UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14 (a)
OF THE SECURITIES EXCHANGE ACT OF 1934

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Filed by a Party other than the Registrant o

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o		Preliminary Proxy Statement
o		Confidential, for Use of the Commission Only (as permitted by Rule 14a 6 (e) (2))
þ		Definitive Proxy Statement
o		Definitive Additional Materials
o		Soliciting Material Pursuant to Section 240.14a 11 (c) or Section 240.14a 12

INTEVAC, INC.

 

(Exact Name of Registrant as Specified in its Charter)

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April 5, 2011

 

Dear Stockholder:

 

You are cordially invited to attend the 2011 Annual Meeting of Stockholders of Intevac, Inc., a Delaware corporation, which will be held Wednesday, May 18, 2011, at 4:30 p.m., local time, at our principal executive offices located at 3560 Bassett Street, Santa Clara, California 95054. The accompanying notice of Annual Meeting, proxy statement and form of proxy card are being distributed to you on or about April 7, 2011.

 

Details regarding admission to the Annual Meeting and the business to be conducted are described in the accompanying proxy materials. Also included is a copy of our 2010 Annual Report. We encourage you to read this information carefully.

 

Your vote is important. Whether or not you plan to attend the Annual Meeting, we hope you will vote as soon as possible. You may vote over the Internet, by telephone or by mailing a proxy card. Voting over the Internet, by telephone or by written proxy will ensure your representation at the Annual Meeting regardless of whether or not you attend in person. Please review the instructions on the proxy card regarding each of these voting options.

 

Thank you for your ongoing support of Intevac. We look forward to seeing you at the Annual Meeting. Please notify Joanne Diener at (408) 496-2242 if you plan to attend.

 

Sincerely yours,

 

Kevin Fairbairn

President and Chief Executive Officer

INTEVAC, INC.
3560 Bassett Street
Santa Clara, California 95054

 

NOTICE OF ANNUAL MEETING

FOR 2011 ANNUAL MEETING OF STOCKHOLDERS

 

 

 

All stockholders are cordially invited to attend the Annual Meeting in person.

 

By Order of the Board of Directors,

 

JEFFREY ANDRESON

Executive Vice President, Finance and

Administration, Chief Financial Officer,
Treasurer and Secretary

 

This notice of Annual Meeting, proxy statement and accompanying form of proxy card are being distributed on or about April 7, 2011

 

TABLE OF CONTENTS

 

INTEVAC, INC.
3560 Bassett Street
Santa Clara, California 95054

 

PROXY STATEMENT

FOR 2011 ANNUAL MEETING OF STOCKHOLDERS

 

 

 

 

 

 

 

 

 

 

 

Beneficial owners — Many Intevac stockholders hold their shares through a broker, trustee or other nominee, rather than directly in their own name. If your shares are held in a brokerage account or by a bank or another nominee, you are considered the “beneficial owner” of shares held in “street name.” In this case the proxy materials will have been forwarded to you by your broker, trustee or nominee, who is considered, with respect to those shares, the stockholder of record.

 

As the beneficial owner, you have the right to direct your broker, trustee or other nominee on how to vote your shares. For directions on how to vote shares beneficially held in street name, please refer to the voting instruction card provided by your broker, trustee or nominee. Since a beneficial owner is not the stockholder of record, you may not vote these shares in person at the Annual Meeting unless you obtain a “legal proxy” from the broker, trustee or nominee that holds your shares, giving you the right to vote those shares at the Annual Meeting.

 

 

 

Under the General Corporation Law of the State of Delaware, abstentions and broker “non-votes” are counted as present and entitled to vote and are, therefore, included for purposes of determining whether a quorum is present at the Annual Meeting.

 

A broker non-vote occurs when a nominee holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary voting power with respect to that item and has not received instructions from the beneficial owner.

 

 

 

 

 

 

 

By mail — Stockholders of record of Intevac Common Stock may submit proxies by completing, signing and dating their proxy cards and mailing them in the accompanying pre-addressed envelopes. Proxy cards submitted by mail must be received by the time of the meeting in order for your shares to be voted. Intevac stockholders who hold shares beneficially in street name may vote by mail by completing, signing and dating the voting instructions provided by their brokers, trustees or nominees and mailing them in the accompanying pre-addressed envelopes.

 

By Internet — Stockholders of record of Intevac Common Stock with Internet access may submit proxies by following the “Vote by Internet” instructions on their proxy cards until 11:00 p.m., Pacific daylight time, on May 17, 2011. Most Intevac stockholders who hold shares beneficially in street name may vote by accessing the website specified in the voting instructions provided by their brokers, trustees or nominees. Please check the voting instructions for Internet voting availability.

 

By telephone — Stockholders of record of Intevac Common Stock who live in the United States, Puerto Rico or Canada may submit proxies by following the “Vote by Phone” instructions on their proxy cards until 11:00 p.m., Pacific daylight time, on May 17, 2011. Most Intevac stockholders who hold shares beneficially in street name may vote by phone by calling the number specified in the voting instructions provided by their brokers, trustees or nominees. Please check the voting instructions for telephone voting availability.

 

 

 

 

 

Proposal Two — The affirmative vote of a majority of votes represented and voting at the Annual Meeting, or “votes cast”, is required for approval of the amendment to add an additional 300,000 shares to the Intevac 2003 Employee Stock Purchase Plan. You may vote “FOR,” “AGAINST” or “ABSTAIN” on this proposal. Abstentions are deemed to be votes cast and have the same effect as a vote against this proposal. However, broker non-votes are not deemed to be votes cast and, therefore, are not included in the tabulation of the voting results on this proposal.

 

Proposal Three — The affirmative vote of a majority of votes cast is required for approval of the amendment to add an additional 500,000 shares to the Intevac 2004 Equity Incentive Plan and approve the material terms of the plan. You may vote “FOR,” “AGAINST” or “ABSTAIN” on this proposal. Abstentions are deemed to be votes cast and have the same effect as a vote against this proposal. However, broker non-votes are not deemed to be votes cast and, therefore, are not included in the tabulation of the voting results on this proposal.

 

Proposal Four — The affirmative vote of a majority of votes cast is required to ratify the appointment of Grant Thornton LLP as Intevac’s independent public accountants. You may vote “FOR,” “AGAINST” or “ABSTAIN” on this proposal. Abstentions are deemed to be votes cast and have the same effect as a vote against this proposal. However, broker non-votes are not deemed to be votes cast and, therefore, are not included in the tabulation of the voting results on this proposal.

 

Stockholder ratification of the selection of Grant Thornton LLP as Intevac’s independent public accountants is not required by our Bylaws or other applicable legal requirements. However, the Board is submitting the selection of Grant Thornton LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent accounting firm at any time during the year, if it determines that such a change would be in the best interests of Intevac and its stockholders.

 

Proposal Five — The affirmative vote of a majority of votes cast is required to recommend, by advisory vote, the executive compensation of the NEOs. You may vote “FOR,” “AGAINST” or “ABSTAIN” on this proposal. Abstentions are deemed to be votes cast and have the same effect as a vote against this proposal. However,

broker non-votes are not deemed to be votes cast and, therefore, are not included in the tabulation of the voting results on this proposal. Because your vote is advisory, it will not be binding on us or the Board. However, the Board will review the voting results and take them into consideration when making future decisions regarding executive compensation.

 

Proposal Six — The frequency of the advisory vote on compensation of our NEOs — every year, every two years or every three years — receiving the highest number of votes at the Annual Meeting will be the frequency approved by the stockholders. Proxy cards marked “abstain” and broker non-votes will have no effect on the outcome of the vote. Because your vote is advisory, it will not be binding on us or the Board. However, the Board will review the voting results and take them into consideration when making future decisions regarding the frequency of the advisory vote on executive compensation.

 

 

 

 

 

 

 

 

 

 

 

 

If you are a stockholder of record, you may change your vote by (1) filing with Intevac’s Secretary, prior to your shares being voted at the Annual Meeting, a written notice of revocation or a duly executed proxy card, in either case dated later than the prior proxy card relating to the same shares, or (2) attending the Annual Meeting and voting in person (although attendance at the Annual Meeting will not, by itself, revoke a proxy). A stockholder of record that has voted on the Internet or by telephone may also change his or her vote by making a timely and valid later Internet or telephone vote.

 

If you are a beneficial owner of shares held in street name, you may change your vote (1) by submitting new voting instructions to your broker, trustee or other nominee or (2) if you have obtained a legal proxy from the broker, trustee or other nominee that holds your shares giving you the right to vote the shares, by attending the Annual Meeting and voting in person.

 

 

 

 

 

 

 

 

Requirements for stockholder proposals to be considered for inclusion in Intevac’s proxy materials — Stockholders may present proper proposals for inclusion in Intevac’s proxy statement and for consideration at the next annual meeting of its stockholders by submitting their proposals in writing to Intevac’s Secretary in a timely manner. Assuming a mailing date of April 7, 2011 for this proxy statement, in order to be included in the proxy statement for the 2012 annual meeting of stockholders, stockholder proposals must be received by

Intevac’s Secretary no later than December 9, 2011, and must otherwise comply with the requirements of Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

 

Requirements for stockholder proposals to be brought before an annual meeting — In addition, Intevac’s bylaws establish an advance notice procedure for stockholders who wish to present certain matters before an annual meeting of stockholders. In general, nominations for the election of directors may be made by (1) the Board of Directors, (2) the Nominating and Governance Committee or (3) any stockholder entitled to vote who has delivered written notice to Intevac’s Secretary no later than the Notice Deadline (as defined below), which notice must contain specified information concerning the nominees and concerning the stockholder proposing such nominations.

 

Intevac’s bylaws also provide that the only business that may be conducted at an annual meeting is business that is (1) specified in the notice of meeting given by or at the direction of the Board of Directors, (2) properly brought before the meeting by or at the direction of the Board of Directors or (3) properly brought before the meeting by a stockholder who has delivered written notice to the Secretary of Intevac no later than the Notice Deadline (as defined below).

 

The “Notice Deadline” is defined as that date which is 120 days prior to the one year anniversary of the date on which Intevac first mailed its proxy materials to stockholders for the previous year’s annual meeting of stockholders. As a result, assuming a mailing date of April 7, 2011 for this proxy statement the Notice Deadline for the 2012 annual meeting of stockholders is December 9, 2011.

 

If a stockholder who has notified Intevac of his or her intention to present a proposal at an annual meeting does not appear to present his or her proposal at such meeting, Intevac need not present the proposal for a vote at such meeting.

 

 

 

 

 

 

 

 

 

Any written requests for additional information, additional copies of the proxy materials and 2010 Annual Report, notices of stockholder proposals, recommendations of candidates to the Board of Directors, communications to the Board of Directors or any other communications should be sent to this address.

 

The proxy statement and the 2010 Annual Report are available at www.intevac.com

 

ELECTION OF DIRECTORS

 

At the Annual Meeting, seven directors (constituting the entire board) are to be elected to serve until the next Annual Meeting of Stockholders and until a successor for any such director is elected and qualified, or until the death, resignation or removal of such director. The seven candidates receiving the highest number of affirmative votes of the shares entitled to vote at the Annual Meeting will be elected directors of Intevac.

 

It is intended that the proxies will be voted for the seven nominees named below unless authority to vote for any such nominee is withheld. All seven nominees are currently directors of Intevac. Five of the nominees were elected to the Board by the stockholders at the last annual meeting. Each person nominated for election has agreed to serve if elected, and the Board of Directors has no reason to believe that any nominee will be unavailable or will decline to serve. In the event, however, that any nominee is unable or declines to serve as a director at the time of the Annual Meeting, the proxies will be voted for any other person who is designated by the current Board of Directors to fill the vacancy. The proxies solicited by this Proxy Statement may not be voted for more than seven nominees.

 

 

Set forth below is information regarding the nominees to the Board of Directors.

 

 

The Board of Directors recommends a vote “FOR” all the nominees listed above.

 

 

Each nominee brings a strong and unique background and set of skills to the Board, giving the Board as a whole competence and experience in a wide variety of areas, including corporate governance and board service, executive management, financial management and operations. Set forth below are the conclusions reached by the Board with regard to each of its directors.

