Equity-Based Compensation

9 Months Ended

Sep. 30, 2023

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

5.	Equity-Based Compensation

At September 30, 2023, Intevac had equity-based awards outstanding under the 2020 Equity Incentive Plan, the 2012 Equity Incentive Plan, the 2022 Inducement Equity Incentive Plan (the “Inducement Plan”) (together, the “Plans”) and the 2003 Employee Stock Purchase Plan (the “ESPP”). Intevac’s stockholders approved the 2020 Equity Incentive Plan, the 2012 Equity Incentive Plan and the ESPP. The Plans permit the grant of incentive or

non-statutory

stock options, performance-based stock options (“PSOs”), restricted stock, stock appreciation rights, restricted stock units (“RSUs”), performance-based restricted stock units (“PRSUs”) and performance shares.

On January 19, 2022, Intevac’s Board of Directors adopted the Inducement Plan and, subject to the adjustment provisions of the Inducement Plan, reserved 1,200,000 shares of the Company’s common stock for issuance pursuant to equity awards granted under the Inducement Plan. The Inducement Plan provides for the grant of equity-based awards, including nonstatutory stock options, restricted stock units, restricted stock, stock appreciation rights, performance shares and performance units, and its terms are substantially similar to the Company’s 2020 Equity Incentive Plan. The Inducement Plan was adopted without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. In accordance with that rule, awards under the Inducement Plan may only be made to individuals not previously employees or

non-employee

directors of the Company (or following such individuals’ bona fide period of

non-employment

with the Company), as an inducement material to the individuals’ entry into employment with the Company.

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 50% of their base earnings withheld to purchase Intevac common stock (not to exceed $25,000 per year).

Compensation Expense

The effect of recording equity-based compensation for the three and nine months ended September 30, 2023 and October 1, 2022 was as follows:


	Three Months Ended					Nine Months Ended
	September 30, 2023			October 1, 2022		September 30, 2023			October 1, 2022

	(In thousands)
Equity-based compensation by type of award:
Stock options	$	(3	)	$	5	$	(14	)	$	(159	)
RSUs		221			896		1,576			1,232
PRSUs		35			1,101		1,367			1,332
ESPP purchase rights		63			207		464			293

Total equity-based compensation	$	316		$	2,209	$	3,393		$	2,698

Included in the table above are:

(a)

A reversal of $462,000 in equity-based compensation expense related to forfeitures of awards due to our 2023 cost reduction plan for the three and nine months ended September 30, 2023. A reversal of $1.3 million in equity-based compensation expense related to forfeitures of awards due to our 2022 cost reduction plan and a $37,000 benefit related to the modification of certain stock-based awards for the nine months ended October 1, 2022. (See Note

13. Restructuring and Other Costs, Net); and

(b)

Equity-based compensation reported in discontinued operations of $0 and ($260,000) for the three and nine months ended September

30, 2023, respectively, and $31,000 and ($260,000) for the three and nine months ended October 1, 2022, respectively. Equity-based compensation expense allocated to discontinued operations for the nine months ended October 1, 2022 includes $75,000 related to the modification of certain stock-based awards and is net of a divestiture-related forfeiture benefit of $446,000 that was recognized when employees were conveyed to EOTECH upon closing of the Photonics divestiture. (See Note 2. Divestiture and Discontinued Operations.)

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. Intevac accounts for forfeitures as they occur, rather than estimating expected forfeitures.

Option activity as of September 30, 2023 and changes during the nine months ended September 30, 2023 were as follows:


	Shares			Weighted-Average Exercise Price

Options outstanding at December 31, 2022		383,099		$	7.07
Options cancelled and forfeited		(48,093	)	$	9.97
Options exercised		(52,813	)	$	5.15

Options outstanding at September 30, 2023		282,193		$	6.93

Options exercisable at September 30, 2023		281,443		$	6.93

Intevac issued 304,538 shares of common stock under the ESPP during the nine months ended September 30, 2023.

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


	Three Months Ended						Nine Months Ended
	September 30, 2023			October 1, 2022			September 30, 2023			October 1, 2022
ESPP Purchase Rights:
Weighted-average fair value of grants per share	$	0.63		$	0.65		$	0.91		$	1.26
Expected volatility		41.61	%		44.54	%		40.33	%		52.57	%
Risk-free interest rate		5.29	%		2.94	%		5.15	%		1.94	%
Expected term of purchase rights (in years)		1.09			1.24			1.08			1.24
Dividend yield		None			None			None			None

The computation of the expected volatility assumptions used in the Black-Scholes calculations for 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 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 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.

