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Stock-Based Compensation and Employee Benefit Plans

12 Months Ended

Dec. 31, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation and Employee Benefit Plans

3. STOCK-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS

Vicor currently grants options for the purchase of Common Stock (i.e., “stock options”) under the following equity compensation plan that is stockholder-approved:

Amended and Restated 2000 Stock Option and Incentive Plan, as amended and restated (the “2000 Plan”)

— Under the 2000 Plan, the Board of Directors or the Compensation Committee of the Board of Directors may grant stock incentive awards based on the Company’s Common Stock, including stock options, stock appreciation rights, restricted stock, performance shares, unrestricted stock, deferred stock, and dividend equivalent rights. Awards may be granted to employees and other key persons, including non-employee directors. Incentive stock options may be granted to employees at a price at least equal to the fair market value per share of the Common Stock on the date of grant, and non-qualified options may be granted to non-employee directors at a price at least equal to 85% of the fair market value of the Common Stock on the date of grant. A total of 10,000,000 shares of Common Stock have been reserved for issuance under the 2000 Plan. The period of time during which an option may be exercised and the vesting periods are determined by the Compensation Committee. The term of each option may not exceed 10 years from the date of grant.

Picor Corporation (“Picor”) was a privately held, majority-owned subsidiary of Vicor until May 30, 2018, at which date it was merged with and into Vicor, and its separate corporate existence ceased (see Note 16). Until that time, Picor could grant stock options under the

Picor Corporation Amended and Restated 2001 Stock Option and Incentive Plan

(the “2001 Picor Plan”), that had been approved by its Board of Directors. All awards thereunder were approved by the Compensation Committee of the Company’s Board of Directors. To effect the merger, holders of Picor Common Stock and Picor stock options received an equivalent value of Vicor Common Stock and Vicor stock options, respectively, pursuant to the assumption of the 2001 Picor Plan, and options outstanding thereunder, by Vicor. No additional awards will be granted under the assumed and restated 2001 Picor Plan.

VI Chip Corporation (“VI Chip”), a privately held, majority-owned subsidiary of Vicor, currently grants stock options under the following equity compensation plan that has been approved by its Board of Directors:

VI Chip Corporation

Amended and Restated 2007 Stock Option and Incentive Plan (the “2007 VI Chip Plan”)

— Under the 2007 VI Chip Plan, the Board of Directors of VI Chip may grant equity-based awards associated with VI Chip Common Stock, including stock options, restricted stock, or unrestricted stock. Awards may be granted to employees and other key persons, including non-employee directors and full or part-time officers. No incentive stock options have been granted since November 11, 2011, and no such options were outstanding as of December 31, 2017. Non-qualified stock options may be granted to employees at a price at least equal to the estimated fair market value per share of the VI Chip Common Stock, based on judgments made by VI Chip’s Board of Directors on the date of grant. All stock option awards must be approved by both the VI Chip Board of Directors and the Compensation Committee of the Company’s Board of Directors. A total of 14,000,000 shares of VI Chip Common Stock have been reserved for issuance under the 2007 VI Chip Plan. The period of time during which an option may be exercised and the vesting periods are determined by the VI Chip Board of Directors. The term of each option may not exceed 10 years from the date of grant.

All time-based (i.e., non-performance-based) options for the purchase of Vicor common stock are granted at an exercise price equal to or greater than the market price for Vicor Common Stock at the date of the grant. All time-based (i.e., non-performance-based) options for the purchase of VI Chip, and, prior to the merger and assumption of the 2001 Picor Plan, Picor Common Stock have been granted at an exercise price equal to or greater than the estimated fair market value of the respective share price, based on valuation methodologies consistent with U.S. GAAP and the requirements of Section 409A of the Internal Revenue Code, as amended (“the Code”).

On December 31, 2010, the Company granted 2,984,250 non-qualified stock options under the 2007 VI Chip Plan with performance-based vesting provisions tied to achievement of certain margin targets by VI Chip. As of December 31, 2010, the Company determined it was probable the margin targets would 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 had been below levels necessary to achieve the targets. As a result, 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 in the third quarter of 2016. On April 30, 2018,

after approval by the Boards of Directors of the Company and VI Chip,

all such options were cancelled.

On April 26, 2017, the Company’s Board of Directors approved the Vicor Corporation 2017 Employee Stock Purchase Plan (the “Plan” or the “ESPP”). 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.