 

As described elsewhere in this proxy under the heading “Policy Regarding Board Nominees”, the Company believes that Board members should possess a balance of knowledge, experience and capability on the Board, and considers the following issues: the current size and composition of the Board and the needs of the Board and the respective committees of the Board, such factors as issues of character, judgment, diversity, age, expertise, business experience, length of service, independence, other commitment and the like, the relevance of the candidate’s skills and experience to the business, and such other factors as the Nominating and Governance Committee may consider appropriate. In addition to fulfilling the above criteria, 5 of the 7 directors named above are considered independent under the applicable Nasdaq rules.

 

Mr. Pond is a founder of Intevac and has served as Chairman of the Board since February 1991. Mr. Pond served as President and CEO from February 1991 until July 2000 and again from September 2001 through January 2002. Mr. Pond also held executive management positions at Varian Associates, Inc. and Teledyne. Mr. Pond holds a BS in physics from the University of Missouri at Rolla and an MS in physics from the University of California at Los Angeles. The Board believes Mr. Pond’s qualifications to sit on our Board include his years of experience in the hard disk drive, semiconductor, communication and defense industries including as our Chairman for 20 years and as our President and CEO for 10 years and prior executive management experience.

 

Mr. Fairbairn joined Intevac as President and CEO in January 2002 and was appointed a director in February 2002. Before joining Intevac, Mr. Fairbairn was employed by Applied Materials from July 1985 to January 2002, most recently as Vice President and General Manager of the Conductor Etch Organization with responsibility for

the Silicon and Metal Etch Divisions. From 1996 to 1999, Mr. Fairbairn was General Manager of Applied’s Plasma Enhanced Chemical Vapor Deposition Business Unit and from 1993 to 1996 he was General Manager of Applied’s Plasma Silane CVD Product Business Unit. Mr. Fairbairn holds an MA in engineering sciences from Cambridge University. The Board believes Mr. Fairbairn’s qualifications to sit on our Board include his years of executive experience for a large multinational company in the high technology and semiconductor industries including as our CEO for 9 years, his strong leadership abilities, management skills and technical expertise.

 

Mr. Dury has served as a director of Intevac since July 2002. Mr. Dury is a co-founder of Mentor Capital Group, a venture capital firm formed in July 2000. From 1996 to 2000, Mr. Dury served as Senior Vice President and Chief Financial Officer of Aspect Development, a software development firm. Mr. Dury holds a BA in psychology from Duke University and an MBA from Cornell University. The Board believes Mr. Dury’s qualifications to sit on our Board include his experience as a CEO of a venture capital firm, his experience with financial accounting matters as a previous CFO, as well as his operational, management and corporate governance expertise working on other companies’ boards of directors.

 

Mr. Hill was appointed as a director of Intevac in March 2004. Mr. Hill joined Kaiser Aerospace and Electronics Corporation, a privately held manufacturer of electronic and electro-optical systems, in 1969 and served as CEO and Chairman of both Kaiser and K Systems, Inc., Kaiser’s parent company, from 1997 until his retirement in 2000. Prior to his appointment as CEO, Mr. Hill served in a number of executive positions at Kaiser. Mr. Hill holds a BS in mechanical engineering from the University of Maine, an MS in engineering from the University of Connecticut and has completed post-graduate studies at the Santa Clara University business school. He is also a director of First Aviation Services, Inc. The Board believes Mr. Hill’s qualifications to sit on our Board include his operational and corporate governance expertise, which he obtained through experience as a CEO leading a complex global organization, and his years of experience in the government, military and electro-optical industries.

 

Mr. Rohrs was appointed as a director of Intevac in October 2010. Mr. Rohrs is the CEO of Skyline Solar and has held executive positions at leading Silicon Valley technology companies. Prior to Skyline Solar, Mr. Rohrs was the CEO of Electroglas from 2006 through 2009, Senior Vice President of Global Operations for Applied Materials from 1997 through 2002 and Vice President of Worldwide Operations for Silicon Graphics from 1992 through 1997. Mr. Rohrs currently serves on the Board of Directors of Advanced Energy and Magma Design Automation. He received a MBA from Harvard Business School and a BS in mechanical engineering from the University of Norte Dame. The Board believes Mr. Rohrs’ qualifications to sit on our Board include his experience as a CEO of a solar photovoltaic manufacturing company, his operational, management and corporate governance expertise working on other companies’ boards of directors and his years of experience in the semiconductor and electronics industries.

 

Mr. Schaefer was appointed as a director of Intevac in July 2010. Mr. Schaefer served as the Chairman and CEO of Phase Metrics from 1994 through 2001, President, Chief Operating Officer and Director of McGaw Incorporated from 1992 to 1994, President, CEO and Director of Levolor Corporation from 1989 to 1999, and Corporate Officer and Director of Baker Hughes Incorporated from 1974 to 1988. Mr. Schaefer also served as a Staff Assistant to the President of the United States between 1971 and 1974. Mr. Schaefer currently serves on the Board of Directors of Websense. He received a BS in engineering from the United States Naval Academy and a MBA from Harvard Business School. The Board believes Mr. Schaefer’s qualifications to sit on our Board include his experience as a CEO of a manufacturing company, his operational, management and corporate governance expertise working on other companies’ boards of directors and his years of experience in the hard disk drive and oil and gas capital equipment industries.

 

Dr. Yang was appointed as a director of Intevac in March 2006. Dr. Yang was employed by Taiwan Semiconductor Manufacturing Company beginning in 1997 and served as Vice President of Research and Development from 1999 until 2005. Prior to joining TSMC, Dr. Yang worked at Texas Instruments from 1980 to 1997 where he was Director of Device and Design Flow. Dr. Yang is currently an independent consultant. Dr. Yang holds a BS in physics from National Taiwan University, and an MS and a PhD in electrical engineering from the University of Illinois. He is also a director of LTX Credence and Apache Design Solutions. The Board believes Dr. Yang’s qualifications to sit on our Board include his extensive experience with global companies, his years of experience in the semiconductor industry, his experience providing strategic advisory services to complex organizations, as well as his operational, management and corporate governance expertise working with other companies’ boards of directors.

 

APPROVAL OF AN AMENDMENT TO THE INTEVAC 2003 EMPLOYEE
STOCK PURCHASE PLAN TO INCREASE THE NUMBER OF SHARES
RESERVED THEREUNDER BY 300,000 SHARES

 

The Intevac 2003 Employee Stock Purchase Plan (the “2003 ESPP”) was adopted by our Board of Directors and approved by our stockholders in 2003. Employees have participated in the 2003 ESPP or its predecessor plan, the 1995 Employee Stock Purchase Plan, since 1995.

 

Our Board of Directors has determined that it is in our best interests and the best interests of our stockholders to make an additional 300,000 shares available for purchase under the 2003 ESPP. As such, the Board of Directors has put forth for approval of our stockholders an amendment to the 2003 ESPP to increase the number of shares reserved thereunder by 300,000 shares. If our stockholders approve the adoption of the amendment, the aggregate number of shares available for issuance under the 2003 ESPP since its inception will be 1,658,000, and the total number of shares that remain available to be issued in the future under such plan will be approximately 536,000 shares.

 

The Board of Directors recommends a vote “FOR” the amendment to the 2003 Employee Stock Purchase Plan to increase the number of shares reserved for issuance thereunder by 300,000 shares.

 

The following paragraphs provide a summary of the principal features of the 2003 ESPP and its operation. The following summary is qualified in its entirety by reference to the 2003 ESPP.

 

General

 

The 2003 ESPP was adopted by our Board of Directors in January 2003 and approved by our stockholders in May 2003. The purpose of the 2003 ESPP is to provide employees with an opportunity to purchase our Common Stock through payroll deductions.

 

Administration

 

Our Board of Directors or a committee appointed by the Board administers the 2003 ESPP. All questions of interpretation or application of the 2003 ESPP are determined by the Board or the committee, and its decisions are final, conclusive and binding upon all participants.

 

Eligibility

 

Each of our employees, or the employees of our designated subsidiaries, whose customary employment is for at least twenty hours per week and more than five months per year is eligible to participate in the 2003 ESPP; except that no employee may be granted a purchase right under the 2003 ESPP (i) to the extent that, immediately after the grant, such employee would own our stock or the stock of any of our subsidiaries and/or hold outstanding options to purchase stock possessing 5% or more of the total voting power or total value of all classes of our stock or any of our subsidiaries, or (ii) to the extent that his or her rights to purchase stock under all of our employee stock purchase plans or those of our subsidiaries accrues at a rate which exceeds $25,000 worth of stock (determined at the fair market value of the shares at the time such purchase right is granted) for each calendar year. Eligible employees have the opportunity to elect to participate in the 2003 ESPP approximately twice per year.

 

Offering Period

 

Shares of our Common Stock are offered for purchase under the 2003 ESPP through a series of successive offering periods, each with a maximum duration of approximately twenty-four (24) months. Each offering period is of a duration determined by the plan administrator prior to the start date and is comprised of a series of one or more successive purchase intervals. Purchase intervals within each offering period last approximately six (6) months and run from the first trading day in February to the last trading day in July each year and from the first trading day in August each year to the last trading day in January of the following year. Should the fair market value of our

Common Stock on any semi-annual purchase date within an offering period be less than the fair market value per share on the start date of that offering period, then that offering period automatically terminates immediately after the purchase of shares on such purchase date, and a new offering period commences on the next trading day following the purchase date. The plan administrator may shorten the duration of such new offering period within five (5) trading days following the start date of such new offering period.

 

Purchase Price

 

The purchase price of our Common Stock acquired under the 2003 ESPP is equal to eighty-five percent (85%) of the lower of (i) the fair market value per share of our Common Stock on the first day of the offering period or on the participant’s entry date into the offering period or (ii) the fair market value on the semi-annual purchase date. The fair market value of our Common Stock on any relevant date will be the closing sales price per share as reported on the Nasdaq National Market (or the closing bid, if no sales were reported), or the mean of the closing bid and asked prices if our common stock is regularly quoted by a recognized securities dealer but selling prices are not reported, as quoted on such exchange or reported in the Wall Street Journal.

 

Payment of Purchase Price; Payroll Deductions

 

Each participant’s purchase price of the shares is accumulated by payroll deductions throughout each purchase interval. A participant may elect to have up to 10% of his or her compensation deducted each payroll period. The number of shares of our Common Stock a participant may purchase in each purchase interval during an offering period is determined by dividing the total amount of payroll deductions withheld from the participant’s compensation during that purchase interval by the purchase price; provided, however, that a participant may not purchase more than 750 shares each purchase interval.

 

Withdrawal

 

Generally, a participant may withdraw from an offering period at any time by written notice without affecting his or her eligibility to participate in future offering periods. However, once a participant withdraws from a particular offering period, that participant may not participate again in the same purchase interval and, unless he or she re-enters the 2003 ESPP at a semi-annual entry date in accordance with the terms of the plan may not participate in the same offering period. To participate again in the 2003 ESPP, the participant must deliver to us a new subscription agreement in accordance with the terms of the plan.

 

Termination of Employment

 

Upon termination of a participant’s employment for any reason, including disability or death, his or her participation in the 2003 ESPP will immediately cease. The payroll deductions credited to the participant’s account, but not used to make a purchase will be returned to him or her or, in the case of death, to the person or persons entitled thereto as provided pursuant to the 2003 ESPP.

 

Adjustments; Merger or Change in Control

 

In the event of any dividend or other distribution, recapitalization, stock split, reverse stock split, reorganization, merger consolidation, split-up, spin-off, combination, repurchase or exchange of common stock or other securities of the company or other change in our capital structure, appropriate adjustments will be made in the number and class of shares available for purchase under the 2003 ESPP (including purchase interval limitations) and the purchase price and number of shares covered by each purchase right under the 2003 ESPP as determined by the plan administrator in its sole discretion.

 

In the event of any merger or “change of control,” as defined in the 2003 ESPP, the successor corporation or a parent or subsidiary of such successor corporation shall assume or substitute an equivalent purchase right for each outstanding purchase right. In the event the successor corporation refuses to do so, the purchase interval then in progress shall be shortened by setting a new purchase date before the merger or change of control, and the current purchase interval and offering period shall end on the new purchase date. The plan administrator shall notify each

participant of the new purchase date at least 10 business days prior to such date, and the participant’s purchase right shall be exercised on such new purchase date, unless the participant withdraws prior to such date.

