Stock Plans

The Company has two active stock-based compensation plans as of March 31, 2019: 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’s disclosures provided in this note, except where otherwise indicated, include both continuing operations and discontinued operations.

Stock Options

Stock options are granted to certain employees from time to time on a discretionary basis. Non-employee directors receive annual stock option awards as part of their annual retainer compensation. No stock options were granted during the three months ended March 31, 2019 or 2018. Compensation expense recognized for stock options for the three months ended March 31, 2019 and 2018 was $60,000 and $72,000, respectively.

Restricted Stock Awards

The Company ceased granting restricted stock awards (“RSAs”) in 2014 and instead currently grants 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 months ended March 31, 2019 and 2018. During the three months ended March 31, 2019 and 2018, compensation expense recognized for RSAs was $0 and $60,000, respectively.

Restricted Stock Units

Non-employee directors receive annual RSU awards as part of their annual retainer compensation. These awards vest approximately 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 and certain employees with vesting contingent on continued service and achievement of specified performance objectives or stock price performance. Each restricted stock unit represents the right to receive one unrestricted share of the Company’s common stock upon vesting.

For the three months ended March 31, 2018, PSUs granted included market-condition restricted stock units. The market-condition PSUs 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 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:



	Three Months Ended March 31,
	2018
Expected dividend yield	—	%
Expected volatility	46% - 47%
Risk-free interest rate	2.36% - 2.39%
Expected term (in years)	2.8 - 2.9

For the three months ended March 31, 2019 and 2018, RSU grants were composed of the following:



	Three Months Ended March 31,
	2019			2018
	Shares granted (in thousands)	Average grant date fair value		Shares granted (in thousands)	Average grant date fair value
Service-based	125	$	2.86	921	$	5.77
Performance objectives	—	n/a		78	5.85
Market-condition	—	n/a		335	7.55
Total RSUs granted	125	2.86		1,334	6.22

The following table summarizes the amount of compensation expense recognized for RSUs for the three months ended March 31, 2019 and 2018 (in thousands):



	Three Months Ended March 31,
RSU Type	2019		2018
Service-based	$	1,153	$	1,084
Performance objectives	83		120
Market-condition	333		298
	$	1,569	$	1,502

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 March 31, 2019 and 2018 was $42,000 and $29,000, respectively. The fair value of the ESPP shares was estimated using the Black-Scholes valuation model for a call and a put option with the following weighted-average assumptions:



	Three Months Ended March 31,
	2019			2018
Expected dividend yield	—		%	—		%
Expected volatility	59		%	43		%
Risk-free interest rate	2.51		%	1.39		%
Expected term (in years)	0.50			0.50
Fair value per share	$	0.78		$	1.29

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 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 first quarter of 2019, the Company settled $1.7 million of bonuses earned under the plan for the 2018 fiscal year performance period with 191,943 shares of fully vested common stock and 176,099 fully vested restricted stock units. During the first quarter of 2018, the Company settled $3.0 million of bonuses earned under the plan for the 2017 fiscal year performance period with 506,017 shares of fully vested common stock.

The Company recorded $0.4 million and $0.9 million of stock compensation expense related to the bonus plan during the three months ended March 31, 2019 and 2018, 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.

The Company recorded $16,000 and $109,000 of stock compensation expense related to director fees to be settled in stock during the three months ended March 31, 2019 and 2018, respectively. During the three months ended March 31, 2019, the Company granted 3,523 fully vested RSU in lieu of $16,000 of director fees.

Stock-Based Compensation Expense

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



	Three Months Ended March 31,
	2019		2018
Cost of revenue	$	277	$	317
Selling, general and administrative	1,479		1,657
Research and development	335		400
Total stock-based compensation expense	$	2,091	$	2,374