Stock-Based Compensation

3 Months Ended

Sep. 27, 2024

Share-Based Payment Arrangement [Abstract]

STOCK INCENTIVE PLANS

At September 27, 2024, the aggregate number of shares authorized for issuance under the Company’s Amended and Restated 2018 Stock Incentive Plan (the “2018 Plan”) is 7,862 shares, including 3,000 shares approved by the Company's shareholders on October 28, 2020 and 2,000 shares approved for future grant under the 2018 Plan by the Company's shareholders on October 26, 2022. On October 25, 2023, the Company's shareholders approved an additional 3,450 shares to be added to the 2018 plan. The 2018 Plan shares available for issuance also include 948 shares rolled into the 2018 Plan that were available for future grant under the Company’s 2005 Stock Incentive Plan, as amended and restated (the “2005 Plan”). The 2018 Plan replaced the 2005 Plan. The shares authorized for issuance under the 2018 Plan will continue to be increased by any future cancellations, forfeitures or terminations of awards under the 2005 Plan. The foregoing does not affect any outstanding awards under the 2005 Plan, which remain in full force and effect in accordance with their terms. The 2018 Plan provides for the grant of non-qualified and incentive stock options, restricted stock, stock appreciation rights and deferred stock awards to employees and non-employees. Stock options must be granted with an exercise price of not less than 100% of the fair value of the Company’s common stock on the date of grant and the options generally have a term of seven years. There were 3,091 available shares for future grant under the 2018 Plan at September 27, 2024.

As part of the Company's ongoing annual equity grant program for employees, the Company grants performance-based restricted stock awards to certain executives and employees pursuant to the 2018 Plan. Performance awards vest based on the requisite service period subject to the achievement of specific financial performance targets. Based on the performance targets, some of these awards require graded vesting which results in more rapid expense recognition compared to traditional time-based vesting over the same vesting period. The Company monitors the probability of achieving the performance targets on a quarterly basis and may adjust periodic stock compensation expense accordingly based on its determination of the likelihood for reaching targets. The performance targets generally include the achievement of financial performance goals, either on an absolute basis or relative to a peer group of companies. Payouts under performance-based restricted stock awards may also be

subject to modification based on Mercury’s total shareholder return relative to the component companies within the Spade Defense Index.

EMPLOYEE STOCK PURCHASE PLAN

The Company’s 1997 Employee Stock Purchase Plan, as amended and restated (the “1997 ESPP”) was terminated in accordance with its terms effective May 14, 2024. Under the 1997 ESPP, rights were granted to purchase shares of common stock at 85% of the lesser of the market value of such shares at either the beginning or the end of each six-month offering period. The 1997 ESPP permitted employees to purchase common stock through payroll deductions, which may not have exceeded 10% of an employee’s compensation as defined in the 1997 ESPP. There were no shares issued under the 1997 ESPP during the first quarter ended September 29, 2023.

The Company adopted a new employee stock purchase plan (the “2024 ESPP”) in April 2024. The Company's shareholders approved the plan at the Company’s 2024 annual meeting of shareholders, held on October 23, 2024. The number of shares authorized for issuance under the 2024 ESPP is 1,000 shares. Under the 2024 ESPP, rights are granted to purchase shares of common stock at 85% of the lesser of the market value of such shares at either the beginning or the end of each six-month offering period. The 2024 ESPP permits employees to purchase common stock through payroll deductions, which may not exceed 10% of an employee’s compensation as defined in the 2024 ESPP. As of September 27, 2024, no shares have been issued under the 2024 ESPP.

STOCK OPTION AND AWARD ACTIVITY

On August 15, 2023, the Company announced that William L. Ballhaus was appointed as the Company’s President and Chief Executive Officer. Mr. Ballhaus received an onboarding grant of premium-priced stock options ("New Hire Option") under the 2018 Plan. The Company and Mr. Ballhaus are parties to an employment agreement, which is included in exhibit 10.1 on Form 8-K filed by the Company with the SEC on August 15, 2023.

The following table summarizes activity of the Company's stock option plans since June 28, 2024:


	Options Outstanding
	Number of Shares	Weighted Average Grant Date Fair Value		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value as of September 27, 2024
Outstanding at June 28, 2024	934	$	12.71	$	45.00		—
Granted	—			—
Exercised	—			—
Canceled	—			—
Outstanding at September 27, 2024	934	$	12.71	$	45.00	3.45	—
Exercisable at September 27, 2024	—	$	—	$	—	—	—

There were no options vested or exercised during the first quarter ended September 27, 2024. Non-vested stock options are subject to the risk of forfeiture until the fulfillment of specified conditions. As of September 27, 2024, there was $8,360 of total unrecognized compensation cost related to non-vested options granted that is expected to be recognized over a weighted-average period of 2.45 years from September 27, 2024. There were no stock options granted during fiscal year ended June 28, 2024.

The following table summarizes the status of the Company’s non-vested restricted stock awards and deferred stock awards since June 28, 2024:


	Non-vested Restricted Stock Awards
	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding at June 28, 2024	1,526	$	41.35
Granted	895	40.08
Vested	(235)	44.61
Forfeited	(63)	44.18
Outstanding at September 27, 2024	2,123	$	40.31

STOCK-BASED COMPENSATION EXPENSE

The Company recognizes expense for its share-based payment plans in the Consolidated Statements of Operations and Comprehensive Loss in accordance with ASC 718, Compensation - Stock Compensation (“ASC 718”). The Company had $715 and $456 of capitalized stock-based compensation expense on the Consolidated Balance Sheets for the periods ended September 27, 2024 and June 28, 2024, respectively. Under the fair value recognition provisions of ASC 718, stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the service period, net of estimated forfeitures.

The following table presents share-based compensation expenses included in the Company’s Consolidated Statements of Operations and Comprehensive Loss:


	First Quarters Ended
	September 27, 2024		September 29, 2023
Cost of revenues	$	113	$	816
Selling, general and administrative	4,611		1,761
Research and development	1,368		1,540
Stock-based compensation expense before tax	6,092		4,117
Income taxes (1)	(1,645)		(1,112)
Stock-based compensation expense, net of income taxes	$	4,447	$	3,005
(1) Federal and state statutory rate of 27%