 

The following brief summary of the effect of U.S. federal income taxation upon the participant and Intevac with respect to the shares purchased under the 2003 ESPP does not purport to be complete, and does not discuss the tax consequences of a participant’s death or the income tax laws of any state or foreign country in which the participant may reside.

 

The 2003 ESPP, and the right of participants to make purchases thereunder, is intended to qualify under the provisions of Sections 421 and 423 of the Internal Revenue Code. Under these provisions, no income will be taxable to a participant until the shares purchased under the 2003 ESPP are sold or otherwise disposed of. Upon the sale or other disposition of the shares, the participant will generally be subject to tax in an amount that depends upon the holding period. If the shares are sold or otherwise disposed of more than (1) two years from the first day of the applicable offering period (or, if later, the first day the participant entered the offering period) and (2) one year from the applicable date of purchase, the participant will recognize ordinary income measured as the lesser of (a) the excess of the fair market value of the shares at the time of such sale or disposition over the purchase price, or (b) an amount equal to 15% of the fair market value of the shares as of the first day the participant entered the applicable offering period. Any additional gain will be treated as long-term capital gain. If the shares are sold or otherwise disposed of before the expiration of these holding periods, the participant will recognize ordinary income generally measured as the excess of the fair market value of the shares on the date the shares were purchased over the purchase price. Any additional gain or loss on such sale or disposition will be long-term or short-term capital gain or loss, depending on how long the shares have been held from the date of purchase.

 

Intevac generally is not entitled to a deduction for amounts taxed as ordinary income or capital gain to a participant, except to the extent of ordinary income recognized by participants upon a sale or disposition of shares prior to the expiration of the holding periods described above.

 

Our Board of Directors may at any time terminate or amend the 2003 ESPP. No amendment shall be effective unless it is approved by the stockholders, if such amendment would require stockholder approval in order to comply with Section 423 of the Internal Revenue Code.

 

Given that the number of shares that may be purchased under the 2003 ESPP is determined, in part, on our Common Stock’s value on the enrollment date of each participant and the last day of the purchase interval and given that participation in the 2003 ESPP is voluntary on part of employees, the actual number of shares that may be purchased by an individual is not determinable.

 

The table below shows, as to each of Intevac’s executive officers named in the 2010 Summary Compensation Table and the various indicated groups, the number of shares of Common Stock purchased under the 2003 ESPP during the last fiscal year, together with the weighted average purchase price paid per share.

 

Required Vote

 

The affirmative vote of the holders of a majority of the shares represented and voting at the Annual Meeting (provided that that vote also constitutes the affirmative vote of a majority of the required quorum) will be required for approval of the amendment to add an additional 300,000 shares to the Intevac 2003 Employee Stock Purchase Plan.

 

Summary

 

We believe strongly that approval of the amendment to the Intevac 2003 Employee Stock Purchase Plan is essential to our continued success. Awards such as those provided under the 2003 ESPP constitute an important incentive for our employees and help us to attract, retain and motivate people whose skills and performance are critical to our success. Our employees are our most valuable assets. We strongly believe that the 2003 ESPP is essential for us to compete for talent in the labor markets in which we operate.

 

APPROVAL OF AN AMENDMENT TO THE INTEVAC 2004 EQUITY INCENTIVE PLAN TO
INCREASE THE NUMBER OF SHARES RESERVED FOR ISSUANCE THEREUNDER BY
500,000 SHARES AND APPROVE THE MATERIAL TERMS OF THE PLAN

 

We have historically provided stock options as an incentive to our employees, directors and consultants to promote increased stockholder value. The Board of Directors and management believe that stock options and other types of equity awards are one of the primary ways to attract and retain key personnel responsible for the continued development and growth of our business, and to motivate all employees to increase stockholder value. In addition, stock options are considered a competitive necessity in the high technology sector in which we compete.

 

The Board of Directors recommends that stockholders vote “FOR” the adoption of the amendment to add an additional 500,000 shares to the Intevac 2004 Equity Incentive Plan and Approval of the Material Terms of the Plan.

 

As a result of the desire to attract, give further incentive to and retain current employees, officers and directors, options to purchase 763,000 shares were granted from the 2004 Equity Incentive Plan (the “2004 Plan”) during fiscal 2010. As of December 31, 2010, there were 3,385,000 unexercised options outstanding and 537,000 shares available for grant under the 2004 Plan, not including the 500,000 share increase subject to stockholder approval at this 2011 Annual Meeting. The unexercised options and shares available for grant represent 17% of the total Intevac shares outstanding at December 31, 2010. Including the 500,000 shares subject to stockholder approval at this Annual Meeting, the percentage will increase to 20% of the shares outstanding. We are also seeking stockholder approval of the material terms of the 2004 Plan for purposes of complying with Section 162(m) of the Internal Revenue Code.

 

Proposed Amendment

 

At the 2011 Annual Meeting, we are asking our stockholders to approve an amendment to the 2004 Plan to increase the number of shares reserved for issuance under the 2004 Plan by 500,000 shares, to an aggregate of 4,400,000 shares reserved for issuance thereunder plus shares remaining from or that otherwise would return to the 1995 Stock Option/Stock Issuance Plan (up to a maximum of 1,500,000 such shares). The Board of Directors approved the proposed amendment to the 2004 Plan in February 2011, subject to stockholder approval at this 2011 Annual Meeting. The amendment to increase the number of shares reserved under the 2004 Plan is proposed in order to give the Board and the Compensation Committee of the Board continued flexibility to grant stock options and other types of equity awards. We are also seeking stockholder approval of the material terms of the 2004 Plan for purposes of complying with Section 162(m) of the Internal Revenue Code. If stockholders approve amending and restating the 2004 Plan, the amended and restated 2004 Plan will replace the current version of the 2004 Plan.

 

The Board and management believe that granting equity awards motivates higher levels of performance, aligns the interests of employees and stockholders by giving employees the perspective of owners with equity stakes in Intevac, and provides an effective means of recognizing employee contributions to our success. The Board and management also believe that equity awards are of great value in recruiting and retaining highly qualified technical and other key personnel who are in great demand, as well as rewarding and encouraging current employees and other service providers. Finally, the Board and management believe that the ability to grant equity awards will be important to our future success by helping us to accomplish these objectives. If our stockholders approve its material terms, our 2004 Plan will continue to provide the Company with the potential to continue to take tax deductions associated with certain executive compensation, particularly with respect to certain full-value awards subject to vesting based upon the attainment of specified objective performance criteria.

 

Awards granted under 2004 Plan may be designed to qualify as “performance-based” compensation within the meaning of Section 162(m) of the Internal Revenue Code. Pursuant to Section 162(m), the company generally may not deduct for federal income tax purposes compensation paid to our Chief Executive Officer or certain other executive officers to the extent that any of these persons receive more than $1 million in compensation in any single year. However, if the compensation qualifies as “performance-based” for Section 162(m) purposes, the company may deduct for federal income tax purposes the compensation paid even if such compensation exceeds $1 million in

a single year. For certain awards granted under the 2004 Plan to qualify as “performance-based” compensation under Section 162(m), among other things, our stockholders must approve the material terms of 2004 Plan. A favorable vote for this proposal will allow us to continue to deduct certain executive compensation in excess of $1 million and provide us with potentially significant future tax benefits and associated cash flows.

 

The following paragraphs provide a summary of the principal features of the 2004 Plan and its operation. The following summary is qualified in its entirety by reference to the 2004 Plan.

 

Background and Purpose of the Plan

 

The 2004 Plan permits the grant of the following types of incentive awards: (1) stock options, (2) stock appreciation rights, (3) restricted stock, (4) performance units, and (5) performance shares (individually, an “Award”). The 2004 Plan is intended to help us to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentives to employees, directors and consultants, and to promote the success of Intevac.

 

Administration of the Plan

 

Our Board of Directors or the Compensation Committee of our Board of Directors (in either case, the “Committee”) administers the 2004 Plan. Members of the Committee generally must qualify as “outside directors” under Section 162(m) of the Internal Revenue Code (so that we are entitled to receive a federal tax deduction for certain compensation paid under the 2004 Plan) and generally must meet such other requirements as are established by the Securities and Exchange Commission for plans intended to qualify for exemption under Rule 16b-3. For the plan to qualify for exemption under Rule 16b-3, members of the Committee must be “non-employee directors.” Notwithstanding the foregoing, the Board of Directors also may appoint one or more separate committees to administer the 2004 Plan.

 

Subject to the terms of the 2004 Plan, the Committee has the sole discretion to select the employees, directors and consultants who will receive Awards, determine the terms and conditions of Awards (for example, the vesting schedule), interpret the provisions of the Plan and outstanding Awards, and with the consent of the stockholders implement an exchange program under which outstanding Awards are exchanged for different awards and/or cash or the exercise price of an outstanding Award is reduced.

 

A total of 1,200,000 shares of our Common Stock were originally reserved for issuance under the 2004 Plan, and an additional 500,000, 500,000, 900,000 and 800,000 shares were reserved and approved by the stockholders at the Company’s 2010, 2008, 2007 and 2006 annual meetings, respectively. Proposal Three, if approved, will raise the number of shares reserved by 500,000 shares, to 4,400,000 shares. No more than 20% of the shares reserved for issuance under the 2004 Plan may be issued pursuant to Awards that are not stock options or stock appreciation rights that are granted at exercise prices equal to 100% of the fair market value on the date of grant (that is, pursuant to Awards of restricted stock, performance units, performance shares, discounted stock options or discounted stock appreciation rights). In addition, shares which were reserved but not issued under our 1995 Stock Option/ Stock Issuance Plan (the “1995 Plan”) as of the effective date of the 2004 Plan, as well as any shares that would otherwise return to the 1995 Plan, upon termination of stock options or repurchase of shares issued under the 1995 Plan, are available for issuance under the 2004 Plan up to a maximum of 1,500,000 shares.

 

If an Award expires or is cancelled without having been fully exercised or vested, the unvested or cancelled shares generally will be returned to the available pool of shares reserved for issuance under the 2004 Plan. With respect to stock appreciation rights, only shares actually issued pursuant to such an award cease to be available under the 2004 Plan, and to the extent any award under the 2004 Plan is paid out in cash rather than stock, such cash payment will not reduce the number of shares available for issuance under the 2004 Plan. Also, if we experience a stock split, reverse stock split, stock dividend, combination or reclassification of our Common Stock or other similar change in our capital structure, the Committee shall adjust the number of shares available for issuance under the 2004 Plan, the price and number of shares subject to outstanding Awards, and the per-person limits on Awards, as appropriate to reflect the stock dividend or other change.

Eligibility to Receive Awards

 

The Committee selects the directors who will be granted Awards under the 2004 Plan and grants Awards for employees and consultants under management’s recommendations. The actual number of individuals who will receive an Award under the Plan cannot be determined in advance because the Committee has the discretion to select the participants. As of March 29, 2011, approximately 255 employees, directors and consultants would be eligible to participate in the 2004 Plan.

 

Stock Options

 

A stock option is the right to acquire shares of our Common Stock at a fixed exercise price for a fixed period of time. Under the 2004 Plan, the Committee may grant non-statutory stock options and/or incentive stock options (which entitle employees, but not Intevac, to more favorable tax treatment). Only employees are eligible to receive incentive stock options. The Committee determines the number of shares covered by each option, but during any fiscal year, no participant may be granted a combination of options and stock appreciation rights for more than 200,000 shares, except that a participant may be granted a combination of options and stock appreciation rights for an additional 300,000 shares in connection with his or her initial employment.

 

The exercise price of the shares subject to each option is set by the Committee but cannot be less than 100% of the fair market value (on the date of grant) of the shares covered by incentive stock options or by non-statutory options that are intended to qualify as “performance-based” under Section 162(m) of the Internal Revenue Code. In addition, the exercise price of an incentive stock option must be at least 110% of fair market value if (on the grant date) the participant owns stock possessing more than 10% of the total combined voting power of all classes of our stock or any of our subsidiaries. The aggregate fair market value of the shares (determined on the grant date) covered by incentive stock options that first become exercisable by any participant during any calendar year also may not exceed $100,000.

