Stock Plans

The Company’s disclosures provided in this note include both continuing operations and discontinued operations.

Equity Incentive Plans

The Company has two active share-based compensation plans as of December 31, 2018: 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 7,900,000 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, 2018, 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 $4.8 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, 2018 (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, 2017	361		$	8.05
Granted	30		5.37
Cancelled	(35	)	9.41
Balance at December 31, 2018	356		7.69		5.65	$	—
Vested or expected to vest at December 31, 2018	354		7.70		5.64	—
Exercisable at December 31, 2018	270		8.20		5.10	—

The weighted-average grant date fair value of stock options granted during the years ended December 31, 2018 and 2017 was $2.75 and $2.97, respectively. There were no option exercises for the years ended December 31, 2018 and 2017.

The fair value of the stock options granted during the years ended December 31, 2018 and 2017 was estimated using the Black-Scholes valuation model using the following assumptions:



	Years Ended December 31,
	2018		2017
Expected dividends	—	%	—	%
Expected volatility weighted average	54	%	59	%
Risk-free interest rate	3.0	%	1.9	%
Expected life/term weighted average (in years)	5.5		5.5

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, 2018, there was $0.1 million of total unrecognized compensation cost related to stock options. The cost is expected to be recognized over a weighted average period of 0.4 years.

Restricted Stock Awards

No RSAs were granted during the years ended December 31, 2018 and 2017. The following table summarizes RSA activity for the year ended December 31, 2018 (in thousands, except for per share data):



	Shares		Weighted Average Grant Date Fair Value
Nonvested at December 31, 2017	26		$	14.57
Vested	(25	)	14.57
Forfeited	(1	)	14.57
Nonvested at December 31, 2018	—		—

The vest date fair value of RSAs vested in 2018 and 2017 was $0.1 million and $0.3 million, respectively.

Restricted Stock Units

Non-employee directors receive annual RSU awards 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 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, 2018 (in thousands, except for per share data):



	Shares		Weighted Average Grant Date Fair Value
Nonvested at December 31, 2017	2,650		$	6.16
Granted	1,544		6.12
Released	(570	)	5.92
Vested with deferred settlement	(45	)	5.64
Forfeited	(821	)	6.22
Nonvested at December 31, 2018	2,758		6.18

The weighted average grant date fair value of RSUs granted in the years ended December 31 2018 and 2017 was $6.12 and 5.89, respectively. The vest date fair value of RSUs released in the years ended December 31, 2018 and 2017 was $3.0 million and $2.9 million, respectively. As of December 31, 2018, 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 2.0 years.

For the years ended December 31, 2018 and 2017, RSU grants were composed of the following:



	Years Ended December 31
	2018			2017
	Shares granted (in thousands)	Average grant date fair value		Shares granted (in thousands)	Average grant date fair value
Service-based	1,111	$	5.70	1,270	$	5.53
Performance objectives	78	5.85		158	5.73
Market-condition	355	7.49		368	7.22
Total RSUs granted	1,544	6.12		1,796	5.89

For the year ended December 31, 2018 and 2017, RSUs granted included market-condition RSUs., The market-condition RSUs will vest 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 RSUs 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 market-condition RSUs granted was calculated using a Monte Carlo valuation model with the following assumptions:



	Years Ended December 31,
	2018		2017
Expected dividend yield	—	%	—	%
Expected volatility	41% - 47%		53	%
Risk-free interest rate	2.36% - 2.60%		1.55	%
Expected term (in years)	2.5 - 2.9		2.8

The following table summarizes the amount of compensation expense recognized for RSUs for the years ended December 31, 2018 and 2017 (in thousands):



	Years Ended December 31,
RSU Type	2018		2017
Service-based	$	4,054	$	3,268
Performance objectives	320		379
Market-condition	1,912		1,539
	$	6,286	$	5,186

Employee Stock Purchase Plan

Pursuant to the Company’s amended and restated 2004 Employee Stock Purchase Plan (“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, 2018, 2017, 159,544 and 77,914 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,
	2018			2017
Expected dividends	—		%	—		%
Expected volatility	42		%	34		%
Risk-free interest rate	1.88		%	0.89		%
Expected life (in years)	0.50			0.45
Fair value per share	$	1.28		$	1.30

The intrinsic value of shares of the Company’s stock purchased pursuant to the ESPP during each of the years ended December 31, 2018 and 2017 was $0.1 million.

Bonuses Settled in Stock

In 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, 2018, the Company settled $3.0 million of bonuses earned under the plan for the 2017 performance period with 506,017 shares of fully vested common stock. During the year ended December 31, 2017, the Company settled $1.6 million of 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 2018 performance period with fully vested common stock of the Company in the first quarter of 2019.

The Company recorded $2.0 million and $2.8 million of stock compensation expense related to the bonuses during the years ended December 31, 2018 and 2017, respectively.

Director Fees Settled in Stock

In early 2017, the Board approved a non-employee director deferred compensation program pursuant to which participating non-employee directors may make irrevocable elections on an annual basis to take fully vested restricted stock units in lieu 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) and to defer the settlement upon the vesting of all or a portion of their equity awards granted in the applicable calendar year. In the event that a director makes such an election, the Company will grant fully vested restricted stock units in lieu of cash, with an initial value equal to the cash fees, which will be settled immediately after grant or at a future date elected by the respective non-employee director through the issuance of Maxwell common stock.

During the year ended December 31, 2018, the Company settled $399,000 of director fees with 97,138 fully vested RSUs. During the year ended December 31, 2017, the Company settled $164,000 of director fees with 28,732 fully vested RSUs.

Stock-based Compensation Expense

Compensation cost for stock options, RSAs, RSUs, ESPP, bonuses and director fees for the years ended December 31, 2018 and 2017, respectively, is as follows (in thousands):



	Years Ended December 31,
	2018			2017
Stock options	$	271		$	237
Restricted stock awards	83			416
Restricted stock units	6,286			5,186
ESPP	148			114
Bonuses settled in stock	1,986			2,826
Director fees settled in stock	304			258
Total stock-based compensation expense, including discontinued operations	9,078			9,037
Less: stock-based compensation expense related to discontinued operations	(31		)	(798		)
Total stock-based compensation expense, continuing operations	$	9,047		$	8,239

Stock-based compensation cost included in cost of revenue; selling, general and administrative expense; and research and development expense for the years ended December 31, 2018 and 2017, respectively, is as follows (in thousands):



	Years Ended December 31,
	2018		2017
Cost of revenue	$	1,077	$	948
Selling, general and administrative	6,635		6,065
Research and development	1,335		1,226
Total stock-based compensation expense	$	9,047	$	8,239

Share Reservations

The following table summarizes the shares available for grant under the Company’s stock-based compensation plans as of December 31, 2018:



2013 Omnibus Equity Incentive Plan	3,067,729
2004 Employee Stock Purchase Plan	458,065
Total	3,525,794