Equity-Based Compensation

3 Months Ended

Mar. 30, 2019

5. Equity-Based Compensation

At March 30, 2019, Intevac had equity-based awards outstanding under the 2012 Equity Incentive Plan and the 2004 Equity Incentive Plan (together, the “Plans”) and the 2003 Employee Stock Purchase Plan (the “ESPP”). Intevac’s stockholders approved all of these plans. The Plans permit the grant of incentive or non-statutory stock options, restricted stock, stock appreciation rights, restricted stock units (“RSUs”) and performance shares.

The ESPP provides that eligible employees may purchase Intevac’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market value at the entry date of the applicable offering period or at the end of each applicable purchase interval. Offering periods are generally two years in length, and consist of a series of six-month purchase intervals. Eligible employees may join the ESPP at the beginning of any six-month purchase interval. Under the terms of the ESPP, employees can choose to have up to 15% of their base earnings withheld to purchase Intevac common stock.

Compensation Expense

The effect of recording equity-based compensation for the three-month periods ended March 30, 2019 and March 31, 2018 was as follows:

	Three Months Ended
	March 30, 2019		March 31, 2018
	(In thousands)
Equity-based compensation by type of award:
Stock options	$	206	$	134
RSUs		291		406
Employee stock purchase plan		259		277
Total equity-based compensation	$	756	$	817

Stock Options and ESPP

The fair value of stock options and ESPP awards is estimated at the grant date using the Black-Scholes option valuation model. The determination of fair value of stock options and ESPP awards on the date of grant using an option-pricing model is affected by Intevac’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, and actual employee stock option exercise behavior.

Option activity as of March 30, 2019 and changes during the three months ended March 30, 2019 were as follows:

	Shares			Weighted Average Exercise Price
Options outstanding at December 29, 2018		2,070,749		$	6.76
Options granted		13,125		$	6.08
Options cancelled and forfeited		(8,992	)	$	7.43
Options exercised		(72,122	)	$	4.22
Options outstanding at March 30, 2019		2,002,760		$	6.84
Options exercisable at March 30, 2019		1,300,175		$	6.72

Intevac issued 181,431 shares under the ESPP during the three months ended March 30, 2019.

Intevac estimated the weighted-average fair value of stock options and ESPP purchase rights using the following weighted-average assumptions:

	Three Months Ended
	March 30, 2019			March 31, 2018
Stock Options:
Weighted-average fair value of grants per share	$	2.28		$	2.30
Expected volatility		43.40	%		41.97	%
Risk free interest rate		2.21	%		2.48	%
Expected term of options (in years)		4.32			4.23
Dividend yield		None			None
ESPP Purchase Rights:
Weighted-average fair value of grants per share	$	1.89		$	2.36
Expected volatility		50.00	%		46.60	%
Risk free interest rate		2.53	%		1.82	%
Expected term of purchase rights (in years)		1.0			1.25
Dividend yield		None			None

The computation of the expected volatility assumptions used in the Black-Scholes calculations for new stock option grants and ESPP purchase rights is based on the historical volatility of Intevac’s stock price, measured over a period equal to the expected term of the stock option grant or purchase right. The risk-free interest rate is based on the yield available on U.S. Treasury Strips with an equivalent remaining term. The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the equity-based awards and vesting schedules. The expected term of purchase rights represents the period of time remaining in the current offering period. The dividend yield assumption is based on Intevac’s history of not paying dividends and the assumption of not paying dividends in the future. Intevac accounts for forfeitures as they occur, rather than by estimating expected forfeitures.

RSUs

A summary of the RSU activity is as follows:

	Shares			Weighted-Average Grant Date Fair Value
Non-vested RSUs at December 29, 2018		462,409		$	6.92
Granted		8,563		$	6.11
Vested		(11,924	)	$	6.92
Cancelled and forfeited		(8,737	)	$	6.38
Non-vested RSUs at March 30, 2019		450,311		$	6.91

Time-based RSUs are converted into shares of Intevac common stock upon vesting on a one-for-one basis. Time-based RSUs typically are scheduled to vest over four years. Vesting of time-based RSUs is subject to the grantee’s continued service with Intevac. The compensation expense related to these awards is determined using the fair market value of Intevac common stock on the date of the grant, and the compensation expense is recognized over the vesting period.