 years.

Restricted Stock Awards

During the year ended December 31, 2014, the Company ceased granting RSAs and began granting RSUs to employees and executive management as part of its annual equity incentive award program.

The following table summarizes RSA activity for the year ended December 31, 2017 (in thousands, except for per share data):



	Shares		Weighted Average Grant Date Fair Value
Nonvested at December 31, 2016	88		$	13.37
Vested	(53	)	12.58
Forfeited	(9	)	14.57
Nonvested at December 31, 2017	26		$	14.57

No RSAs were granted during the years ended December 31, 2017, 2016 and 2015. The vest date fair value of RSAs vested in 2017, 2016 and 2015 was $0.3 million, $0.6 million and $1.2 million, respectively. As of December 31, 2017, there was $0.1 million of unrecognized compensation cost related to nonvested RSAs expected to be recognized over a weighted average period of 0.2 years.

Restricted Stock Units

Non-employee directors receive annual RSU awards, normally in February of each year, as partial consideration for their annual retainer compensation. These awards vest in full 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 stock price performance. Each RSU represents the right to receive one unrestricted share of the Company’s common stock upon vesting.

The following table summarizes RSU activity for both service-based awards and performance-based awards for the year ended December 31, 2017 (in thousands, except for per share data):



	Shares		Weighted Average Grant Date Fair Value
Nonvested at December 31, 2016	1,748		$	6.40
Granted	1,796		5.89
Released	(540	)	5.86
Forfeited	(354	)	6.45
Nonvested at December 31, 2017	2,650		$	6.16

The weighted average grant date fair value of RSUs granted, including PSUs, in the years ended December 31, 2017, 2016 and 2015 was $5.89, $6.00 and $7.02, respectively. The release date fair value of RSUs in the years ended December 31, 2017, 2016 and 2015 was $2.9 million, $1.3 million and $0.5 million, respectively. As of December 31, 2017, there was $8.3 million of unrecognized compensation cost related to nonvested RSU awards. The cost is expected to be recognized over a weighted average period of 2.2 years.

RSU activity included 158,000, 46,224 and 214,831 PSUs granted in the years ended December 31, 2017, 2016 and 2015 with a weighted average grant date fair value of $5.73, $5.08 and $7.18 per share, respectively, with vesting contingent upon specified Company performance conditions or objectives.

Additionally, for the year ended December 31, 2017, RSUs granted included 367,874 market-condition PSUs with a weighted average grant date fair value of $7.22. For the year ended December 31, 2016, RSUs granted included 313,460 market-condition PSUs with a weighted average grant date fair value of $7.76. 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. No market-condition PSUs were granted during the year ended December 31, 2015. The fair value of market-condition PSUs granted was calculated using a Monte Carlo valuation model with the following assumptions:



	Years Ended December 31,
	2017		2016
Expected dividend yield	—	%	—	%
Expected volatility	53	%	62	%
Risk-free interest rate	1.55	%	1.07	%
Expected term (in years)	2.8		3.0

The following table summarizes the amount of compensation expense recognized for RSUs for the years ended December 31, 2017, 2016 and 2015 (in thousands):



	Years Ended December 31,
RSU Type	2017		2016		2015
Service-based	$	3,268	$	2,243	$	1,362
Performance objectives	379		103		(28		)
Market-condition	1,539		869		128
	$	5,186	$	3,215	$	1,462

Employee Stock Purchase Plan

In 2013, the Company amended and restated the 2004 Employee Stock Purchase Plan (“ESPP”). Pursuant to the ESPP, the aggregate number of shares of common stock which may be purchased shall not exceed 1,500,000 shares of common stock of the Company. For the years ended December 31, 2017, 2016 and 2015, 77,914, 111,832 and 145,733 shares, respectively, were purchased under the ESPP.

The 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.

The fair value of the “look back” option for ESPP shares issued during the offering period is estimated using the Black-Scholes valuation model for a call and a put option. The share price used for the model is a 15% discount on the stock price on the last trading day before the offering period; the number of shares to be purchased is based on employee contributions. The fair value of ESPP awards was calculated using the following weighted-average assumptions:



	Years Ended December 31,
	2017			2016			2015
Expected dividends	—		%	—		%	—		%
Expected volatility	34		%	57		%	57		%
Risk-free interest rate	0.89		%	0.43		%	0.29		%
Expected life (in years)	0.45			0.5			0.5
Fair value per share	$	1.30		$	1.93		$	1.86

The intrinsic value of shares of the Company’s stock purchased pursuant to the ESPP for offering periods within the years ended December 31, 2017, 2016 and 2015 was $0.1 million, $0.1 million and $0.2 million, respectively.

Bonuses 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 may settle bonuses earned under the plan in either cash or stock, and currently intends to settle the majority of bonuses earned under the plan in stock. During the year ended December 31, 2017, the Company settled the bonuses earned under the plan for the 2016 performance period with 302,326 shares of fully vested common stock. The Company intends to settle bonuses earned under the plan for the fiscal year 2017 performance period with fully vested common stock of the Company in the first quarter of 2018.

The Company recorded $2.8 million and $1.4 million of stock compensation expense related to the bonus plan during the years ended December 31, 2017 and 2016, respectively.

Director Fees Settled in Stock

In 2017, the Board approved a deferred compensation program under which non-employee directors may make irrevocable elections to receive all or a portion of their cash-based non-employee director fees (including, as applicable, any annual retainer fee, committee fee and any other compensation payable with respect to their service as a member of the Board) in stock and to elect to defer receipt of those shares. In the event that a director makes such an election, the Company will grant fully vested RSUs in lieu of cash, with an initial value equal to the cash fees, which will be settled either in the year granted or at a future date elected by the respective non-employee director through the issuance of Maxwell common stock. In addition, non-employee directors may elect to defer settlement of the initial and annual RSU awards granted to them in connection with their service as a non-employee director. During the year ended December 31, 2017, the Company settled $164,000 of director fees earned in 2017 with 28,732 fully vested RSUs. The Company recorded $258,000 of stock compensation expense related to director fees to be settled in stock during the year ended December 31, 2017.

Stock-based Compensation Expense

Compensation cost for stock options, RSAs, RSUs, ESPP, bonuses and director fees is as follows (in thousands):



	Years Ended December 31,
	2017		2016		2015
Stock options	$	237	$	171	$	232
Restricted stock awards	416		388		1,974
Restricted stock units	5,186		3,215		1,462
ESPP	114		231		278
Bonuses settled in stock	2,826		1,359		—
Director fees settled in stock	258		—		—
Total stock-based compensation expense	$	9,037	$	5,364	$	3,946

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



	Years Ended December 31,
	2017		2016		2015
Cost of revenue	$	1,070	$	854	$	644
Selling, general and administrative	6,606		3,674		2,502
Research and development	1,361		836		800
Total stock-based compensation expense	$	9,037	$	5,364	$	3,946

Share Reservations

The following table summarizes the shares available for grant under the Company’s stock-based compensation plans as of December 31, 2017:



2013 Omnibus Equity Incentive Plan	3,138,321
2004 Employee Stock Purchase Plan	617,609
Total	3,755,930