RSUs

RSU activity as of September 30, 2023 and changes during the nine months ended September 30, 2023 were as follows:


	Shares			Weighted-Average Grant Date Fair Value
Non-vested RSUs at December 31, 2022		1,309,792		$	5.14
Granted		433,745		$	4.70
Vested		(546,633	)	$	5.16
Cancelled and forfeited		(252,678	)	$	5.11

Non-vested RSUs at September 30, 2 023		944,226		$	4.93

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 three or 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.

PRSUs

PRSU activity as of September 30, 2023 and changes during the nine months ended September 30, 2023 were as follows:


	Shares			Weighted-Average Grant Date Fair Value
Non-vested PRSUs at December 31, 2022		1,089,339		$	3.54
Granted		525,656		$	4.92
Vested		(190,903	)	$	4.26
Cancelled and forfeited		(263,799	)	$	3.57

Non-vested PRSUs at September 30, 2023		1,160,293		$	4.04

In May 2023, we granted to members of our senior management awards of performance-based restricted stock units (the “2023 PRSU Awards”) covering an aggregate of 525,656 shares of Intevac common stock (at maximum performance). The 2023 PRSU Awards are eligible to be earned based on achievement of five strategic goals during a three-year performance period commencing on May 18, 2023 and ending on May 31, 2026 (the “2023 Performance Period”). The 2023 PRSU Awards will vest, if at all, in five possible tranches. Each of the five tranches will vest only if the applicable strategic goal is achieved within the 2023 Performance Period, and each tranche may only be achieved once during the 2023 Performance Period. If a strategic goal is not achieved within the 2023 Performance Period, the corresponding PRSUs will not vest, and all unvested PRSUs at the end of the 2023 Performance Period will immediately be forfeited. Stock compensation expense is recorded based on the probability of achievement of the performance conditions specified in the PRSU grant. The Company evaluated the strategic goals in the context of its current long-range financial plan and its product development roadmap and determined the probability of achieving each goal for accounting purposes commencing in the quarter granted. Management expectations related to the achievement of performance goals associated with PRSUs with performance conditions are assessed regularly to determine whether such grants are expected to vest. The fair value of each PRSU is the Company’s stock price on the date of grant. Over the 2023 Performance Period, the number of shares expected to be issued may be adjusted upward or downward based upon the probability of achievement of the performance conditions.

In September 2022 and May 2022, we granted to members of our senior management awards of performance-based restricted stock units (“2022 PRSU Awards”) covering an aggregate of 82,600 and 935,600 shares, respectively, of Intevac common stock (at maximum performance). The 2022 PRSU Awards are eligible to be earned based on achievement of certain stock prices based on the average closing price of the Company’s stock over a

30-day

period (the “Company Stock Price Hurdle”) during a performance period commencing on the grant date and ending on May 31, 2025 (or earlier, upon a change in control, as defined in the Company’s 2022 Inducement Equity Incentive Plan or 2020 Equity Incentive Plan, as applicable) (the “2022-2025 Performance Period”). The 2022 PRSU Awards will vest, if at all, in five possible tranches. Each of the five tranches will vest only if the applicable Company Stock Price Hurdle is achieved within the 2022-2025 Performance Period, and each tranche may only be achieved once during the Performance Period. If a Company Stock Price Hurdle is not achieved within the 2022-2025 Performance Period, the corresponding 2022 PRSUs will not vest, and all unvested 2022 PRSUs at the end of the 2022-2025 Performance Period will immediately be forfeited. The fair value of each 2022 PRSU award was estimated on the date of grant using a Monte Carlo simulation.

Intevac estimated the weighted-average fair value of the 2022 PRSU Awards using the following weighted-average assumptions:


	Three Months Ended			Nine Months Ended
	October 1, 2022			October 1, 2022
Weighted-average fair value of grants per share	$	3.17		$	3.63
Expected volatility		65.81	%		55.34	%
Risk-free interest rate		3.82	%		2.90	%
Dividend yield		None			None