4. Stock-Based Compensation

The Company’s Board of Directors approved the Vicor Corporation 2017 Employee Stock Purchase Plan (the “Plan” or the “ESPP”) on April 26, 2017. The ESPP became effective on June 16, 2017, the date the Company’s stockholders approved the Plan at the 2017 Annual Meeting of Stockholders. The Company has reserved 2,000,000 shares of Common Stock under the Plan for issuance to eligible employees who elect to participate. The ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code. The ESPP operates in successive periods of approximately six months, each referred to as an “offering period.” Generally, offering periods commence on or around September 1 and March 1 and end on or around the following February 28 or August 31, respectively. Under the ESPP, an option is granted to participating employees on the first day of an offering period to purchase shares of the Company’s Common Stock at the end of that offering period at a purchase price equal to 85% of the lesser of the fair market value of a share of Common Stock on either the first day or the last day of that offering period. The purchase of shares is funded by means of periodic payroll deductions, which may not exceed 15.0% of the employee’s eligible compensation, as defined in the Plan. Among other provisions, the Plan limits the number of shares that can be purchased by a participant during any offering period and cumulatively for any calendar year.

The Company uses the Black-Scholes option pricing model to calculate the fair value of stock option awards and options granted under the ESPP as of their grant date. Stock-based compensation expense, net for the three and nine months ended September 30 was as follows (in thousands):


	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017		2016
Cost of revenues	$	53	$	(47	)	$	125	$	59
Selling, general and administrative		466		(327	)		861		148
Research and development		212		(124	)		286		(36	)

Total stock-based compensation	$	731	$	(498	)	$	1,272	$	171

On December 31, 2010, the Company granted 2,984,250 non-qualified stock options under the VI Chip 2007 Stock Option and Incentive Plan with performance-based vesting provisions tied to achievement of certain margin targets by VI Chip Corporation. As of December 31, 2010, the Company determined it was probable the margin targets could be achieved and, accordingly, began recording stock-based compensation expense relating to these options beginning January 1, 2011. During the third quarter of 2016, the Company determined the margin targets would not be met prior to the expiration date of the corresponding options, as VI Chip’s revenue growth has been below levels necessary to achieve the targets. As a result, in accordance with the accounting guidance for performance-based stock options, the Company reversed approximately $768,000 of previously recorded stock-based compensation expense in the third quarter of 2016, representing all expense taken for these performance-based options through June 30, 2016. This resulted in decreases in cost of revenues of $86,000, selling, general and administrative expense of $516,000, and research and development expense of $166,000 for the three and nine months ended September 30, 2016.

Compensation expense by type of award for the three and nine months ended September 30, was as follows (in thousands):


	Three Months Ended September 30,					Nine Months Ended September 30,
	2017		2016			2017		2016
Stock options	$	689	$	(498	)	$	1,230	$	171
ESPP		42		—			42		—

Total stock-based compensation	$	731	$	(498	)	$	1,272	$	171