 

An option granted under the 2004 Plan generally cannot be exercised until it becomes vested. Options become exercisable at the times and on the terms established by the Committee at the time of grant. Options granted under the 2004 Plan expire at the times established by the Committee, but the term of an incentive stock option cannot be greater than 10 years after the grant date (5 years in the case of an incentive stock option granted to a participant who owns stock possessing more than 10% of the total combined voting power of all classes of our stock or any of our subsidiaries).

 

The exercise price of each option granted under the 2004 Plan must be paid in full at the time of exercise. The exercise price may be paid in any form determined by the Committee, including, but not limited to, cash, check, surrender of certain shares, or pursuant to a cashless exercise program. The Committee may also permit, in some cases, the exercise price to be paid by means of a promissory note or through a reduction in the amount of our liability to the participant.

 

After a termination of service with Intevac, a participant will be able to exercise the vested portion of his or her option for the period of time stated in the option agreement. If no such period of time is stated in the participant’s option agreement, the participant will generally be able to exercise his or her option for (i) three months following his or her termination for reasons other than death or disability, and (ii) twelve months following his or her termination due to death or disability.

 

Stock Appreciation Rights

 

Stock appreciation rights are awards that grant the participant the right to receive an amount, payable in cash or stock (or a combination of cash and stock) as specified at the time of grant, equal to (1) the number of shares exercised, times (2) the amount by which our then current stock price exceeds the exercise price. The exercise price will be set on the date of grant, but can vary in accordance with a predetermined formula. An individual will be able to profit from a stock appreciation right only if the fair market value of our stock increases above the exercise price.

 

Awards of stock appreciation rights may be granted in connection with all or any part of an option, either concurrently with the grant of an option or at any time thereafter during the term of the option, or may be granted independently of options. There are three types of stock appreciation rights available for grant under the 2004 Plan.

A “tandem” stock appreciation right is a stock appreciation right granted in connection with an option that entitles the participant to exercise the stock appreciation right by surrendering to us a portion of the unexercised related option. A tandem stock appreciation right may be exercised only with respect to the shares for which its related option is then exercisable. An “affiliated” stock appreciation right is a stock appreciation right granted in connection with an option that is automatically deemed to be exercised upon the exercise of the related option, but does not necessitate a reduction in the number of shares subject to the related option. A “freestanding” stock appreciation right is one that is granted independent of any options. No participant may be granted a combination of options or stock appreciation rights covering more than 200,000 shares in any fiscal year, except that a participant may be granted a combination of options or stock appreciation rights covering an additional 300,000 shares in connection with his or her initial employment.

 

The Committee determines the terms of stock appreciation rights, except that the exercise price of a tandem or affiliated stock appreciation right must be equal to the exercise price of the related option. When a tandem stock appreciation right granted in connection with an option is exercised, the related option, to the extent surrendered, will cease to be exercisable. A tandem or affiliated stock appreciation right that is granted in connection with an option will be exercisable until, and will expire no later than, the date on which the related option ceases to be exercisable or expires. A freestanding stock appreciation right that is granted without a related option will be exercisable, in whole or in part, at such time as the Committee specifies in the stock appreciation right agreement.

 

No stock appreciation right may have a term of more than ten years from the date of grant. After termination of service with Intevac, a participant will be able to exercise the vested portion of his or her stock appreciation right for the period of time stated in the Award agreement. If no such period of time is stated in a participant’s Award agreement, a participant will generally be able to exercise his or her vested stock appreciation rights for the same period of time as applies to stock options.

 

Restricted Stock

 

Awards of restricted stock are shares that are issued to participants but that vest in accordance with the terms and conditions established by the Committee. For example, the Committee may set restrictions based on the achievement of specific performance goals or continued employment. The Committee, in its discretion, may accelerate the time at which any restrictions will lapse or be removed.

 

The Committee determines the number of shares of restricted stock granted to any employee or consultant, but no participant may be granted more than 125,000 shares of restricted stock in any fiscal year, except that a participant may be granted up to an additional 175,000 shares of restricted stock in connection with his or her initial employment.

 

In determining whether an Award of restricted stock should be made, and/or the vesting schedule for any such Award, the Committee may impose whatever conditions to vesting as it determines to be appropriate. Upon termination of service, unvested shares of restricted stock generally will be forfeited.

 

Performance Units and Performance Shares

 

Performance units and performance shares are Awards that will result in a payment to a participant only if performance objectives established by the Committee are achieved or the Awards otherwise vest. The applicable performance objectives will be determined by the Committee, and may be based upon the achievement of Company-wide, divisional or individual goals or upon any other basis determined by the Committee. Performance units have an initial value that is established by the Committee on or before the date of grant. Performance shares have an initial value equal to the fair market value of a share on the date of grant. The Committee determines the number of performance units and performance shares granted to a participant, but no participant may be granted performance units with an initial value greater than $750,000 or granted more than 125,000 performance shares in any fiscal year, except that a participant may be granted performance units with an initial value up to an additional $750,000 and/or an additional 175,000 performance shares in connection with his or her initial employment.

Performance Goals

 

Under Section 162(m) of the Internal Revenue Code, the annual compensation paid to our CEO and to certain of our other executive officers may not be deductible to the extent it exceeds $1 million. However, we are able to preserve the deductibility of compensation in excess of $1 million if the conditions of Section 162(m) are met. These conditions include stockholder approval of the 2004 Plan (including this amendment), setting limits on the number of Awards that any individual may receive and, for Awards other than options and stock appreciation rights, establishing performance criteria that must be met before the Award actually will vest or be paid.

 

We have designed the 2004 Plan so that it permits us to pay compensation that qualifies as performance-based under Section 162(m). Thus, the Committee (in its discretion) may make performance goals applicable to a participant with respect to an Award. At the Committee’s discretion, one or more of the following performance goals may apply (all of which are defined in the 2004 Plan): cost of sales as a percentage of sales, earnings per share, free cash flow, marketing and sales expenses as a percentage of sales, net income as a percentage of sales, operating margin, revenue, total stockholder return and working capital. The performance goals may differ from participant to participant and from Award to Award, may be used alone or in combination, may be used to measure the performance of Intevac in absolute terms, relative terms, on a per share basis, against the performance of Intevac as a whole or a segment of the business and/or on a pre-tax or after-tax basis. With respect to an Award intended to qualify as performance-based, prior to the last possible date that would not jeopardize an Award’s qualification as “performance-based compensation” for purposes of Section 162(m), the Committee may determine whether any elements or items shall be included in or excluded from the calculation of any of the above performance goals.

 

Change of Control

 

In the event of a “change in control” of Intevac, the successor corporation may either assume or provide a substitute award for each outstanding Award. In the event the successor corporation refuses to assume or provide a substitute award, the Award will immediately vest and become exercisable as to all of the shares subject to such Award. In such case, the Committee will provide at least 15 days’ notice of the immediate vesting and exercisability of stock options and stock appreciation rights that will not be assumed or substituted for. The Award will then terminate upon the expiration of the notice period.

 

Limited Transferability of Awards

 

Awards granted under the 2004 Plan generally may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the applicable laws of descent and distribution.

 

The following brief summary of the effect of U.S. federal income taxation of an Award upon the participant and Intevac with respect to Awards granted under the 2004 Plan does not purport to be complete, and does not discuss the tax consequences of a participant’s death or the income tax laws of any state or foreign country in which the participant may reside.

 

Non-statutory Stock Options

 

No taxable income generally is reportable when a non-statutory stock option is granted to a participant. Upon exercise, the participant will recognize ordinary income in an amount equal to the excess of the fair market value (on the exercise date) of the shares purchased over the exercise price of the option. Any additional gain or loss recognized upon any later disposition of the shares will be capital gain or loss, which may be long- or short-term depending on the holding period after exercise.

 

As a result of Section 409A of the Code and the Treasury regulations promulgated thereunder (“Section 409A”), however, non-statutory stock options and stock appreciation rights granted with an exercise price below the fair market value of the underlying stock or with a deferral feature may be taxable to the recipient in the year of vesting in an amount equal to the difference between the then fair market value of the underlying stock and the exercise price of such Awards and may be subject to an additional 20% federal income tax plus penalties and interest. In addition, certain states, such as California, have adopted similar tax provisions.

Incentive Stock Options

 

No taxable income is reportable when an incentive stock option is granted or exercised, unless the alternative minimum tax rules apply, in which case taxation occurs upon exercise. If the participant exercises the option and then later sells or otherwise disposes of the shares more than two years after the grant date and more than one year after the exercise date, the difference between the sale price and the exercise price will be taxed as long-term capital gain or loss. If the participant exercises the option and then later sells or otherwise disposes of the shares before the end of the two- or one-year holding periods described above, he or she generally will have ordinary income at the time of the sale equal to the fair market value of the shares on the exercise date (or the sale price, if less) minus the exercise price of the option. Any additional gain or loss generally will be taxable at long-term or short-term capital gain rates, depending on whether the participant has held the shares for more than one year.

 

Stock Appreciation Rights

 

No taxable income generally is reportable when a stock appreciation right is granted to a participant. Upon exercise, the participant will recognize ordinary income in an amount equal to the amount of cash received and the fair market value of any shares received. Any additional gain or loss recognized upon any later disposition of the shares would be capital gain or loss. As a result of Section 409A, however, stock appreciation rights granted with an exercise price below the fair market value of the underlying stock may be taxable to the participant before exercise of an award.

 

Restricted Stock, Performance Units and Performance Shares

 

A participant generally will not have taxable income upon grant of restricted stock, performance units or performance shares. Instead, he or she generally will recognize ordinary income at the time of vesting equal to the fair market value (on the vesting date) of the shares or cash received minus any amount paid for the shares. However, the recipient of a restricted stock Award may elect to recognize income at the time he or she receives the Award in an amount equal to the fair value of the shares underlying the Award (less any cash paid for the shares) on the date the Award is granted.

 

Section 409A

 

Section 409A, which was added by the American Jobs Creation Act of 2004, provides certain requirements applicable to non-qualified deferred compensation arrangements. Awards granted under the 2004 Plan with a deferral feature will be subject to the requirements of Section 409A, including discount stock options and stock appreciation rights discussed above. If an Award is subject to and fails to satisfy the requirements of Section 409A, the recipient of that Award may recognize ordinary income on the amounts deferred under the Award, to the extent vested, which may be prior to when the compensation is actually or constructively received. Also, if an Award that is subject to Section 409A fails to comply with Section 409A’s provisions, Section 409A imposes an additional 20% federal income tax on compensation recognized as ordinary income, as well as interest on such deferred compensation. Some states may also apply a penalty tax (for instance, California imposes a 20% penalty tax in addition to the 20% federal penalty tax). We strongly encourage recipients of such Awards to consult their tax, financial, or other advisor regarding the tax treatment of such Awards.

 

Tax Effect for the Company — Section 162(m)

 

Intevac generally will be entitled to a tax deduction in connection with an Award under the 2004 Plan in an amount equal to the ordinary income realized by a participant at the time the participant recognizes such income (for example, upon the exercise of a non-statutory stock option). Special rules limit the deductibility of compensation paid to our CEO (i.e., our principal executive officer) and to each of our three most highly compensated executive officers for the taxable year (other than the principal executive officer or principal financial officer). Under Section 162(m) of the Code, the annual compensation paid to any of these specified executives will be deductible only to the extent that it does not exceed $1 million. However we can preserve the deductibility of certain compensation in excess of $1 million if the conditions of Section 162(m) are met. These conditions include stockholder approval of the 2004 Plan, and its material terms, setting limits on the number of Awards that any

individual may receive and for Awards other than certain stock options, establishing performance criteria (see the discussion under “Performance Goals” above) that must be met before the Award actually will vest or be paid. The 2004 Plan has been designed to permit the Committee to grant Awards that qualify as performance-based for purposes of satisfying the conditions of Section 162(m), thereby permitting Intevac to continue to receive a federal income tax deduction in connection with such Awards.

 

The Board generally may amend or terminate the 2004 Plan at any time and for any reason. Amendments will be contingent on stockholder approval if required by applicable law or stock exchange listing requirements. By its terms, the 2004 Plan automatically will terminate in 2014, although any Awards outstanding at that time will continue for their terms.

 

The number of Awards that an employee, director or consultant may receive under the 2004 Plan is in the discretion of the Committee and therefore cannot be determined in advance. Our executive officers and our non-employee directors have an interest in this proposal, because they are eligible to receive discretionary Awards under the 2004 Plan.