Stock-based compensation expense for the years ended December 31 was as follows (in thousands):

	2018		2017		2016
Cost of revenues	$	237	$	187	$	95
Selling, general and administrative		2,517		1,125		412
Research and development		642		423		(1	)
Total stock-based compensation	$	3,396	$	1,735	$	506

The increase in stock-based compensation in 2018 compared to 2017 was due to an increase in stock options granted between July 1, 2017 and December 31, 2018

, an increase in the fair value of those stock option awards due to an increase in the market price of Vicor Common Stock during that period

and ESPP expense, which was recorded for only part of 2017. The increase in stock-based compensation expense in 2017 compared to 2016 was primarily due to the reversal of previously recorded stock-based compensation for VI Chip performance-based options in 2016, as described above.

Compensation expense by type of award for the years ended December 31 was as follows (in thousands):

	2018		2017		2016
Stock options	$	2,649	$	1,546	$	506
ESPP		747		189		—
Total stock-based compensation	$	3,396	$	1,735	$	506

The fair value for non performance-based stock options awarded for the years shown below was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

Vicor:	2018		2017		2016
Risk-free interest rate	2.9	%	2.1	%	1.5	%
Expected dividend yield	—		—		—
Expected volatility	44	%	43	%	45	%
Expected lives (years)	6.4		7.1		7.2

VI Chip:	2018		2017			2016
Risk-free interest rate		N/A		1.9	%		1.7	%
Expected dividend yield		—		—			—
Expected volatility		N/A		32	%		34	%
Expected lives (years)		N/A		6.5			6.5

No stock options were granted in 2018 under the 2007 VI Chip Plan.

Risk-free interest rate:

Vicor

— The Company uses the yield on zero-coupon U.S. Treasury “Strip” securities for a period that is commensurate with the expected term assumption for each vesting period.

VI Chip

— VI Chip uses the yield to maturity of a seven-year U.S. Treasury bond, as it most closely aligns to the expected exercise period.

Expected dividend yield:

Vicor

— The Company determines the expected dividend yield by annualizing the most recent prior cash dividends declared by the Company’s Board of Directors, if any, and dividing that result by the closing stock price on the date of that dividend declaration. Dividends are not paid on options.

VI Chip

— VI Chip has not and does not expect to declare and pay dividends in the foreseeable future. Therefore, the expected dividend yield is not applicable.

Expected volatility:

Vicor

— Vicor uses historical volatility to estimate the grant-date fair value of the options, using the expected term for the period over which to calculate the volatility (see below). The Company does not expect its future volatility to differ from its historical volatility. The computation of the Company’s volatility is based on a simple average calculation of monthly volatilities over the expected term.

VI Chip

— As VI Chip is a nonpublic entity, historical volatility information is not available. An industry sector index of 11 publicly traded fabless semiconductor firms was developed for calculating historical volatility for VI Chip. Historical prices for each of the companies in the index based on the market price of the shares on each day of trading over the expected term were used to determine the historical volatility.

Expected term:

Vicor

— The Company uses historical employee exercise and option expiration data to estimate the expected term assumption for the Black-Scholes grant-date valuation. The Company believes this historical data is currently the best estimate of the expected term of options, and all groups of the Company’s employees exhibit similar exercise behavior.

VI Chip

— Due to the lack of historical information, the “simplified” method as prescribed by the Securities and Exchange Commission is used to determine the expected term.

Forfeiture rate:

The amount of stock-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The term “forfeitures” is distinct from “cancellations” or “expirations” and represents only the unvested portion of the surrendered option. The forfeiture analysis is re-evaluated annually and the forfeiture rate is adjusted as necessary. Ultimately, the actual expense recognized over the vesting period will only be for those shares that vest.

Vicor

— The Company currently expects, for Vicor options, based on an analysis of historical forfeitures, approximately 85% of its options will actually vest. An annual forfeiture rate of 5.25% has been applied to all unvested options as of December 31, 2018. For 2017 and 2016, the Company expected 85% and 86%, respectively, of its options would actually vest and applied an annual forfeiture rate of 5.25% and 5.00%, respectively.

VI Chip

— The Company currently expects, for VI Chip options, based on an analysis of historical forfeitures, approximately 89% of its options will actually vest. An annual forfeiture rate of 4.25% has been applied to all unvested options as of December 31, 2018. For 2017 and 2016, the Company expected 76% of its options would actually vest and applied an annual forfeiture rate of 9.00% for both years.

Vicor Stock Options

A summary of the activity under the 2000 Plan as of December 31, 2018 and changes during the year then ended,

is presented below (in thousands except for share and weighted-average data):

	Options Outstanding			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding on December 31, 2017		1,365,917		$	9.63
Granted		684,077		$	18.40
Forfeited and expired		(25,923	)	$	16.08
Exercised		(641,090	)	$	10.58
Outstanding on December 31, 2018		1,382,981		$	13.41		5.40	$	34,329
Exercisable on December 31, 2018		888,257		$	8.93		4.46	$	25,635
Vested or expected to vest as of December 31, 2018 (1)		1,345,938		$	13.07		5.34	$	33,820

(1)	In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future. The number of options expected to vest is calculated by applying an estimated forfeiture rate to the unvested options.

