At July 3, 2021, Intevac had equity-based awards outstanding under the 2020 Equity Incentive Plan and the 2012 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, performance-based stock options (“PSOs”), restricted stock, stock appreciation rights, restricted stock units (“RSUs”), performance-based restricted stock units (“PRSUs”) 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 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 six months ended July 3, 2021 and June 27, 2020 was as follows:


	Three Months Ended				Six Months Ended
	July 3, 2021		June 27, 2020		July 3, 2021		June 27, 2020
	(In thousands)
Equity-based compensation by type of award:
Stock options	$	57	$	149	$	132	$	364
RSUs		656		450		1,200		816
Employee stock purchase plan		306		57		655		148

Total equity-based compensation	$	1,019	$	656	$	1,987	$	1,328

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 July 3, 2021 and changes during the six months ended July 3, 2021 were as follows:


	Shares			Weighted-Average Exercise Price
Options outstanding at January 2, 2021		1,814,467		$	6.66
Options granted		—		$	—
Options cancelled and forfeited		(205,324	)	$	6.72
Options exercised		(65,462	)	$	5.89

Options outstanding at July 3, 2021		1,543,681		$	6.57

Options exercisable at July 3, 2021		1,317,356		$	6.78

Intevac issued 208,516 shares of common stock under the ESPP during the six months ended July 3, 2021.

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


	Six Months Ended
	June 27, 2020
Stock Options:
Weighted-average fair value of grants per share		$1.82
Expected volatility		46.06%
Risk-free interest rate		0.44%
Expected term of options (in years)		4.39
Dividend yield		None


	Six Months Ended
	July 3, 2021		June 27, 2020
ESPP Purchase Rights:
Weighted-average fair value of grants per share		$2.69		$1.66
Expected volatility		58.56%		36.69%
Risk-free interest rate		0.08%		1.56%
Expected term of purchase rights (in years)		1.0		0.5
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.

RSUs

RSU activity as of July 3, 2021 and changes during the six months ended July 3, 2021 were as follows:


	Shares			Weighted-Average Grant Date Fair Value
Non-vested RSUs at January 2, 2021		901,634		$	5.30
Granted		538,022		$	6.29
Vested		(293,824	)	$	6.08
Cancelled and forfeited		(44,775	)	$	3.96

Non-vested RSUs at July 3, 2021		1,101,057		$	5.63

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.

In May 2021, we granted 126,320 performance-based restricted stock units (“PRSUs”) to members of our senior management. The number of PRSUs that will vest is determined by our common stock achieving a certain Total Shareholder Return (“TSR”) for the Company, relative to the TSR of a specified peer group over a measurement period of two years from the time of grant. The fair value of each PRSU award was estimated on the date of grant using a Monte Carlo simulation. PRSU activity is included in the above RSU tables. At the end of the performance measurement period, the Compensation Committee of the Board of Directors (the “Compensation Committee”) will determine the achievement against the performance objectives. Depending on the Company’s TSR relative to the peer group TSR, the actual number of shares that will be vested for each PRSU grant can range from zero to 200% of the initial grant.

Intevac estimated the weighted-average fair value of PRSUs using the following weighted-average assumptions:


		Three Months Ended
		July 3, 2021
Weighted-average fair value of grants per share		$7.65
Expected volatility		56.26%
Risk-free interest rate		0.15%
Dividend yield		None

In May 2020, we granted 109,465 PRSUs to members of our senior management. The PRSUs were issued collectively in four separate tranches with individual

one-year

performance periods beginning in May 2020, 2021, 2022 and 2023, respectively. Vesting of the PRSUs is based on the performance of our common stock relative to the performance of a specified peer group. The fair value of each PRSU award was estimated on the date of grant using a Monte Carlo simulation. PRSU activity is included in the above RSU tables. At the end of each performance measurement period, the Compensation Committee will determine the achievement against the performance objectives. Any earned PRSU awards will vest 100% after the end of the applicable performance measurement period. The first performance measurement period ended in May 2021 and the metric was not achieved and 27,366 PRSUs were cancelled.

Intevac estimated the weighted-average fair value of PRSUs using the following weighted-average assumptions:


	Three Months Ended
	June 27, 2020
Weighted-average fair value of grants per share	$	3.16
Expected volatility		46.7	%
Risk-free interest rate		0.25	%
Dividend yield		None