 

As of the date of this proxy statement, there has been no determination by the Committee with respect to future awards under the 2004 Plan. Accordingly, future awards are not determinable. The following table, however, sets forth information with respect to the grant of options under the 2004 Plan to the executive officers named in the Summary Compensation Table below, to executive officers as a group, to all non-employee directors as a group and to all other employees as a group during the Company’s last fiscal year:

 

 

 

 

Required Vote

 

The affirmative vote of the holders of a majority of the shares represented and voting at the Annual Meeting (provided that that vote also constitutes the affirmative vote of a majority of the required quorum) will be required for approval of the addition of 500,000 shares to the Intevac 2004 Equity Incentive Plan and the approval of the material terms of the plan.

 

Summary

 

We believe strongly that approval of the amendment to the 2004 Plan and its material terms is essential to our continued success. Awards such as those provided under the 2004 Plan constitute an important incentive for our key employees and other service providers and help us to attract, retain and motivate people whose skills and performance are critical to our success. Our employees are our most valuable assets. We strongly believe that the 2004 Plan is essential for us to compete for talent in the labor markets in which we operate.

 

RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS

 

The Audit Committee of the Board of Directors has selected Grant Thornton LLP as our independent public accountants for the fiscal year ending December 31, 2011. Grant Thornton LLP began auditing our financial statements in 2000. Its representatives are expected to be present at the Annual Meeting, will have an opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions.

 

The Board of Directors recommends a vote “FOR” ratification of the selection of Grant Thornton LLP as Intevac’s independent registered public accounting firm for the fiscal year ending December 31, 2011.

 

The following table presents fees billed for professional audit services and other services rendered to us by Grant Thornton LLP for the years ended December 31, 2010 and 2009.

 

 

 

 

In making its recommendation to ratify the appointment of Grant Thornton LLP as our independent auditor for the fiscal year ending December 31, 2011, the Audit Committee has considered whether services other than audit and audit-related services provided by Grant Thornton LLP are compatible with maintaining the independence of Grant Thornton LLP and has determined that such services are compatible.

 

Our Audit Committee approves in advance all engagements with Grant Thornton LLP, including the audit of our annual financial statements, the review of the financial statements included in our Quarterly Reports on Form 10-Q and tax compliance services. Fees billed by Grant Thornton LLP are reviewed and approved by the Audit Committee on a quarterly basis.

 

ADVISORY VOTE ON EXECUTIVE COMPENSATION

 

The Company asks that you indicate your support for its executive compensation policies and practices as described in the Company’s Compensation Discussion and Analysis, accompanying tables and related narrative contained in this Proxy Statement. This proposal is commonly known as a “say-on-pay” proposal, and gives our stockholders the opportunity to express their views on the compensation of our NEOs. Your vote is advisory and so will not be binding on the Board. However, the Board will review the voting results and take them into consideration when making future decisions regarding executive compensation.

 

As described in detail under the headings “Executive Compensation and Related Information” and “Compensation Discussion and Analysis,” our NEO compensation program is designed to attract, retain, motivate and reward high-performing executives who are critical to our success while maintaining strong and direct links between executive pay, individual performance, the Company’s financial performance and performance for our stockholders. The Compensation Committee believes that the Company’s executive compensation programs should support the Company’s objective of creating value for its stockholders.

 

Accordingly, the Compensation Committee believes that NEOs should have a significant interest in the Company’s stock performance, and compensation programs should link executive compensation to stockholder value. One of the ways that the Company has sought to accomplish these goals is by making a significant portion of individual NEO compensation directly dependent on the Company’s profitability. In addition, the Company makes annual grants of stock options, which focus the NEO on creating stockholder value while encouraging executives to build an equity interest in the Company. Finally, the Company generally pays NEOs compensation that will be above peer company executive compensation when Company performance is above its peer companies and below peer company executive compensation when the Company’s financial performance is below that of its peer companies.

 

The Compensation Committee will continue to emphasize compensation arrangements that align the financial interests of Intevac’s NEOs with the long-term interests of stockholders. Please refer to the section of this proxy statement entitled “Executive Compensation” for a detailed discussion of Intevac’s executive compensation practices and philosophy.

 

We are asking our stockholders to indicate their support for our NEO compensation as described in this Proxy Statement. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our NEOs and the philosophy, policies and practices described in this Proxy Statement. Accordingly, we ask our stockholders to vote “FOR” the following resolution at the 2011 Annual Meeting:

 

“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the named executive officers, as disclosed in the company’s Proxy Statement for the 2011 Annual Meeting of Stockholders pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the tabular disclosure regarding such compensation and the accompanying narrative disclosure.”

 

The Board of Directors recommends a vote “FOR” the (non-binding) vote approving, on an advisory basis, the compensation of the Company’s executives named in the 2010 Summary Compensation Table, as disclosed in the Company’s Proxy Statement pursuant to the executive compensation disclosure rules of the Securities and Exchange Commission, which disclosure includes the Compensation Discussion and Analysis, the compensation tables and other executive compensation disclosures.

 

FREQUENCY OF ADVISORY VOTE ON EXECUTIVE COMPENSATION

 

The Dodd-Frank Wall Street Reform and Consumer Protection Act requires us to provide an advisory stockholder vote to determine how often to present the advisory stockholder vote to approve the compensation of Intevac’s NEOs (the “say-on-pay vote”). Intevac must solicit your advisory vote on whether to have the say-on-pay vote every 1, 2 or 3 years. Stockholders may vote as to whether the say-on-pay vote should occur every 1, 2 or 3 years, or may abstain from voting on the matter. The frequency (every 1, 2 or 3 years) that receives the highest number of votes will be deemed to be the choice of the stockholders.

 

The Board values the opinion of our stockholders and welcomes communication regarding Intevac’s executive compensation policies and practices. After taking into account various considerations described below, the Board believes that a triennial vote will provide stockholders with the ability to express their views on Intevac’s executive compensation policies and practices while providing the Board with an appropriate amount of time to consult with the stockholders, to consider their input, to follow consistent compensation programs and to allow such programs to be effective.

 

Intevac’s executive compensation program is administered by the Compensation Committee, as described in this proxy statement. Compensation decisions are complex and, with respect to Intevac’s NEOs, are disclosed in the proxy statement. The Board believes that establishing a three-year time frame for holding stockholder advisory votes on executive compensation will both enhance stockholder communication and provide the Company time to consider, engage with and respond to stockholders, in terms of expressed concerns or other feedback. In addition, the Board also believes that a triennial vote is consistent with our long-term business strategy.

 

You may cast your vote on your preferred voting frequency by choosing the option of 1, 2 or 3 years or abstain from voting when you vote in response to the resolution set forth below.

 

“RESOLVED, that the option of once every 1, 2 or 3 years that receives the highest number of votes cast for this resolution will be determined to be the preferred frequency with which the Company is to hold an advisory stockholder vote to approve the compensation of the named executive officers, as disclosed pursuant to the Securities and Exchange Commission’s compensation disclosure rules, including the Compensation Discussion and Analysis, the tabular disclosure regarding such compensation and the accompanying narrative disclosure.”

 

The option of 3 years, 2 years or 1 year that receives the highest number of votes cast by stockholders will be the frequency for the advisory vote on the compensation of our NEOs that has been selected by stockholders. Although, as an advisory vote, this vote is not binding upon the Company or the Board, the Board will carefully consider the stockholder vote on this matter, along with all other expressions of stockholder views it receives on this matter.

 

While you have the opportunity to vote for every 1, 2 or 3 years, or abstain from voting on the frequency of say-on-pay votes the Board of Directors recommends a vote “FOR” a frequency of say-on-pay votes of every 3 years.

 

We have adopted a Code of Business Conduct and Ethics that applies to all of our employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. We have also adopted a Director Code of Ethics that applies to all of our directors. You can find both our Code of Business Conduct and Ethics and our Director Code of Ethics on our website at www.intevac.com. We post any amendments to the Code of Business Conduct and Ethics and the Director Code of Ethics, as well as any waivers, which are required to be disclosed by the rules of either the Securities and Exchange Commission (“SEC”) or The NASDAQ Global Select Market (“Nasdaq”) on our website.

 

The Board of Directors has determined that, with the exception of Mr. Pond and Mr. Fairbairn, all of its members are “independent directors” as that term is defined in the listing standards of Nasdaq.

 

During 2010, the Board of Directors held a total of 7 meetings (including regularly scheduled and special meetings) and also took certain actions by written consent. All members of the Board of Directors during fiscal 2010 attended at least seventy-five percent of the aggregate of the total number of meetings of the Board of Directors held during the fiscal year and the total number of meetings held by all committees of the Board on which each such director served (based on the time that each member served on the Board of Directors and the committees). The Board of Directors has an Audit Committee, a Compensation Committee and a Nominating and Governance Committee.

 

Audit Committee

 

The Audit Committee, which has been established in accordance with Section 3(a)(58)(A) of the Exchange Act, currently consists of Mr. Dury, Mr. Rohrs and Dr. Yang, each of whom is “independent” as such term is defined for audit committee members by the Nasdaq listing standards. Mr. Dury is the chairman of the Audit Committee. The Board of Directors has determined that Mr. Dury and Mr. Rohrs are “audit committee financial experts” as defined under the rules of the SEC. The Audit Committee met 8 times during 2010.

 

The Audit Committee is responsible for:

 

 

The Audit Committee has adopted a written charter approved by the Board of Directors, which is available on Intevac’s website at www.intevac.com under “Company — Governance.”

 

The Audit Committee Report is included in this proxy statement on page 49.

Compensation Committee

 

The Compensation Committee currently consists of Mr. Hill (chairman), Mr. Rohrs and Mr. Schaefer, each of whom is “independent” as such term is defined by the Nasdaq listing standards. The Compensation Committee met 9 times during 2010.

 

The Compensation Committee is responsible for:

 

 

See “Executive Compensation — Compensation Discussion and Analysis” and “Executive Compensation — Compensation of Directors” below for a description of Intevac’s processes and procedures for the consideration and determination of executive and director compensation.

 

The Compensation Committee has adopted a written charter approved by the Board of Directors, a copy of which is available on Intevac’s website at www.intevac.com under “Company — Governance.”

 

The Compensation Committee Report is included in this proxy statement on page 39.

 

Nominating and Governance Committee

 

The Nominating and Governance Committee currently consists of Dr. Yang, Mr. Hill and Mr. Schaefer, each of whom is “independent” as such term is defined by the Nasdaq listing standards. The composition of the Nominating and Governance Committee underwent changes in 2010, with the appointment of a new Nominating and Governance Committee Chairman, Dr. Yang. The Nominating and Governance Committee met 2 times during 2010.

 

The primary focus of the Nominating and Governance Committee is on the broad range of issues surrounding the composition and operation of the Board of Directors. The Nominating and Governance Committee provides assistance to the Board, the Chairman and the CEO in the areas of membership selection, committee selection and rotation practices, evaluation of the overall effectiveness of the Board, and review and consideration of developments in corporate governance practices. The Nominating and Governance Committee’s goal is to ensure that the composition, practices, and operation of the Board contribute to value creation and effective representation of Intevac stockholders.

 

The Nominating and Governance Committee will consider recommendations of candidates for the Board of Directors submitted by the stockholders of Intevac; for more information, see “Policy Regarding Board Nominees” below.

 

The Nominating and Governance Committee has adopted a written charter approved by the Board of Directors, a copy of which is available on Intevac’s website at www.intevac.com under “Company — Governance.”

 

Compensation Committee Interlocks and Insider Participation

 

Mr. Hill, Mr. Dury, Mr. Schaefer and Dr. Yang served as members of the Compensation Committee during fiscal 2010. No interlocking relationship exists between any member of Intevac’s Board of Directors or Compensation Committee and any member of the board of directors or compensation committee of any other company, nor has any such interlocking relationship existed in the past. No member of the Compensation Committee is or was formerly an officer or an employee of Intevac.

 

Intevac encourages members of the Board of Directors to attend the annual meeting of stockholders, but does not have a policy requiring attendance. Mr. Fairbairn, Mr. Pond, Mr. Dury and Dr. Yang attended Intevac’s 2010 annual meeting of stockholders.