As of December 31, 2017 and 2016 the Company had options exercisable for 707,244 and 730,388 shares respectively, for which the weighted average exercise prices were $8.01 and $7.74, respectively.

During the years ended December 31, 2018, 2017, and 2016 under all plans, the total intrinsic value of Vicor options exercised (i.e., the difference between the market price at exercise and the price paid by the employee to exercise the options)

was

approximately

$22,938,000, $4,395,000, and $1,392,000, respectively. The total amount of cash received by the Company from options exercised in 2018, 2017, and 2016, was $6,782,000, $3,295,000, and $1,572,000, respectively. The total grant-date fair value of stock options that vested during the years ended December 31, 2018, 2017, and 2016 was approximately $2,921,000, $774,000, and $365,000, respectively.

As of December 31, 2018, there

was

approximately

$2,487,000 of total unrecognized compensation cost related to unvested non-performance based awards for Vicor. That cost is expected to be recognized over a weighted-average period of 1.9 years for those awards. The expense will be recognized as follows: $1,183,000 in 2019, $689,000 in 2020, $395,000 in 2021, $180,000 in 2022, and $40,000 in 2023.

The weighted-average fair value of Vicor options granted was $17.46, $8.71, and $4.94, in 2018, 2017, and 2016, respectively.

Picor Stock Options

A summary of the activity under the 2001 Picor Plan as of May 30, 2018, the date of the merger with and into Vicor, and changes during

the period then ended, is presented below:

	Options Outstanding			Weighted- Average Exercise Price
Outstanding on December 31, 2017		10,065,987		$	0.62
Granted		—
Forfeited and expired		—
Exercised		—
Options transferred in merger with Vicor		(10,065,987	)	$	1.91
Outstanding on May 30, 2018		—

VI Chip Stock Options

A summary of the activity under the 2007 VI Chip Plan as of December 31, 2018 and changes during the year then ended, is

presented below (in thousands except for share and weighted-average data):

	Options Outstanding			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life in Years		Aggregate Intrinsic Value
Outstanding on December 31, 2017		13,092,250		$	0.97
Granted		—		$	—
Forfeited and expired		(2,678,250	)	$	1.00
Exercised		—		$	—
Outstanding on December 31, 2018 (1)		10,414,000		$	0.96		5.39	$	—
Exercisable on December 31, 2018		2,743,400		$	0.97		5.04	$	—
Vested or expected to vest as of December 31, 2018 (2)		9,853,685		$	0.96		5.38	$	—

(1)

Of the total VI Chip options outstanding on December 31, 2018, 5,500,000 options had been granted to Dr. Vinciarelli, the Company’s Chief Executive Officer.


	(2)	In addition to the vested options, the Company expects a portion of the unvested options to vest at some point in the future. Options expected to vest is calculated by applying an estimated forfeiture rate to the unvested options.

As of December 31, 2017 and 2016, VI Chip had options exercisable for 810,700 and 7,074,650 shares, respectively, for which the weighted average exercise price was $1.00.

There were no VI Chip options exercised in 2018, 2017 and 2016. The total grant-date fair value of stock options that vested during the years ended December 31, 2018, 2017, and 2016 was approximately $0, $2,900,000, and $0, respectively.

As of December 31, 2018, there was $1,792,000 of total unrecognized compensation cost related to unvested share-based awards for VI Chip. That cost is expected to be recognized over a weighted-average period of 3.40 years for all VI Chip awards. The expense will be recognized as follows: $544,000 in 2019, $503,000 in 2020, $483,000 in 2021, and $262,000 in 2022.

There were no VI Chip options granted in 2018. The weighted-average fair value of VI Chip options granted in 2017 and 2016 was $0.29, and $0.01, respectively.

401(k) Plan

The Company sponsors a savings plan available to all domestic employees, which qualifies under Section 401(k) of the Internal Revenue Code. Employees may contribute to the plan in amounts representing from 1% to 80% of their pre-tax salary, subject to statutory limitations. The Company matches employee contributions to the plan at a rate of 50%, up to the first 3% of an employee’s compensation. The Company’s matching contributions currently vest at a rate of 20% per year, based upon years of service. The Company’s contributions to the plan were approximately $976,000, $937,000, and $882,000 in 2018, 2017, and 2016, respectively.

Stock Bonus Plan

Under the Company’s 1985 Stock Bonus Plan, as amended, shares of Common Stock may be awarded to employees from time to time as determined by the Board of Directors. On December 31, 2018, 109,964 shares were available for further award. All shares awarded to employees under this plan have vested. No further awards are contemplated under this plan at the present time.