Lead Director

 

Mr. David Dury serves as Lead Director and liaison between management and the other non-employee directors. The Lead Director schedules and chairs meetings of the independent directors. The independent directors (including the Lead Director) hold a closed session at each regularly scheduled Board meeting.

 

Board Leadership Structure

 

Our company is led by Mr. Fairbairn, our CEO. Mr. Pond, who founded Intevac in 1991, serves as the Chairman of our Board, and has served as chair since the Company’s inception. As discussed above under “Lead Director”, one of our independent directors, Mr. Dury, acts as our independent lead director. The Company believes the stockholders are best served by this structure, which provides us with a dynamic leader, a steady connection to the Company’s history, and a strong independent voice. Our Board of Directors also contains 4 independent directors in addition to Mr. Dury.

 

As further discussed above under “Board Meetings and Committees”, the Board has three standing committees — Audit, Compensation and Nominating and Governance. Each of the Board committees is comprised solely of independent directors, with each of the three committees having a separate chair. Our corporate governance guidelines provide that our non-employee directors meet in an executive session at each Board meeting. We also have a mechanism for stockholders to communicate directly with independent directors as a group or with any individual director.

 

Our directors bring a broad range of leadership experience to the Board and regularly contribute to the oversight of the Company’s business and affairs. We believe that all Board members are well engaged in their responsibilities and that all Board members express their views and consider the opinions expressed by other directors. On an annual basis as part of our governance review, the Board (led by the Nominating and Governance Committee) evaluates our leadership structure to ensure that it remains the optimal structure for our company and our stockholders.

 

We believe that our leadership structure has been effective for the Company. We believe that having an independent lead director and independent chairs for each of our Board committees provides the right amount of independence for our company. We have a leader for our company, a strong chairman position, and oversight of company operations by experienced independent directors who have appointed an independent lead director and committee chairs.

 

Policy Regarding Board Nominees

 

It is the policy of the Nominating and Governance Committee of the Company to consider recommendations for candidates to the Board of Directors from stockholders. Stockholder recommendations of candidates for election to the Board should be directed in writing to: Intevac, Inc., 3560 Bassett Street, Santa Clara, California, 95054, and must include the candidate’s name, home and business contact information, detailed biographical data and qualifications, information regarding any relationships between the candidate and the Company within the last three years, and evidence of the nominating person’s ownership of Company stock. Stockholder nominations to the Board must also meet the requirements set forth in the Company’s bylaws. The Nominating and Governance Committee also reviews materials provided by professional search firms and other parties in connection with a nominee who is not proposed by a stockholder. In evaluating such nominations, the Nominating and Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board.

 

The Nominating and Governance Committee’s criteria and process for identifying and evaluating the candidates that it selects, or recommends to the full Board for selection, as director nominees are as follows:

 

 

 

Director Qualifications and Review of Director Nominees

 

The Nominating and Corporate Governance Committee makes recommendations to the Board of Directors regarding the size and composition of the Board. The Committee reviews annually with the Board the composition of the Board as a whole. The Committee is responsible for ensuring that the composition of the Board accurately reflects the needs of the Company’s business and, in furtherance of this goal, proposing the addition of members and the necessary resignation of members for purposes of obtaining the appropriate members and skills. The specific qualifications of each director are set forth along with their biographical information under “Business Experience and Qualifications of Nominees for Directors” starting on page 8 of this proxy.

 

Intevac does not maintain a formal diversity policy with respect to its Board of Directors. As noted above, however, Intevac does consider diversity to be a relevant consideration, among others, in the process of evaluating and identifying director candidates. Intevac believes each director brings a strong and unique background and set of skills to the Board of Directors that contributes to the Board’s competence and experience in a wide variety of areas. When identifying director candidates, we take into account the present and future needs of the Board of Directors and the committees of the Board of Directors. For instance, depending on the composition of the Board of Directors at a given time, a candidate capable of meeting the requirements of an audit committee financial expert might be a more attractive candidate than a candidate with significantly more technology industry expertise, or vice versa. We

also consider the character, judgment and integrity of director candidates, which we evaluate through reference checks, background verification and reputation in the business community. We believe all of our directors to be of high character, good judgment and integrity. Our principal goal with respect to director qualifications is to seat directors who are able to increase the overall effectiveness of the Board of Directors and increase stockholder value.

 

Any stockholder who desires to contact our Chairman of the Board or the other members of our Board of Directors may do so by writing to: Board of Directors, c/o Ping Yang, Chairman, Nominating and Governance Committee, Intevac, Inc., 3560 Bassett Street, Santa Clara, California, 95054. Communications received by Dr. Yang will also be communicated to the Lead Director, the Chairman of the Board or the other members of the Board as appropriate depending on the facts and circumstances outlined in the communication received.

 

Risk Assessment

 

Our Board of Directors is responsible for overseeing enterprise risk in general, while our Audit Committee is responsible for overseeing risk management of financial matters and the adequacy of our risk-related internal controls and our Compensation Committee oversees risk related to compensation policies. Both the Audit and Compensation Committees report their findings to the full Board of Directors. In addition, at each of its meetings, the Board discusses the risks that we are currently facing. We believe that our directors provide effective oversight of the risk management function.

 

Employee Compensation Risks

 

The Compensation Committee has assessed the risks associated with the Company’s compensation policies and practices for all employees, including non-executive officers. The Committee reviewed a list of the Company’s compensation policies and practices, which were discussed extensively, and reviewed with management the potential risks associated with the Company’s policies and practices and the factors that management believe mitigate such risks. Based on the results of its assessment, the Committee does not believe that the Company’s compensation policies and practices for all employees, including non-executive officers, create risks that are reasonably likely to have a material adverse effect on the Company.

 

Compensation Consultant

 

In August 2010, the Compensation Committee changed its independent compensation consultant from Farient Advisors (“Farient”) to Semler Brossy Consulting Group LLC (“Semler Brossy”). The Compensation Committee has engaged Semler Brossy to provide advice and recommendations on the amount and form of executive and director compensation. Neither Farient nor Semler Brossy has provided other non-executive compensation consulting services to the Company, nor did the Company pay either party fees in excess of $120,000 during 2010.

 

The following is a discussion of our executive compensation program and the compensation decisions made for the fiscal year 2010 with respect to Kevin Fairbairn, our CEO, and the other executive officers named in the 2010 Summary Compensation Table on page 40 (the “NEOs”).

 

Executive Summary

 

Intevac’s businesses are characterized by rapidly changing technology and customer requirements; intense competition; cyclical revenues; and significant competition for management talent. In this environment, the objectives of our executive compensation program are to:

 

 

During fiscal 2010, our Compensation Committee worked with its independent advisors, Farient and Semler Brossy, and our senior management to assess these objectives and the compensation plan design to ensure that it continues to meet our business needs. Through the course of this assessment, the Compensation Committee confirmed these objectives for fiscal 2010 and also determined they were appropriate for 2011.

 

Our executive compensation programs have remained substantially the same for several years. We believe our programs are effectively designed and work well to align compensation for our NEOs with the interests of our stockholders, and help drive the achievement of our business strategy. Our “direct pay” executive compensation programs for fiscal 2010 continue to consist of base salary, annual cash bonus opportunities, and long-term equity incentives.

 

The Company delivered financial results that exceeded its Annual Operating Plan (“Plan”) target in fiscal 2010 as our business rebounded strongly from a difficult fiscal 2009. These factors impacted fiscal 2010 NEO compensation in certain ways:

 

 

The specific compensation principles, components and decisions during 2010 are discussed in more detail below.

Principles of Executive Compensation

 

Our compensation structure is designed to attract, retain, motivate, and reward high-performing executives consistent with the profitability of our business and performance for our stockholders. The guiding principles of our executive compensation plan are as follows:

 

 

 

 

In general, our executives do not receive any benefits or perquisites other than those offered to Intevac’s U.S. employees.

 

The Compensation Committee

 

The Compensation Committee oversees the compensation and benefit policies, plans and programs for our executive officers. The Compensation Committee develops goals and objectives for the CEO and annually reviews his performance related to his established goals and objectives. The Compensation Committee recommends the principal elements of the CEO’s annual compensation to the Board of Directors for approval, and annually reviews with the CEO and approves the principal elements of compensation for the Company’s executive management staff. The Compensation Committee also annually reviews the compensation of the Chairman and members of the Board of Directors and recommends any changes to the Board of Directors. The Compensation Committee also reviews and makes recommendations to the Board of Directors regarding executive succession planning, incentive compensation plans, and equity compensation plans.

 

2010 Independent Advisor and Competitive Market Data

 

The Compensation Committee retained Farient to assist it in evaluating 2010 executive and director compensation programs and to provide advice and recommendations on the amount and form of executive and director compensation. The instructions provided to Farient included assessing target compensation levels for our executives relative to market practices and evaluating the overall design of our executive compensation program. In addition, Farient was engaged by the Compensation Committee to update the assessment of the competiveness of compensation for our Board of Directors. Farient reported directly to the Compensation Committee. From time to time at the Compensation Committee’s request, Farient attended Compensation Committee meetings. In August 2010, the Compensation Committee changed its independent compensation consultant from Farient to Semler

Brossy. The Compensation Committee engaged Semler Brossy to provide advice and recommendations on the amount and form of executive and director compensation for fiscal 2011. Neither Farient nor Semler Brossy has provided other non-executive compensation consulting services to the Company, nor did the Company pay either party fees in excess of $120,000 during 2010.

 

Executive compensation data was drawn from the Radford Executive Benchmark Survey for general technology companies with annual revenues of $50 million to $500 million and from publicly available proxy filings for the peer companies identified below (the “Peer Companies”). In the case of the data from the proxy filings of the Peer Companies, only data for the CEO and Chief Financial Officer positions was obtained, as these are the only two positions reported with sufficient frequency among the Peer Companies to draw meaningful conclusions on competitive pay. The market compensation levels for comparable positions were examined by Farient and the Compensation Committee as part of the process to determine overall program design, base salary, target incentives and annual stock option grants, including the total equity pool for allocation to all employees.

 

The Peer Companies we used to evaluate market compensation positioning for executives in making 2010 compensation decisions were selected in late 2009 based on factors that were relevant for the Compensation Committee at that time. Specifically, for 2010, the Committee reduced the annual revenue range for Peer Companies to $100 million to $500 million that were comparable to Intevac based on factors such as lines of business, profitability, and technical sophistication.

 

The 2010 Peer Companies we selected are as follows:

 

 

The base salary, total cash compensation (base salary plus performance-based annual cash bonus) and total compensation (including stock options) for each of Intevac’s eleven most senior executives were compared to median market pay levels for executives with similar levels of responsibility. The Compensation Committee concluded that Intevac’s executive compensation was:

 

 

The Committee does not establish a specific target percentile for the total compensation of our NEOs, but the Compensation Committee believes that considering, as one among many factors, the overall compensation of our NEOs as compared to the market median assists in crafting executive compensation packages that will attract, motivate, and retain the quality executive talent Intevac needs. As a result of the Company’s improved financial performance in 2010 and its having exceeded its Plan targets for the year, the compensation earned by the NEOs for 2010 was generally above the target compensation opportunities established for the NEOs. This result is consistent with the intent and design of the Company’s variable pay programs, which link actual pay directly to improved operating results, and result in reduced compensation in years in which financial results do not meet expectations.

Role of the CEO

 

The CEO provides recommendations to the Compensation Committee with respect to base salary amounts, target bonus percentages, bonus payments, and stock option grants for each NEO (other than himself). These compensation recommendations are based on market data reviewed by the Compensation Committee and a review by the CEO of each executive officer’s overall performance and contribution to the Company during the prior year. While the Compensation Committee considers the recommendations of the CEO with respect to these elements of compensation, the Compensation Committee independently evaluates the recommendations and makes all final compensation decisions. The CEO does not make any recommendations as to his own compensation and such decisions are made solely by the Board of Directors.

 

Compensation Components

 

The components of executive compensation are:

 

 

We also provide our executives the same benefits and perquisites that we offer our other U.S. employees. These standard employee benefits include participation in our 401(k) plan and employee stock purchase plan, and medical, dental and life insurance benefits, each with the same terms and conditions available to employees. We do not provide any benefits or perquisites to our NEOs that are not available to the majority of employees in the U.S.

 

2010 Executive Compensation

 

Base Salary:

 

We provide our NEOs and other employees with base salary to compensate them for services rendered during the fiscal year. The purpose of base salary is to reward effective fulfillment of the assigned job responsibilities, and to reflect the position’s relative value to the Company and competitiveness of the executive job market.

 

New NEOs:  Prior to making an offer of employment to a NEO, the Compensation Committee approves the executive officer’s base salary after consideration of the recommendation of the CEO. In setting the executive officer’s base salary, a number of factors are taken into account, in the Compensation Committee’s discretion, including the executive’s compensation with his previous employer, the compensation of other Intevac executives, the competitive labor market for similar executives, and how difficult it is to recruit and retain executive officers with similar skills and experience. None of these factors is specifically weighted and the evaluation includes a subjective evaluation of skills, experience and responsibilities in the Compensation Committee’s judgment.

 

Continuing NEOs:  Once a NEO has joined Intevac, the Compensation Committee approves changes to his or her base salary during its annual review. The competitive market data provided by the independent compensation consultant is used, in addition to an assessment of each executive’s responsibilities and performance against objectives (See “Performance-based annual cash bonus, Annual Strategic Objectives” below for details relating to these objectives), to determine annual changes to base salary. As with new hires, these factors are evaluated at the Compensation Committee’s discretion and in the Compensation Committee’s judgment. Annual adjustments to base salary also proportionately affect the executive’s target bonus (“Target Bonus”) which is determined by multiplying each executive’s base salary by the applicable target bonus percentage determined for such executive by the Compensation Committee (“Target Bonus Percentage”).

 

Base Salary:  2010 base salaries for the NEOs were approved by the Compensation Committee (with the exception of Mr. Fairbairn, whose base salary was approved by the independent members of the Board of Directors, upon recommendation of the Compensation Committee). The improved business outlook regarding fiscal 2010 led the Compensation Committee, after consultation with management, to determine that the salary freeze initiated in fiscal 2009 should be lifted for fiscal 2010. Mr. Andreson’s annual base salary was increased by 6% from its 2009 level to better align his base salary with the market. Mr. Fairbairn’s, Dr. Pietras’ and Dr. Russak’s annual base

salaries were increased from their 2009 levels by 4%, 4%, and 2%, respectively, within the range of raises given to Intevac employees.

 

The annual base salaries for the CEO and other NEOs in 2009 and 2010 were as follows:

 

 

 

 

Performance-based annual cash bonus:

 

We provide the opportunity to earn performance-based annual cash bonuses to our NEOs and other management employees under our Executive Incentive Plan (“EIP”). The total amount payable under the EIP is determined based on Intevac’s financial performance. The objective of the EIP is to align our executive compensation with actual short-term business performance and with strategic business objectives.

 

The components to determine the performance-based cash bonus include:

 

 

Each of these components and the resulting calculation of the annual bonus payments are described in more detail below.

 

Bonus Pool:  At the beginning of each year, the Compensation Committee sets a percentage of the Company’s Proforma Annual Income before Income Taxes that will be used to fund performance-based annual cash bonuses for our NEOs and other management employees (the “Bonus Pool”). Proforma Annual Income before Income Taxes is the single largest determinant of individual bonuses. For the purposes of calculating the Bonus Pool, “Proforma Annual Income before Income Taxes,” is equal to income before income taxes, adding back the Bonus Pool expense, employee profit sharing expense and equity-based compensation expense. The Compensation Committee reserves the right to exclude amounts, such as extraordinary or unusual items, gains or losses when determining Proforma Annual Income before Income Taxes, but did not make any adjustments to the formula during 2010.

 

The amount of bonus earned by each executive will vary substantially with financial performance. If Proforma Annual Income before Income Taxes is a loss during a given year, no bonuses will be paid. Also EIP participant performance-based annual cash bonuses are capped at a maximum of two times the Target Bonus, and are subject to the availability of such amount under the total Bonus Pool.

 

The Bonus Pool funding percentage is determined by the Compensation Committee each year based on a number of factors, evaluated in the Compensation Committee’s discretion, including:

 

 

 

For 2010, the bonus funding percentage was set at 10% of Proforma Annual Income before Income Taxes. The Company believes that the bonus funding percentage is appropriate because it balances incentives to our executives with appropriate returns to our stockholders.

 

In early 2010, the Bonus Pool Percentage approved by the Compensation Committee when multiplied by the Company’s projected 2010 pretax earnings per the Company’s Plan approved by the Board for the year, was not sufficient to fund Target Bonuses for each participant. Accordingly, management had to exceed 2010 Plan profitability in order to earn Target Bonuses. However, actual Proforma Annual Income before Income Taxes for 2010 was more than 75% higher than the Company’s original Proforma Annual Income before Income Taxes projection, and actual EIP bonus payments to the NEOs ranged from 43% to 121% of their individual target bonus opportunity.

 

Target Bonus:  Each NEO is assigned an annual Target Bonus, computed by multiplying each executive’s base salary times his or her Target Bonus Percentage. EIP participant performance-based annual cash bonuses are capped at a maximum of two times the Target Bonus, and are subject to the availability of such amount under the total Bonus Pool.

 

Target Bonus Percentages are determined based on competitive market data, internal equity considerations, and the degree of difficulty associated with achieving performance levels. Each factor is evaluated by the Compensation Committee based on data and input provided by management and the independent compensation consultant. In 2010 Mr. Andreson’s target bonus was increased from 75% to 125% of salary based on the competitive data on total compensation provided by the compensation consultant. No other changes were made to the 2010 Target Bonus Percentages from their 2009 levels. The Compensation Committee believes that the 2010 Target Bonus Percentages are appropriate for each NEO based upon his or her position within the Company, level of responsibility and performance objectives.

 

Target Bonus Percentages for the CEO and other NEOs during 2009 and 2010 were as follows:

 

 

 

 

Annual Strategic Objectives:  In addition to the determination of the Bonus Pool as a whole and the Target Bonuses, each NEO receives a comprehensive set of specific goals and objectives (the “Goals”) established at the beginning of the fiscal year. The Goals were approved by the Compensation Committee at the beginning of 2010 (with the exception of Mr. Fairbairn’s Goals, whose Goals were approved by the independent members of the Board of Directors, upon recommendation of the Compensation Committee). The Goals cover four general categories — business results, market development, product and operational excellence and strategic objectives. Goals may be established separately for each category or in any combination.

 

 

 

The following table shows fiscal 2010 Goals and their relative weightings for each NEO:

 

 

The NEOs’ performance against each of the Goals is scored at the end of the year by the CEO and Mr. Fairbairn’s performance against each of his Goals is scored by the Compensation Committee. The performance and evaluation is then reviewed and approved by the Compensation Committee and Mr. Fairbairn’s performance is reviewed and approved by the independent members of the Board of Directors. This numerical grading is used to formulaically adjust the allocation of individual bonuses from the Bonus Pool, if any, with higher graded executives receiving a larger allocation and lower graded executives receiving a smaller allocation compared to all of the participants in the plan. The Compensation Committee may adjust the grading of the NEOs or their individual bonus at its sole discretion but did not do so during 2010. The actual amount of adjustment depends on the rating of each executive relative to all other participants, as the total amount required for bonus payments to all participants cannot exceed the Bonus Pool. Therefore, if all participants received the same rating, the pool would be allocated exclusively based on the relative size of each participant’s Target Bonus compared to all other participants.

 

Likelihood of Achievement of Goals:  In general, total performance targets for the Goals of each NEO are set at aggressive levels, such that they anticipate performance in excess of what would be considered normal performance in the expected economic environment. The CEO recommends the Goals to the Compensation Committee, and these goals are typically considered stretch goals and therefore perceived by the Compensation Committee to be reasonably difficult to achieve. The performance measures established by the Committee to determine payouts under the plan are tied both to the Company’s actual Proforma Annual Income before Income Taxes and to the individual’s Goals. Even where the Proforma Annual Income before Income Taxes target is achieved, the actual payout to each participant employee depends on his or her Goal achievement for the measurement period. The performance measures at both the Company and individual levels are aggressive and difficult to achieve, and if achieved at 100% would exceed the Company’s operational and financial expectations for the measurement period. Due to their challenging nature, historical achievement of performance goals has fluctuated from year to year. In early fiscal 2010, achievement of the target business results was believed to be attainable with significant effort.

 

Determining Actual Fiscal 2010 Bonuses:  Analyzing each NEO’s performance versus individual Goals, the Compensation Committee determined that Mr. Fairbairn and Mr. Andreson exceeded their business results goal (Company Proforma Annual Income before Income Taxes was $42.8 million or 176% of the goal amount), fully achieved or exceeded the vast majority of their other performance goals and partially achieved some goals related to strategic initiatives. Mr. Marusiak and Dr. Russak exceeded their business results goal (Equipment Proforma

Annual Income before Income Taxes was $43.7 million or 207% of the goal amount). Mr. Marusiak fully achieved or exceeded the vast majority of his performance goals, partially achieved some goals, and did not achieve a few goals related to new products and markets. Dr. Russak exceeded or achieved the vast majority of his performance goals. In determining bonus amounts for Dr. Russak and Mr. Marusiak, the Committee recognized the significant contributions of the Equipment business unit to Intevac’s overall strong performance in fiscal 2010 and to the Company’s anticipated future growth. Dr. Pietras did not achieve his business results goal as Intevac Photonics Proforma Income before Income Taxes was a loss and therefore received a lower bonus payment compared to the rest of the NEOs. Dr. Pietras fully achieved some of his other performance goals and partially achieved some goals. The specific performance versus objectives for each of the goals other than Proforma Annual Income before Income Taxes are not disclosed as there are multiple individual goals for each NEO and the disclosure of which would not be meaningful as well as it would reveal confidential information regarding our business strategy and operations, which could result in substantial competitive harm.

 

No bonus payments were made to the NEOs for fiscal 2008 and 2009 as Proforma Annual Income before Income Taxes was a loss for those years. The 2010 target and actual bonuses of the CEO and other NEOs are shown in the following table:

 

 

 

 

Stock Options:

 

We grant stock options to our NEOs to align their interests with the long-term interests of our stockholders and to provide our executives with incentives to manage Intevac from the perspective of an owner with an equity stake in the business.

 

Stock Option Terms:  Stock options enable our executives to acquire shares of our Common Stock at a fixed price per share (the closing market price on the grant date). The stock options granted by the Company typically have had a 10-year term, subject to earlier termination following the executive’s cessation of service with Intevac in accordance with our 2004 Equity Incentive Plan. Starting in 2010, the Company began granting options with a term of 7 years. Options granted to executives generally vest in four equal annual installments, as measured from the option grant date. The Compensation Committee believes that four-year vesting of stock options was consistent with peer group practices and provides retention incentives associated with long-term stock price appreciation.

 

Timing of Stock Option Grants:  The Compensation Committee grants options to NEOs shortly after their start date in accordance with our 2004 Equity Incentive Plan. Generally, the Compensation Committee also grants stock options annually to our NEOs and other exempt employees. Annual renewal grants are made only on days when our insider trading window is open. The Company’s insider trading window opens the third business day after quarterly earnings have been released, and closes three weeks prior to the end of each quarter. Our policy is not to make our annual renewal grants during such times as management and/or the Compensation Committee may be in possession of material, non-public information. New hire grants are made each month on the third Thursday of the month, by unanimous written consent of the Compensation Committee members.

 

Individual Grant Determinations:  Annually, the Compensation Committee approves a pool of renewal options to be granted to all grant recipients taking into consideration the total dilutive impact of all shares to be granted, the stock option overhang (the total number of shares to be granted as a percentage of shares outstanding), and projected compensation expense related to employee stock options. Each year, the Compensation Committee sets guidelines for the number of options to be granted to each NEO and other exempt employees. Actual stock

option grants to NEOs are made within the ranges set forth in these guidelines, based on the factors discussed below. For the NEOs, the guidelines reflect each NEO’s position within the Company and are set at a level that the Compensation Committee considers appropriate to create a meaningful opportunity for reward predicated on increasing stockholder value. In determining the appropriate grant levels, the Compensation Committee reviews competitive market practices, taking into consideration both the potential value to individual participants compared to executives at other companies with similar responsibilities. Generally, the Compensation Committee does not change its guidelines substantially from year to year even when share prices and the implied value of grants change significantly. This is because the Compensation Committee believes that it would be difficult to manage total share dilution from equity incentives in a responsible manner if the number of shares to be granted fluctuated with share prices each year in a volatile market environment. In addition, the Compensation Committee believes that the value of shares granted, over time and on average, remains consistent with market practices.

 

Actual annual renewal grants to NEOs, except for Mr. Fairbairn, were proposed by management and reviewed and approved at a Compensation Committee meeting. In determining the number of option shares to grant to each individual, including Mr. Fairbairn, the Compensation Committee takes into account factors such as each executive’s recent performance, level of responsibility, job assignment, the competitive climate, market data, and retention considerations. Each of these factors was considered by the Compensation Committee, in its judgment, and no formal weighting of these factors was used.

 

The number of renewal stock options granted to the NEOs in 2010 is shown in the table below.

 

 

 

 

Ownership Guidelines and Hedging Policies:  We do not currently have a stock ownership policy for our executive officers. However, all of our NEOs own shares of the company’s common stock or vested, but unexercised, equity awards. The Company has an insider trading policy which, among other things, prohibits insiders from short sales of Intevac Common Stock. Other than these prohibitions, the Company has no specific policy regarding hedging of stock ownership positions.

 

2011 Executive Compensation

 

Early in 2011 the Compensation Committee approved the 2011 base salaries and target 2011 bonus amounts for the NEOs in the respective amounts detailed in the table below. These compensation decisions were made on the basis of the executive compensation philosophy and principles discussed earlier in this Compensation Discussion and Analysis and reflected the Compensation Committee’s assessment of Company and individual performance during fiscal 2010.

 

 

Termination of Employment and Severance Agreements

 

With the exception of Mr. Fairbairn, none of Intevac’s executive officers have an employment agreement. Employment of all of our executive officers may be terminated at any time at the discretion of the Board of Directors. The terms of Mr. Fairbairn’s employment agreement are described in the section entitled “Potential Payments Upon Termination or Change of Control.” The Compensation Committee believes that entering into the employment agreement with Mr. Fairbairn was necessary to attract and retain Mr. Fairbairn. An agreement was negotiated with and entered into with Mr. Fairbairn at the original time of his hire as a precondition of Mr. Fairbairn to his accepting the offer, and was subsequently updated in 2007 and 2008 primarily to clarify its terms and to comply with Section 409A of the Internal Revenue Code. In negotiating the terms of Mr. Fairbairn’s severance arrangements, we recognized that concerns over termination and the potential for a change of control of the Company could create uncertainty for Mr. Fairbairn regarding his continued employment, since such transactions often result in changes in senior management. The Company felt that by providing certain benefits upon his termination of employment in certain instances, such as involuntary termination or his termination in connection with a change of control of the Company, the risk of potential job loss to Mr. Fairbairn would be mitigated, and would provide encouragement to remain with the Company and to make decisions that are in the best interests of the Company’s stockholders. We felt that such considerations were critical to attracting and retaining Mr. Fairbairn. Mr. Fairbairn’s employment agreement does not provide for any gross up should Mr. Fairbairn’s severance or other payments and benefits be subject to Section 280G golden parachute excise taxes.

 

Impact of Accounting and Tax Treatment

 

Accounting Treatment

 

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model in accordance with applicable accounting standards. Once the fair value of each award is determined, it is expensed in the Company’s income statement using the graded vesting attribution method over the service period (See Note 2 of the notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for fiscal 2010 filed with the SEC on February 25, 2011). Projected compensation expense related to employee stock options in the aggregate is one of the factors taken into consideration by the Compensation Committee in determining NEO and other employee stock option grants as noted under “Individual Grant Determinations.”

 

Tax Treatment

 

Under Section 162(m) of the Internal Revenue Service Code, Intevac receives a federal income tax deduction for compensation paid to each of our CEO and certain other NEOs only if the compensation paid to the individual executive is less than $1 million during any fiscal year or is “performance-based” as defined under Section 162(m). Intevac’s 2004 Equity Incentive Plan permits our Compensation Committee to grant equity compensation that is considered “performance-based” and thus fully tax-deductible under IRC Section 162(m). Bonuses granted under the EIP are not considered “performance-based” for purposes of Section 162(m). Our Compensation Committee may seek a tax deduction for our executive compensation, to the extent we determine it is in the best interests of Intevac.

 

The information contained in this report shall not be deemed to be “soliciting material” or to be filed with the SEC, nor shall such information be incorporated by reference into any past or future filing under the Securities Act or the Exchange Act, except to the extent Intevac specifically incorporates it by reference into such filing.

 

The Compensation Committee oversees Intevac’s compensation policies, plans and benefit programs. The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based on such review and discussions, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

This report is submitted by the members of the Compensation Committee.

 

Stanley J. Hill (Chairman)
John F. Schaefer
Thomas M. Rohrs

 

The following table presents information concerning the total compensation of Intevac’s CEO, Chief Financial Officer, each of the three most highly compensated officers at the end of the last fiscal year (the “NEOs”) for services rendered to Intevac in all capacities for the fiscal years ended December 31, 2010, 2009 and 2008.

 

 

 

 

The following table presents information concerning grants of plan-based awards to each of the NEOs during the fiscal year ended December 31, 2010.

 

 

 

 

The following table shows all outstanding option awards held by each of the NEOs at the end of fiscal 2010. We have not granted any stock awards.

 

 

 

 

 

The following table shows all stock options exercised and value realized upon exercise by the NEOs during fiscal 2010. We have not granted any stock awards.

 

 

 

 

Termination or Change of Control Arrangements

 

With the exception of Mr. Fairbairn, none of Intevac’s executive officers have an employment agreement with the Company. Employment of all of our executive officers may be terminated at any time at the discretion of the Board of Directors. The terms of Mr. Fairbairn’s employment are specified in his offer letter of employment.

 

Employment Agreement:  For Mr. Fairbairn, the terms of his employment agreement include the following:

 

 

The Compensation Committee believes that the terms of this agreement with Mr. Fairbairn support the goals of attracting and retaining highly talented individuals by clarifying the terms of employment and reducing the risks to the executive in situations where the Company may undergo a merger or be acquired. In addition, the Compensation Committee believes that such an agreement aligns the interests of Mr. Fairbairn with the interests of stockholders if a qualified offer to acquire the Company is made, in that it is to the benefit of stockholders to have Mr. Fairbairn negotiating in the best interests of the Company without concerns regarding his personal financial interests.

 

1995 Stock Option/Stock Issuance Plan: Under the 1995 Stock Option/Stock Issuance Plan, unvested stock options would immediately accelerate and vest in full if the employment of the executive were to be terminated either involuntarily or through a forced resignation within twelve months after any acquisition of Intevac.

 

2004 Equity Incentive Plan: Under the 2004 Equity Incentive Plan, all unvested options vest in full upon an acquisition of Intevac by merger or asset sale, unless the option is assumed by the acquiring entity.

 

The Board of Directors or its Compensation Committee, as administrator of the 2004 Equity Incentive Plan, has the authority to provide for the accelerated vesting of any or all outstanding options under the 2004 Equity Incentive Plan, including options held by our directors and executive officers, under such circumstances and at such times as the Compensation Committee deems appropriate, including in the event of termination of the executive or a Change of Control of Intevac.

 

The following table sets forth summary information concerning compensation paid or accrued for services rendered to the Company in all capacities to the members of the Company’s Board of Directors for the fiscal year ended December 31, 2010, other than Kevin Fairbairn, whose compensation is set forth under the Summary Compensation Table, and Norman Pond, whose compensation is discussed below.

 

 

 

 

Standard Director Compensation Arrangements

 

Intevac uses a combination of cash and equity compensation to attract and retain qualified candidates to serve on our Board of Directors. The Compensation Committee of the Board of Directors conducts an annual review of director compensation and, if appropriate, recommends any changes in the type or amount of compensation to the Board of Directors. In reviewing director compensation, the Compensation Committee takes into consideration the compensation paid to non-employee directors of comparable companies, including competitive non-employee director compensation data and analyses prepared by compensation consulting firms and the specific duties and committee responsibilities of particular directors. In addition, the Compensation Committee may make recommendations or approve changes in director compensation in connection with the Compensation Committee’s administration and oversight of our 2004 Equity Incentive Plan. Any change in director compensation is approved by the Board of Directors.

 

Cash Compensation

 

Non-employee directors receive annual cash fees for service on the Board of Directors and its various committees. During the first quarter of 2010, each of Intevac’s non-employee directors received a cash payment of $7,500 per quarter for serving as a director; and Intevac’s Lead Director received an additional cash payment of $1,875 per quarter for serving as the Lead Director. Effective April 1, 2010, the quarterly cash payment for serving as a director was increased to $11,250. In addition, the Audit Committee Chair began receiving an annual cash payment of $6,500 for serving as the Audit Committee Chair, and the Compensation and Nominating and Governance Committee Chairs began receiving annual cash payments of $5,000 for serving as chairs of those respective committees. The quarterly payment of $1,875 per quarter to the Lead Director remained the same. Directors do not receive cash compensation for attending meetings of the Board of Directors.

 

Equity Compensation

 

Our non-employee directors are eligible to receive grants of options to purchase shares of our Common Stock pursuant to our 2004 Equity Incentive Plan when and as determined by our Board of Directors. During fiscal 2010, Mr. Dury, Mr. Hill, Mr. Lemos and Dr. Yang each received an option to purchase 12,000 shares under the 2004 Equity Incentive Plan. Mr. Rohrs and Mr. Schaefer each received an option to purchase 18,000 shares under the 2004 Equity Incentive Plan representing their one-time grants for being appointed to the Board.

 

Other Arrangements

 

Non-employee directors also have their travel, lodging and related expenses associated with attending Board or committee meetings and for participating in Board-related activities paid or reimbursed by Intevac.

 

Compensation Arrangement with Norman Pond

 

As an executive officer of Intevac, the Chairman of the Board, Mr. Pond received a salary of $173,041 for fiscal 2010. In addition, Mr. Pond received a matching contribution of $2,000 under our tax-qualified 401(k) Plan, which provides for broad-based employee participation, and Mr. Pond received a payment of $26,572 under Intevac’s Profit Sharing Plan. Mr. Pond received a stock option grant to purchase 12,000 shares of Common Stock made on

May 20, 2010 at an exercise price of $11.84 per share with a grant date fair value of $75,328. Mr. Pond did not receive any additional fees for attending Board or committee meetings.

 

The following table summarizes the number of outstanding shares underlying options granted to employees and directors, as well as the number of securities remaining available for future issuance, under our equity compensation plans at December 31, 2010.

 

 

 

 

The following table sets forth certain information regarding the ownership of our Common Stock as of February 14, 2011, for each person or entity who is known by us to own beneficially more than 5% of the outstanding shares of our Common Stock, each of the NEOs in the 2010 Summary Compensation Table on page 40, each of our directors, and all directors and executive officers of Intevac as a group.

 

 

 

 

Review, Approval or Ratification of Related Person Transactions

 

In accordance with our Code of Business Conduct and Ethics and our Director Code of Ethics and the charter for the Audit Committee of the Board of Directors, our Audit Committee reviews and approves in advance in writing any proposed related person transactions. The most significant related person transactions, as determined by the Audit Committee, must be reviewed and approved in writing in advance by our Board of Directors. Any related person transaction will be disclosed in the applicable SEC filing as required by the rules of the SEC. For purposes of these procedures, “related person” and “transaction” have the meanings contained in Item 404 of Regulation S-K.

 

Related Person Transactions

 

We did not enter into any transactions, and no relationships existed during the fiscal year ending December 31, 2010, which are required to be disclosed pursuant to Item 404 of Regulation S-K.

 

Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership on Form 3, and reports of changes in ownership on Form 4 or Form 5, of our Common Stock and other equity securities. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish Intevac with copies of all Section 16(a) forms they file.

 

Based solely upon review of the copies of such reports furnished to us and written representations that no other reports were required, we believe that during the fiscal year ended December 31, 2010, our officers, directors and holders of more than ten percent of our Common Stock complied with all Section 16(a) filing requirements.

 

The primary role of the Audit Committee is to provide oversight and monitoring of Intevac’s management and the independent registered public accounting firm and their activities with respect to Intevac’s financial reporting process. In the performance of its oversight function, the Audit Committee has: