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OUR | |
VALUES |
When: Friday, April 24, 2020 7:30 AM Mountain Time | Meeting Agenda Proposal 1: To elect as directors the 12 nominees named in the accompanying proxy statement for a one-year term expiring at the 2021 Annual Meeting of Shareholders. Proposal 2: To approve, in an advisory vote, the compensation of our named executive officers as disclosed in the accompanying proxy statement. Proposal 3: To ratify our Audit Committee’s appointment of Ernst & Young LLP as our independent registered public accounting firm for our fiscal year 2020. Proposal 4: To amend our Restated Certificate of Incorporation to eliminate the supermajority voting and “fair price” requirements for business combinations involving interested shareholders. Proposal 5: To amend our Restated Certificate of Incorporation to eliminate the “anti-greenmail” provision. Proposal 6: To amend our Restated Certificate of Incorporation to eliminate the cumulative voting provision that applies when we have a 40% shareholder. Proposal 7: Consideration of a shareholder proposal as described in the accompanying proxy statement, if such proposal is properly presented at the Annual Meeting. The accompanying proxy statement more fully describes these matters. Shareholders also will act on any other business matters that may properly come before the meeting, but we have not received notice of any such matters. All holders of common stock of record at the close of business on February 28, 2020 are entitled to notice of and to vote at the Annual Meeting and any adjournments or postponements thereof. No ticket is required to attend the Annual Meeting, but for security reasons, you may be asked to show evidence of share ownership and a valid government issued photo ID. Packages, bags, boxes and other items are subject to inspection. By Order of the Board of Directors, Scott T. Mikuen Senior Vice President, General Counsel and Secretary Melbourne, Florida March [•], 2020 Important notice regarding the availability of proxy materials for the annual meeting of shareholders to be held on Friday, April 24, 2020: The Proxy Statement and 2019 Transition Report to Shareholders are available at: www.l3harris.com/corporate-governance. | |||
Where: The Grand America Hotel 555 South Main Street Salt Lake City, Utah 84111 | ||||
YOUR VOTE IS IMPORTANT | ||||
Even if you plan to attend the Annual Meeting, we encourage you to vote your shares in advance to ensure they are counted. | ||||
L3HARRIS 2020 PROXY STATEMENT | i |
SHAREHOLDERS | L3HARRIS TECHNOLOGIES, INC. 1025 West NASA Boulevard Melbourne, Florida 32919 |
March [•], 2020 | ||
William M. Brown Chairman |
On behalf of your Board of Directors, I am pleased to invite you to attend the 2020 Annual Meeting of Shareholders of L3Harris Technologies, Inc. to be held on Friday, April 24, 2020. The holding of the 2020 Annual Meeting approximately six months after the 2019 Annual Meeting reflects our transition to a calendar year oriented financial reporting cycle in connection with the transformational merger that created L3Harris — we changed our fiscal year end from the Friday nearest June 30 to the Friday nearest December 31. As a result, much of the information in the accompanying Proxy Statement, particularly relating to executive compensation matters, relates to the abbreviated six-month transition period of June 29, 2019 through January 3, 2020 (to which we sometimes refer to as our “fiscal transition period”). |
The accompanying Notice of 2020 Annual Meeting of Shareholders and Proxy Statement describe the matters to > election of the 12 nominees for director named in the accompanying Proxy Statement for a one-year term expiring at the |
> approval, in an advisory vote, |
> ratification of the appointment > an amendment to our Restated Certificate of Incorporation to eliminate the supermajority voting and |
“fair price” requirements for business combinations involving interested shareholders; > an amendment to > an amendment to our Restated Certificate of Incorporation to eliminate the cumulative voting provision that applies when we have a 40% shareholder; > consideration of a shareholder proposal as described in the accompanying Proxy Statement, if such proposal is properly presented at the meeting; and > such other business as may properly come before the |
Your Board of Directors unanimously recommends that shareholders vote AGAINST the shareholder proposal and FOR all of the other proposals set forth above. | ||
It is important that your shares |
Proxy Statement. | ||
Sincerely, | ||
William M. Brown | ||
Chairman and Chief Executive Officer |
ii | L3HARRIS 2020 PROXY STATEMENT |
PROXY SUMMARY | 1 |
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L3HARRIS 2020 PROXY STATEMENT | ||||
iii |
SUMMARY | 2020 Annual Meeting | ||||
7:30 AM Mountain Time The Grand America Hotel | |||||
Salt Lake City, Utah 84111 Record Date: February 28, 2020 |
VOTING MATTERS | For more information | Board’s recommendation | ||
Proposal 1 | ||||
Page 7 | FOR each nominee | |||
Proposal 2 | ||||
Page 33 | FOR the proposal | |||
Proposal 3 | ||||
Page 88 | FOR the proposal | |||
Proposal 4 | Page 90 | FOR the proposal | ||
Proposal 5 | Amend our Restated Certificate of Incorporation to eliminate the “anti-greenmail” provision | FOR the proposal | ||
Proposal 6 | Amend our Restated Certificate of Incorporation to eliminate the cumulative voting provision that applies when we have a 40% shareholder | Page 94 | FOR the proposal | |
Proposal 7 | Shareholder proposal to permit the ability of shareholders to act by written consent, if such proposal is properly presented at the Annual Meeting | Page 96 | AGAINST the proposal |
Nominee | Age | Independent with Respect to Harris | Harris Director Since | Harris Committees | Other Public Company Boards Currently Serving On | |||
Audit Committee | Governance and Corporate Responsibility Committee | Finance Committee | Management Development and Compensation Committee | |||||
James F. Albaugh | 68 | ü | 2016 | 3 | ||||
Sallie B. Bailey | 58 | ü | 2018 | — | ||||
William M. Brown | 55 | û | 2011 | 1 | ||||
Peter W. Chiarelli | 68 | ü | 2012 | — | ||||
Thomas A. Dattilo | 67 | ü | 2001 | — | ||||
Roger B. Fradin | 65 | ü | 2016 | 3 | ||||
Lewis Hay III | 62 | ü | 2002 | 2 | ||||
Vyomesh I. Joshi | 64 | ü | 2013 | 1 | ||||
Leslie F. Kenne | 70 | ü | 2004 | 1 | ||||
Gregory T. Swienton | 68 | ü | 2000 | 1 | ||||
Hansel E. Tookes II | 70 | ü | 2005 | 3 |
1 |
L3HARRIS 2020 PROXY STATEMENT |
> | William M. Brown, Chairman and CEO; |
> | Christopher E. Kubasik, Vice Chairman, President and COO; and |
> | Ten independent directors (Sallie B. Bailey, Peter W. Chiarelli, Thomas A. Corcoran, Thomas A. Dattilo, Roger B. Fradin, Lewis Hay III, Lewis Kramer, Rita S. Lane, Robert B. Millard and Lloyd W. Newton). |
Other Current Public Company Boards | L3Harris Committee Memberships | ||||||||
Director nominee | Age | Director Since* | Principal Occupation/Experience | Audit | Compensation | Finance | Nominating and Governance | Ad Hoc Technology |
Sallie B. Bailey | 60 | 2018 | Former EVP and CFO of Louisiana Pacific Corporation | 1 | ■ | ■ | |||
William M. Brown | 57 | 2011 | Chairman and CEO of L3Harris | 1 | |||||
Peter W. Chiarelli | 69 | 2012 | General, U.S. Army (Retired) | — | ■ | ■ | |||
Thomas A. Corcoran | 75 | 1997 | President of Corcoran Enterprises, LLC; former Senior Advisor for The Carlyle Group | 1 | ■ | ■ | |||
Thomas A. Dattilo | 68 | 2001 | Advisor for private investment firms; former Chairman and CEO of Cooper Tire & Rubber Company | — | ■ | ■ | |||
Roger B. Fradin | 66 | 2016 | Operating Executive with The Carlyle Group; former Vice Chairman of Honeywell International Inc. | 3 | ■ | ■ | |||
Lewis Hay III | 64 | 2002 | Operating Advisor for Clayton Dubilier & Rice, LLC; former Chairman and CEO of NextEra Energy, Inc. | 1 | ■ | ■ | |||
Lewis Kramer | 72 | 2009 | Former Global Client Service Partner and National Director of Audit Services of Ernst & Young LLP | 1 | ■ | ■ | |||
Christopher E. Kubasik | 58 | 2018 | Vice Chairman, President and COO of L3Harris | — | |||||
Rita S. Lane | 57 | 2018 | Principal at Hajime, LLC; former VP, Operations of Apple Inc. | 2 | ■ | ■ | |||
Robert B. Millard Lead Independent Director | 69 | 1997 | Chairman of Massachusetts Institute of Technology Corporation | 1 | ■ | ■ | |||
Lloyd W. Newton | 77 | 2012 | General, U.S. Air Force (Retired); former EVP of Pratt & Whitney Military Engines | — | ■ | ■ |
* Reflects tenure with L3 or Harris board of directors, as applicable. | ■ Member | ■ Chairperson |
4 UNDER 4 YEARS | 4 4 – 10 YEARS | 4 MORE THAN 10 YEARS |
Nominee Skills and Background | of 12 nominees |
Senior P&L Experience | 9 | |||||||||||||||||||||||
Public Company Board | 11 | |||||||||||||||||||||||
M&A/Post Merger Integration | 9 | |||||||||||||||||||||||
Aerospace & Defense | 7 | |||||||||||||||||||||||
Military Service | 3 | |||||||||||||||||||||||
Diverse | 3 | |||||||||||||||||||||||
Technology | 7 | |||||||||||||||||||||||
Finance Expertise | 8 | |||||||||||||||||||||||
Global Operations | 10 |
> | Independent directors make up approximately 83% of the Board and 100% of each committee. |
> | All directors elected annually; majority voting standard in uncontested elections. |
> | Lead Independent Director broadly empowered with defined responsibilities and authority. |
> | Independent directors regularly hold executive sessions led by Lead Independent Director. |
> | Our Board and all standing committees conduct annual self-evaluations for continuous improvement in performance and effectiveness. |
> | Our Board membership criteria take into account diversity of viewpoints, background, experience, gender, race, ethnicity and similar demographics, as well as avoiding potential overboarding (more than 4 other public company boards, under our guidelines). |
> | Policy requiring directors to |
> | Board reviews and evaluates management development and succession plans. |
> | Strong ethics and business conduct program, reflecting our commitment to our Code of Conduct and broader compliance principles, to responsible corporate citizenship and sustainability and to our belief that we should conduct all business dealings with honesty, integrity and responsibility. |
> | Meaningful stock ownership guidelines for non-employee directors. |
> | Prohibition on short sales, hedging, other derivative transactions and pledging of our common stock by directors and executive officers. |
> | Robust proxy access By-Law provision allowing eligible shareholders to nominate and include in our proxy materials candidates for election to our Board. |
> | Shareholders holding at least 25% of common stock can call a special meeting. |
> | Annual “say-on-pay” advisory vote. |
> | Engagement with large share holders on key aspects of our executive compensation program. |
Key 6-Month Fiscal Transition Period Financial Results Revenue, adjusted EBIT and adjusted free cash flow results are important because they are components of performance measures used in incentive compensation. | |
The holding of the 2020 Annual Meeting approximately six months after the 2019 Annual Meeting reflects our transition to a calendar year oriented financial reporting cycle in connection with the transformational merger that created L3Harris — we changed our fiscal year end from the Friday nearest June 30 to the Friday nearest December 31. As a result, much of the information in this proxy statement, particularly relating to executive compensation matters, relates to the abbreviated six-month transition period of June 29, 2019 through January 3, 2020 (which we sometimes refer to as our “fiscal transition period”). |
L3HARRIS 2020 PROXY STATEMENT | 4 |
> | Executing seamless integration of L3 and Harris, including achieving at least $500 million in gross cost synergies from the Merger by the end of 2021; |
FY17 Results | FY18 Results | Change | ||||||||||
(in millions, except per share amounts) | ||||||||||||
Orders | $ | 6,026 | $ | 7,429 | 23 | % | ||||||
Revenue | $ | 5,900 | $ | 6,182 | 5 | % | ||||||
Operating income | $ | 1,073 | $ | 1,122 | 5 | % | ||||||
Non-GAAP operating income* | $ | 1,131 | $ | 1,186 | 5 | % | ||||||
Income from continuing operations per diluted common share | $ | 5.12 | $ | 5.94 | 16 | % | ||||||
Non-GAAP income from continuing operations per diluted common share* | $ | 5.53 | $ | 6.50 | 18 | % | ||||||
Operating cash flow | $ | 569 | $ | 751 | $ | 182 | ||||||
Adjusted free cash flow* | $ | 850 | $ | 915 | $ | 65 | ||||||
Cash used to retire debt | $ | 575 | $ | 555 | n/m | |||||||
Cash used to repurchase shares of our common stock | $ | 710 | $ | 272 | n/m | |||||||
Annualized cash dividend rate per share** | $ | 2.12 | $ | 2.28 | 8 | % | ||||||
Cash used to pay dividends | $ | 262 | $ | 272 | n/m | |||||||
Cash used to make voluntary contributions to qualified defined benefit pension plans | $ | 400 | $ | 300 | n/m | |||||||
Company-sponsored research and development | $ | 310 | $ | 311 | — |
> | |
> | Building a new performance culture with a strong bias for action and accountability; |
> | Growing revenue through investments in differentiated technology and innovation; |
> |
> | Maximizing cash flow with shareholder friendly capital deployment. |
OVERALL OBJECTIVE Encourage and reward creation of sustainable, long-term shareholder value | GUIDING PRINCIPLES | |||||||
>Motivate achievement of financial goals and strategic objectives |
Fiscal 2018 Base Salary Rate | Fiscal 2018 Target Annual Cash Incentive Award | Fiscal 2018 Target Value of Performance Share Units | Fiscal 2018 Target Value of Stock Options | Fiscal 2018 Target Value of Restricted Stock Units | |||||||||||||||
Mr. Brown | $ | 1,300,000 | $ | 2,200,000 | $ | 4,100,000 | $ | 2,050,000 | $ | 2,050,000 | |||||||||
Mr. Ghai | $ | 550,000 | $ | 412,500 | $ | 650,000 | $ | 325,000 | $ | 325,000 | |||||||||
Mr. Fox | $ | 555,000 | $ | 416,250 | $ | 575,000 | $ | 287,500 | $ | 287,500 | |||||||||
Mr. Mehnert | $ | 555,000 | $ | 416,250 | $ | 575,000 | $ | 287,500 | $ | 287,500 | |||||||||
Mr. Mikuen | $ | 550,000 | $ | 385,000 | $ | 550,000 | $ | 275,000 | $ | 275,000 |
Fiscal 2017 Base Salary Rate | Fiscal 2018 Base Salary Rate | % Increase | Reason for Increase | |||||||||
Mr. Brown | $ | 1,250,000 | $ | 1,300,000 | 4.0 | % | Merit | |||||
Mr. Ghai | $ | 500,000 | $ | 550,000 | 10.0 | % | Merit and market adjustment | |||||
Mr. Fox | $ | 540,000 | $ | 555,000 | 2.8 | % | Merit | |||||
Mr. Mehnert | $ | 540,000 | $ | 555,000 | 2.8 | % | Merit | |||||
Mr. Mikuen | $ | 525,000 | $ | 550,000 | 4.8 | % | Merit |
5 | L3HARRIS 2020 PROXY STATEMENT |
Base Salary Level | Annual Cash Incentive Payout | Target Value of Annual Cycle Awards(Equity-Based) | Target Value of Special, One-Time Integration-Related Awards (Equity-Based) | ||||||||||
Mr. Brown | $ | 1,450,000 | $1,467,500 117.4% of target | $ | 5,125,000 | $ | 7,500,000 | ||||||
Mr. Kubasik | $ | 1,450,000 | $1,467,500 117.4% of target | N/A | $ | 7,500,000 | |||||||
Mr. Malave | $ | 625,000 | $367,000 117.4% of target | N/A | $ | 2,000,000 | |||||||
Mr. Gautier | $ | 600,000 | $283,000 94.3% of target | N/A | $ | 2,000,000 | |||||||
Mr. Zoiss | $ | 600,000 | $388,000 129.3% of target | $ | 800,000 | $ | 2,000,000 |
L3HARRIS 2020 PROXY STATEMENT | 6 |
Fiscal 2017 Cash Incentive Target as % of Base Salary Rate | Fiscal 2018 Cash Incentive Target as % of Base Salary Rate | % Change | Fiscal 2018 Cash Incentive Payout as % of Target* | Reason for Payout Relative to Target* | |||||||||
Mr. Brown | 168 | % | 169 | % | 1 | % | 120.0 | % | Individual performance | ||||
Mr. Ghai | 75 | % | 75 | % | 0 | % | 121.2 | % | Individual performance | ||||
Mr. Fox | 75 | % | 75 | % | 0 | % | 99.6 | % | — | ||||
Mr. Mehnert | 75 | % | 75 | % | 0 | % | 99.6 | % | — | ||||
Mr. Mikuen | 70 | % | 70 | % | 0 | % | 110.4 | % | Individual performance |
Fiscal 2017 Equity Compensation Target Value in Dollars | Fiscal 2018 Equity Compensation Target Value in Dollars | % Change | Reason for Change | |||||||||
Mr. Brown | $ | 7,650,000 | $ | 8,200,000 | 7.2 | % | Merit | |||||
Mr. Ghai | $ | 1,150,000 | $ | 1,300,000 | 13.0 | % | Merit and market adjustment | |||||
Mr. Fox | $ | 1,150,000 | $ | 1,150,000 | 0 | % | — | |||||
Mr. Mehnert | $ | 1,150,000 | $ | 1,150,000 | 0 | % | — | |||||
Mr. Mikuen | $ | 1,000,000 | $ | 1,100,000 | 10.0 | % | Merit |
Performance Share Units Granted | Weighted Relative TSR Adjusted Payout %* | Shares Paid Out | ||||
Mr. Brown | 44,140 | 102.0% | 45,023 | |||
Mr. Ghai | 2,210 | 102.0% | 2,254 | |||
Mr. Fox | 7,255 | 102.0% | 7,400 | |||
Mr. Mehnert | 7,255 | 102.0% | 7,400 | |||
Mr. Mikuen | 6,310 | 102.0% | 6,436 |
Our Board unanimously recommends voting FOR election of | |||
its 12 nominees for director for a one- year term expiring at the 2021 Annual Meeting of Shareholders. | |||
>Nominees collectively have broad and diverse leadership experience and many other | |||
> | William M. Brown, Chairman and Chief Executive Officer; |
> | Christopher E. Kubasik, Vice Chairman, President and Chief Operating Officer; and |
> | Ten independent directors (Sallie B. Bailey, Peter W. Chiarelli, Thomas A. Corcoran, Thomas A. Dattilo, Roger B. Fradin, Lewis Hay III, Lewis Kramer, Rita S. Lane, Robert B. Millard and Lloyd W. Newton). |
7 | L3HARRIS 2020 PROXY STATEMENT |
Nominee | Age | Independent with Respect to Harris | Harris Director Since | Harris Committees | Other Public Company Boards Currently Serving On | |||
Audit Committee | Governance and Corporate Responsibility Committee | Finance Committee | Management Development and Compensation Committee | |||||
James F. Albaugh | 68 | ü | 2016 | 3 | ||||
Sallie B. Bailey | 58 | ü | 2018 | — | ||||
William M. Brown | 55 | û | 2011 | 1 | ||||
Peter W. Chiarelli | 68 | ü | 2012 | — | ||||
Thomas A. Dattilo | 67 | ü | 2001 | — | ||||
Roger B. Fradin | 65 | ü | 2016 | 3 | ||||
Lewis Hay III | 62 | ü | 2002 | 2 | ||||
Vyomesh I. Joshi | 64 | ü | 2013 | 1 | ||||
Leslie F. Kenne | 70 | ü | 2004 | 1 | ||||
Gregory T. Swienton | 68 | ü | 2000 | 1 | ||||
Hansel E. Tookes II | 70 | ü | 2005 | 3 |
> | Demonstrated ability and sound judgment; |
> | Personal qualities and characteristics, accomplishments and reputation in the business community, professional integrity, educational background, business experience and related experience; |
> |
> | Current knowledge and contacts in the markets in which we do business and in our industry or other relevant industries, giving due consideration to potential conflicts of interest; |
> | Ability and willingness to commit adequate time to Board and committee matters, including attendance at Board, committee and annual shareholder meetings; | ||
> | Diversity of viewpoints, background, experience, gender, race, ethnicity and |
> | The number of other boards of which the individual is a member; and |
> | Compatibility of the individual’s experience, qualifications, skills, attributes and personality with those of other directors and potential directors in building a Board that is effective, collegial and responsive to |
Our Nominating and Governance
Our Nominating and Governance Committee followed this process Consideration of Diversity Our Board values diversity as a factor in selecting nominees to serve on our Board. Although we have adopted no specific policy on diversity, our Each of
NOMINEES FOR ELECTION
Position, Principal Occupation and Professional Experience
Other Current/Recent Public Company Directorships
Position, Principal Occupation and Professional Experience
Other Current/Recent Public Company Directorships
Position, Principal Occupation and Professional Experience
Position, Principal Occupation and Professional Experience
Other Current/Recent Public Company Directorships
Position, Principal Occupation and Professional Experience
Other Current/Recent Public Company Directorships
Position, Principal Occupation and Professional Experience
Position, Principal Occupation and Professional Experience
Other Current/Recent Public Company Directorships
Position, Principal Occupation and Professional Experience
Other Current/Recent Public Company Directorships
Position, Principal Occupation and Professional Experience
Other Current/Recent Public Company Directorships
Position, Principal Occupation and Professional Experience
Other Current/Recent Public Company Directorships
Position, Principal Occupation and Professional Experience
Other Current/Recent Public Company Directorships
Position, Principal Occupation and Professional Experience
Other Current/Recent Public Company Directorships
Our Board is responsible for approving nominees to stand for election as directors. Our Nominating and Governance Committee assists in this process, identifying individuals it determines are qualified to become Board members and recommending nominees. Our Board has a long-standing policy to consider director nominees recommended by shareholders. A shareholder who wishes to recommend a nominee may do so by following the process discussed on page 100. Our Secretary will forward properly submitted shareholder-recommended nominations to the Chairperson of our Nominating and Governance Committee, and such nominations will be evaluated and considered by that committee in the same manner in which it evaluates other proposed nominees. In addition, the “proxy access” provision of our By-Laws allows an individual eligible shareholder, or a group of no more than 20 eligible shareholders, to nominate and include in our proxy materials candidates for election to our Board under terms that include the following:
Our Board believes that the proxy access provision of our By-Laws strikes an appropriate balance between providing our shareholders with broad and meaningful access to our proxy materials, on one hand, and requiring sufficient transparency, protecting the interests of all shareholders and ensuring effective governance, on the other hand, and reflects best practices by being broadly consistent with other Standard & Poor’s 500 (“S&P 500”) companies’ proxy access by-laws. Our Nominating and Governance and
As noted above, upon completion of the Merger on June 29, 2019, our Board was reconstituted to
Our Board believes that these twelve directors not only have a diverse mix of backgrounds, skills and We do not impose term limits for directors.
W Our Corporate Governance Guidelines address
A copy of our Corporate Governance Guidelines is available on the Corporate Governance section of our website at Overview Our Board’s
Strategy Oversight Our Board plays an active role in Our Board also routinely receives updates on and discusses topics of strategic importance to us, such as technology, cybersecurity, enterprise risk management and merger, acquisition and Risk In fulfilling its responsibility of overseeing the management of our business and other enterprise risks, our Board has approved our use of an enterprise risk management (“ERM”) process administered by management, as described below, and considers risks and related mitigation identified through the ERM process or raised in the context of a range of matters ENTERPRISE RISK MANAGEMENT PROCESS Our ERM process, among other things, is designed to identify material risks across ALLOCATION OF RISK OVERSIGHT RESPONSIBILITIES As noted above, our Board also considers risks that are raised in the context of
As part of its oversight responsibility for management succession planning, our Board
In addition, management conducts periodic talent reviews Ethics, Compliance and Sustainability Oversight Our Board All Our Nominating and Governance Committee assists our Board in fulfilling its oversight responsibility as to our compliance with the goals and objectives in our Code of Conduct by reviewing and taking action regarding compliance processes, standards and controls and reviewing results of relevant audits and investigations. Our Code of Conduct covers
Employees are required to report any conduct they believe in good faith to be a violation of our Code of Conduct or policies. Our Code of Conduct is posted on our website at
SUSTAINABILITY – ENVIRONMENTAL, SOCIAL AND GOVERNANCE (“ESG”) As an aerospace and defense company, L3Harris leads, manages and monitors a broad range of ESG impacts, and the following summary focuses on key impacts relevant to our business and to our stakeholders. Sound Governance, Board Leadership.L3Harris is committed to responsible and effective corporate governance to enhance the creation of sustainable, long-term shareholder value and be accountable and responsive to all stakeholders. In support of those goals, we have Corporate Governance Guidelines that our Board regularly reviews and updates as regulatory requirements change and governance practices evolve. Our Board is well positioned to discharge its responsibilities. The members have a diverse mix of backgrounds, skills and experience and a track record of driving long-term shareholder value. They also have a deep and unique understanding of the business and the challenges and opportunities L3Harris faces. Living Our Values. Our unwavering commitment to the highest ethical standards is a cornerstone of our values and our continued success. We instill the highest standards of performance and behavior in our employees, who sign an annual pledge to never compromise our values in order to achieve business objectives. Our customers, shareholders, suppliers and communities expect nothing less. Advancing Environmental Sustainability & Compliance. The company’s robust environmental, health and safety (“EH&S”) management system provides the framework for establishing policies and standards, as well as enterprise initiatives to reduce solid waste, water usage and greenhouse gas emissions. The EHS management system follows the guidelines and principles outlined in ISO 14001, OHSAS 18001 and ANSI Z10. Following the Merger, L3Harris is working to re-baseline company metrics and re-announce our long-term goals with the company’s first ESG Report that will be in accordance with industry standards. We are focused on continuous improvement in order to further reduce greenhouse gas emissions and water usage and increase our solid waste diversion rate from landfill. Strategies to drive continuous improvement include leveraging our EHS management system, IDENTIFYING AND QUANTIFYING ENERGY-SAVING OPPORTUNIES, INSTALLING MORE ENERGY EFFICIENT INFRASTRUCTURE, CONDUCTING solid waste characterization assessments, and establishing employee-led GreenTeams across the organization. Ensuring a Safe Workplace. L3Harris is committed to protecting the health and safety of our workers and customers and the environments in the global communities where we operate. By leveraging our EHS management system centered around industry best practices and continuous improvement, we minimize and seek to eliminate exposure to hazards every day to promote an ‘Accept Only Zero’ mindset. Building a High-Performance Culture: Diversity and Inclusion. Our commitment to speed, innovation and flawless execution is matched only by our dedication to providing every employee with rewarding career opportunities and an inclusive environment. L3Harris is proud to have eight Employee Resource Groups. These voluntary, employee-led groups connect those with shared values and interests, and host activities focused on professional development, community outreach and employee engagement. We recognize the importance of gender parity and take our commitment to strengthen the pipeline and create pathways for women to reach leadership positions very seriously. Our CEO has signed the CEO Action for Diversity and Inclusion and the Catalyst CEO Actions for change, where we commit to advance diversity, build inclusion, empower employees, mitigate bias, advance understanding and drive accountability. Our efforts to create a welcoming, engaging and inclusive workplace have been externally recognized. L3Harris received 100% on the Human Rights Campaign Corporate Equality Index. In addition, L3Harris was the only aerospace and defense company included on the 2020 Bloomberg Gender Equality Index. Last year, L3Harris was also certified as a Great Place to Work. Supporting Our Communities. Community investment and outreach is more than a business strategy – it’s about driving positive change in the areas that matter most. L3Harris provides philanthropic support to our communities through strategic investments in STEM (Science, Technology, Engineering and Mathematics) programs that strengthen education and skills of our industry’s next generation, projects aligned with our customers’ missions and opportunities in the community. This past Veterans’ Day, L3Harris launched a company-wide volunteer initiative, LIFT (L3Harris Investing for Tomorrow), that facilitates employee volunteer service. The launch on Veterans’ Day was celebrated with more than 60 events across the U.S.
Communicating With Our Board of Directors GENERAL COMMUNICATIONS Shareholders and other persons who wish to communicate with a member or members of our Board, including our Chairman, our Vice Chairman, our Lead Independent Director, the chairperson of any standing committee of our Board or the independent directors as a group, may send an e-mail to the intended recipient(s) c/o our Secretary at corporate.secretary@l3harris.com or may write to the intended recipient(s) c/o our Secretary, L3Harris Technologies, Inc., 1025 West NASA Boulevard, Melbourne, Florida 32919. Our Secretary will review each such communication and, if it is related to the duties and responsibilities of our Board and its committees, will forward it to the appropriate recipient(s). A director who receives a communication for which he or she was the intended recipient will determine whether it will be sent to our full Board or a committee thereof. Our Board has instructed our Secretary not to forward communications that our Secretary deems unduly hostile, threatening, illegal or otherwise inappropriate (such as surveys, spam, junk mail, resumes, service or product inquiries or complaints, solicitations or advertisements). Our Secretary will periodically provide our Board a summary of all communications (other than surveys, spam, etc.) that were not forwarded to the intended recipient(s) and will make those communications available to any director upon request. ACCOUNTING, INTERNAL CONTROL, AUDITING AND OTHER MATTERS Our Audit Committee has established procedures for the receipt, retention and treatment of complaints and concerns regarding accounting, internal accounting controls or auditing matters, financial reporting or disclosure matters, and other matters relating to actual, alleged or potential violations of any law, rule or regulation relating to securities or to fraud against shareholders. Upon receipt of a complaint or concern, a determination will be made whether it pertains to any of these matters, and if it does, it will be handled in accordance with these procedures. A copy of the procedures is available on the Corporate Governance section of our website at www.l3harris.com/corporate-governance. Employees may communicate concerns about such matters to their supervisor, manager or ethics advisor, or to the Vice President, Internal Audit or the Director, Ethics and Compliance or certain other individuals. Alternatively, they may communicate their concerns on a confidential, anonymous basis by way of e-mail or toll-free hotline numbers listed on our website and in our Code of Conduct. Other persons with such complaints or concerns may contact our Vice President, Internal Audit or Director, Ethics and Compliance at 1025 West NASA Boulevard, Melbourne, Florida 32919. To further align the interests of our non-employee directors and shareholders, our Board has adopted stock ownership guidelines for our non-employee directors, as follows:
Shares owned outright or jointly by the non-employee director and deferred equity awards (on an after-tax basis) credited for the non-employee director under any deferred compensation plan maintained by L3Harris count toward the guidelines. Directors who are retiring and will not be standing for re-election at the next Annual Meeting are no longer subject to the guidelines. As of February 28, 2020, all of our non-employee directors met the stock ownership guidelines or were on track to achieve such ownership within the applicable compliance timeframe. Our Board’s leadership is currently structured as follows:
Board Policy on Chairman and CEO Roles Our Board elects a Chairman from among the directors and also may appoint a Vice Chairman, as it has done in connection with the Merger. Our Board combines or separates the positions of Chairman and CEO based on what our Board believes best serves the needs of L3Harris and our shareholders at any particular time based on then-existing facts and circumstances. For example, in connection with the transition to Mr. Brown as Harris’ CEO in November 2011, the Harris Board appointed Mr. Dattilo as non-executive Chairman to provide independent leadership during the transition and enable Mr. Brown to concentrate on our business operation. A few years later, the Harris Board re-combined the CEO and Chairman positions and designated Mr. Dattilo as Lead Independent Director. This history evidences our Board’s proactive commitment to strong corporate governance and appropriate independent oversight of management. Our Board believes it would be fundamentally wrong, however, to permanently and inflexibly separate or combine the positions of Chairman and CEO and remove our Board’s ability to choose the leadership structure that best serves the needs of L3Harris and our shareholders at a given time based on its unique knowledge of the challenges and opportunities L3Harris faces. Current Board Leadership Our Board believes the following factors are key to providing it with appropriate opportunities for oversight, discussion and evaluation of L3Harris’ decisions and direction:
Our Lead Independent Director currently is Mr. Millard, whom our Board designated on June 29, 2019 and who succeeds Mr. Hay. As noted elsewhere, under the terms of the Merger Agreement and the related employment agreements with Mr. Brown and Mr. Kubasik:
The employment agreements with Mr. Brown and Mr. Kubasik are described in “Compensation Discussion and Analysis – Employment Agreements” beginning on page 52. Our Board believes that its current leadership structure provides independent board leadership and oversight while also benefiting from having Mr. Brown serve as Chairman as well as CEO, and that Mr. Brown has demonstrated the strong leadership and vision necessary to drive our strategies and achieve our objectives while so serving. Our Board believes that Mr. Brown’s in-depth knowledge of our business and its challenges and opportunities, as well as his extensive understanding of our day-to-day operations and his ability to provide insight and direction on important strategic initiatives, make him well-positioned to chair regular Board meetings and to bring key business and stakeholder issues to our Board’s attention.
An important part of the executive sessions of independent directors of our Board and its standing committees is the discussion of results from the annual self-evaluations undertaken by our Board and its standing committees, which are described below. Self-Evaluations by our Board and Committees Our Board and its standing committees undertake annual self-evaluations designed to foster continuous improvement in performance and effectiveness. Our Nominating and Governance Committee facilitates our Board’s annual self-evaluation. Directors are asked to consider areas such as our Board’s role, relations with management, composition and meetings, and committee members are asked to consider areas such as the committee’s role and the responsibilities articulated in its charter, its composition and its operation. Self-evaluations may be undertaken utilizing written questionnaires, facilitated discussions or other means, as determined by our Board or the applicable committee. As noted above, review and discussion of the self-evaluation process and results occurs in executive session of our Board or the applicable committee. Director Independence Standards Our Board assesses the independence of our directors and examines the nature and extent of any relationships between us and our directors, their families and their affiliates. Our Board is guided in this assessment by our Director Independence Standards, available on the Corporate Governance section of our website at www.l3harris.com/corporate-governance. For a director to be considered independent, our Board must affirmatively determine that the director does not have any direct or indirect material relationship with us, other than as a director. When assessing the materiality of a director’s relationship with us, our Board will consider the issue not merely from the standpoint of the director, but also from the standpoint of persons
Pursuant to our Corporate Governance Guidelines, our Board undertook a review of director independence in February 2020, which included a review of the responses of each director to questions regarding his or her commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships, and discussions with the director. Based on the NYSE listing standards and our Director Independence Standards, our Board has affirmatively determined in its business judgment that each director, with the exception of Mr. Brown, our Chairman and CEO, and Mr. Kubasik, our Vice Chairman, President and COO, is independent and has no direct or indirect material relationship with L3Harris, other than as a director, that impairs the director’s independence. In connection with its independence determination, our Board considered that we conduct business with the Massachusetts Institute of Technology, where Mr. Millard is chair of the Massachusetts Institute of Technology Corporation. In no instances did the amount received by us or such other organization in our fiscal transition period exceed the greater of $1 million or 1% of either our or such other organization’s consolidated gross revenues. Mr. Millard did not have any interest in these transactions and was not involved in decisions regarding us with respect to these transactions.
Our Board currently has four standing committees to assist in discharging its responsibilities: Audit, Compensation, Finance, and Nominating and Governance. Our Board also has an Ad Hoc Technology Committee that provides oversight of technology and innovation processes, initiatives and talent. Each committee regularly reports its activities and actions to our full Board, generally at the next Board meeting following the committee meeting. Our Board has adopted a written charter for each committee. The charters of our Audit Committee, Compensation Committee and Nominating and Governance Committee comply with the NYSE corporate governance requirements. There are no NYSE requirements with respect to our Finance Committee charter. Copies of all standing committee charters and our Corporate Governance Guidelines are available on the Corporate Governance section of our website at www.l3harris.com/corporate-governanceand also are available to shareholders upon written request to our Secretary at L3Harris Technologies, Inc., 1025 West NASA Boulevard, Melbourne, Florida 32919. Each standing committee’s principal functions are summarized below, with a more detailed description of purposes and responsibilities contained in its charter (and in our Corporate Governance Guidelines, in the case of our Nominating and Governance Committee).
Key responsibilities
Our Board also has determined that Mr. Kramer and Ms. Bailey each satisfy the “audit committee financial expert” criteria, as that term is defined by Securities and Exchange Commission (“SEC”) rules.
Key responsibilities
Our Board has determined that each member of our Compensation Committee is independent within the meaning of the NYSE listing standards, applicable laws and rules and our Director Independence Standards. Our Compensation Committee has delegated to our CEO the authority to grant equity awards to employees who are not executive officers, subject to an annual maximum number of shares underlying the awards that may be granted, and annually reviews these awards. For additional information regarding the role of our Compensation Committee and our executive compensation process and procedures, including the role of executive officers and compensation consultants in recommending the amount or form of executive compensation, see the “Compensation Discussion and Analysis” section of this proxy statement beginning on page 35.
Key responsibilities
Our Board has determined that each member of our Finance Committee is independent within the meaning of the NYSE listing standards and our Director Independence Standards.
Key responsibilities
Our Board has determined that each member of our Nominating and Governance Committee is independent within the meaning of the NYSE listing standards and our Director Independence Standards. For additional information regarding the role of our Nominating and Governance Committee and our director compensation process and procedures, including the role of compensation consultants relating to director compensation, see the “Director Compensation and Benefits” section of this proxy statement beginning on page 30.
In addition to the four standing committees shown above, our Board also has an Ad Hoc Technology Committee that provides oversight of technology and innovation processes, initiatives and talent.
Meeting Attendance In our fiscal transition period, our Board of Directors held 4 meetings, and its committees held a total of 13 meetings, and the average attendance of directors at those meetings is shown in the table below. Fiscal Transition Period Board and Committee Meetings and Attendance
Each director attended 100% of the fiscal transition period meetings of our Board and its committees on which he or she served. All of the directors taken together attended 100% of such meetings of our Board and its committees on which they served. In addition to meetings at our corporate headquarters, our Board periodically holds meetings at other facilities and locations. We typically schedule a Board meeting in conjunction with our Annual Meeting of Shareholders. In the absence of unavoidable conflict, all Board members are expected to attend each Annual Meeting of Shareholders. All of our Board members attended our 2019 Annual Meeting of Shareholders. | Chair | Members Sallie B. Bailey Peter W. Chiarelli Thomas A. Corcoran |
> | Assisting our Board in overseeing, among other things: the quality and integrity of our financial statements; our compliance with relevant legal and regulatory requirements; our internal control over financial reporting; our independent registered public accounting firm’s qualifications and independence; and the performance of our internal audit function and our independent registered public accounting firm. |
> | Directly appointing, compensating, retaining, terminating and overseeing the work of our independent registered public accounting firm. |
> | Pre-approving all audit services, internal control-related services and non-audit services to be provided by our independent registered public accounting firm. |
> | Reviewing and discussing with our independent registered public accounting firm, our internal audit department and our management any major issues regarding accounting principles and financial statement presentations, the effect of regulatory |
and accounting initiatives or actions, as well as off-balance sheet structures, on our financial statements, and any major issues concerning the adequacy of our internal controls or special steps adopted in light of any material control deficiencies. |
> | Discussing guidelines and policies governing management’s risk assessment process. |
> | Reviewing and discussing our earnings press releases, the types of financial information and earnings guidance we provide, and the types of presentations made by us to analysts and rating agencies. |
> | Reviewing and discussing quarterly and year-end operating results with our independent registered public accounting firm, our internal audit department and our management; reviewing our interim financial statements prior to their inclusion in our Form 10-Q filings; and recommending to our Board the inclusion of our annual financial statements in our Annual Reports on Form 10-K. |
> | is independent within the meaning of NYSE listing standards, applicable laws and rules and our Director Independence Standards: and |
> | satisfies the “financial literacy” requirements of NYSE listing standards and has |
L3HARRIS 2020 PROXY STATEMENT 26 |
Compensation Committee | Chair Lewis Hay III | Members Thomas A. Dattilo Lewis Kramer Rita S. Lane |
> | Reviewing management training, development, organizational structure and succession plans, and recommending to our Board individuals for election as officers, including executive officers. |
> | Overseeing and reviewing our overall compensation philosophy, establishing the compensation and benefits of our executive officers and administering our equity-based compensation plans. |
> | Reviewing and approving corporate goals and objectives relevant to the compensation of our CEO and COO, evaluating our CEO’s and COO’s respective performance against those goals and objectives, and together with all independent directors of our Board, determining and approving annual salary, cash and equity incentives and other executive benefits for our CEO and COO based on this evaluation. |
> | Reviewing and approving the annual salary, cash and equity incentives and other benefits for our other executive officers. |
> | Reviewing and approving employment, separation, severance and change in control agreements and terms and any special arrangements in the event of termination of employment, death or retirement of executive officers. |
> | Determining stock ownership guidelines for our CEO, COO, executive officers and other corporate officers and overseeing compliance with such guidelines. |
> | Overseeing regulatory compliance with applicable executive compensation laws, rules and regulations and with NYSE rules regarding shareholder approval of equity compensation plans. |
> | Reviewing, in consultation with our Nominating and Governance Committee, responses to shareholder proposals regarding matters falling within the responsibilities and duties of our Compensation Committee. |
> | Reviewing management’s assessment of the effect on our business of risks from our compensation policies and practices and periodically discussing such matters with management. |
> | Periodically reviewing our diversity and inclusion efforts. |
> | Reviewing and discussing the “Compensation Discussion and Analysis” section of our proxy statement with management and making a |
> | Retaining and terminating independent executive compensation consultants, including approving such consultants’ fees and other retention terms. |
Finance Committee | Chair Roger B. Fradin | Members Sallie B. Bailey Thomas A. Corcoran Rita S. Lane |
> | Periodically reviewing our financial position, capital structure, working capital, capital transactions, equity investments, debt ratings and other matters relating to our financial condition. |
> | Reviewing our dividend policy, capital asset plan and share repurchase policy and making recommendations to our Board relating to such policies. |
> | Overseeing the financial and investment policies and objectives applicable to our material benefit plans. |
27 L3HARRIS 2020 PROXY STATEMENT |
Nominating and Governance Committee | Chair Lloyd W. Newton | Members Thomas A. Dattilo Lewis Hay III Robert B. Millard |
> | Identifying and recommending qualified individuals for election or re-election to our Board and filling vacancies on our Board. |
> | Adopting a policy and procedures for |
> | Developing, reviewing and recommending to our Board our Corporate Governance Guidelines and |
> | Periodically assessing the |
> | Developing, reviewing and |
> | Reviewing, and |
> | Developing, reviewing and recommending to |
> | Reviewing, and approving or |
> | Reviewing and |
> | Facilitating our Board’s annual self-evaluation |
> | Retaining and |
> | Assisting |
> | Assisting our Board in overseeing our environmental, health and philanthropic activities. |
> | Reviewing and taking appropriate action concerning strategic issues and trends relating to corporate citizenship and responsibility, including social and political trends and public policy issues that may have an impact on our operations, financial performance or public image. |
Ad Hoc Technology Committee | Chair Peter W. Chiarelli | Members Roger B. Fradin Robert B. Millard Lloyd W. Newton |
L3HARRIS 2020 PROXY STATEMENT 28 |
Board / Committee | Number of Meetings Held | Average Meeting Attendance |
Board of Directors | 4 | 100% |
Audit Committee | 5 | 100% |
Compensation Committee | 4 | 100% |
Finance Committee | 1 | 100% |
Nominating and Governance Committee | 2 | 100% |
Ad Hoc Technology Committee | 1 | 100% |
> | Assisting our Board in |
> | Directly appointing, compensating, retaining, terminating and overseeing the work of our independent registered public accounting |
> | Pre-approving |
> | Reviewing and discussing with our independent registered public accounting firm, our internal audit department and our management |
and accounting initiatives or actions, |
> | Discussing guidelines and policies governing |
> | Reviewing and discussing our earnings press releases, |
> | Reviewing and discussing quarterly and year-end operating results with our independent registered public accounting firm, our internal audit department and our |
> | is independent within the meaning of |
> | satisfies the “financial literacy” requirements of |
L3HARRIS 2020 PROXY STATEMENT 26 |
Compensation Committee | Chair Lewis Hay III | Members Thomas A. Dattilo Lewis Kramer Rita S. Lane |
> | Reviewing management training, development, organizational structure and |
> | Overseeing and reviewing our overall compensation philosophy, establishing the compensation and benefits of our |
> | Reviewing and approving corporate goals and objectives relevant to the compensation of |
> | Reviewing and approving the |
> | Reviewing and approving employment, separation, severance and change in control agreements and terms and any special arrangements in the event of termination of employment, death or retirement of executive officers. |
> | Determining stock ownership guidelines for our CEO, COO, executive officers and other corporate officers and overseeing compliance with such guidelines. |
> | Overseeing regulatory compliance with applicable executive compensation laws, rules and |
> | Reviewing, in consultation with our Nominating and Governance Committee, responses to shareholder proposals regarding matters falling within the responsibilities and duties of our Compensation Committee. |
> | Reviewing management’s assessment of the effect on our business of risks from our compensation policies and practices and periodically discussing such matters with management. |
> | Periodically reviewing our diversity and inclusion efforts. |
> | Reviewing and discussing the “Compensation Discussion and Analysis” section of our proxy statement with management |
> | Retaining and terminating independent executive compensation consultants, including approving such consultants’ fees and other retention terms. |
Finance Committee | Chair Roger B. Fradin | Members Sallie B. Bailey Thomas A. Corcoran Rita S. Lane |
> | Periodically reviewing our financial position, capital structure, working capital, capital transactions, equity investments, debt ratings and other matters relating to our financial condition. |
> | Reviewing our dividend policy, capital asset plan and share repurchase policy and making recommendations to our Board relating to such policies. |
> | Overseeing the financial and investment policies and objectives applicable to our material benefit plans. |
27 L3HARRIS 2020 PROXY STATEMENT |
Nominating and Governance Committee | Lloyd W. Newton | Members Thomas A. Dattilo Lewis Hay III Robert B. Millard |
> | Identifying |
> | Adopting a policy and |
> | Developing, reviewing and recommending to our Board our Corporate Governance Guidelines and monitoring trends and evolving practices in corporate |
> | Periodically assessing the adequacy of our corporate governance framework, including our Restated Certificate of Incorporation and By-Laws, and recommending changes to our Board for approval, as |
> | Developing, reviewing and recommending to our Board director compensation and benefit |
> | Reviewing, and making recommendations to our Board concerning, the structure, size, composition and operation of our Board and its |
> | Developing, reviewing and recommending to our Board the meeting schedule |
> | Reviewing, and approving or ratifying, related person transactions in accordance with relevant |
> | Reviewing and making recommendations to our Board regarding shareholder proposals and a process for shareholder communications with our |
> | Facilitating our Board’s annual self-evaluation of its performance and |
> | Retaining |
> | Assisting our Board in overseeing |
> | Assisting our Board in overseeing |
> | Reviewing and taking appropriate action concerning strategic issues and trends relating to corporate citizenship and responsibility, including social and political trends and public policy issues that may have an impact on our operations, financial performance or public image. |
Ad Hoc Technology | Chair | Members Roger B. Fradin Robert B. Millard |
L3HARRIS 2020 PROXY STATEMENT 28 |
Board / Committee | Number of Meetings Held | Average Meeting Attendance |
Board of Directors | 4 | 100% |
Audit Committee | 5 | 100% |
Compensation Committee | 4 | 100% |
Finance Committee | 1 | 100% |
Nominating and Governance Committee | 2 | 100% |
Ad Hoc Technology Committee | 1 | 100% |
29 L3HARRIS 2020 PROXY STATEMENT |
Number of Members | Average Meeting Attendance | |
Board of Directors | 13 | 100% |
Audit Committee | 5 | 100% |
Governance and Corporate Responsibility Committee | 4 | 95% |
Finance Committee | 4 | 100% |
Management Development and Compensation Committee | 5 | 100% |
> | Board |
> | Lead Independent Director: $35,000 annual cash retainer |
> | Chairperson of Audit Committee: $30,000 annual cash retainer |
> | Chairperson of |
L3HARRIS 2020 PROXY STATEMENT 30 |
31 L3HARRIS 2020 PROXY STATEMENT |
Non-Employee Director | Fees Earned or Paid in Cash $(1) | Stock Awards $(2) | Option Awards $(3) | Change in Pension Value and Nonqualified Deferred Compensation Earnings $(4) | All Other Compensation $(5) | Total $ | ||||||||||||||||||
Sallie B. Bailey | $ | 65,000 | $ | 82,394 | $ | 0 | $ | 0 | $ | 0 | $ | 147,394 | ||||||||||||
Peter W. Chiarelli | $ | 75,000 | $ | 82,394 | $ | 0 | $ | 0 | $ | 0 | $ | 157,394 | ||||||||||||
Thomas A. Corcoran | $ | 65,000 | $ | 82,394 | $ | 0 | $ | 0 | $ | 1,000 | $ | 148,394 | ||||||||||||
Thomas A. Dattilo | $ | 65,000 | $ | 82,394 | $ | 0 | $ | 0 | $ | 0 | $ | 147,394 | ||||||||||||
Roger B. Fradin | $ | 75,000 | $ | 82,394 | $ | 0 | $ | 0 | $ | 0 | $ | 157,394 | ||||||||||||
Lewis Hay III | $ | 75,000 | $ | 82,394 | $ | 0 | $ | 0 | $ | 0 | $ | 157,394 | ||||||||||||
Lewis Kramer | $ | 80,000 | $ | 82,394 | $ | 0 | $ | 0 | $ | 0 | $ | 162,394 | ||||||||||||
Rita S. Lane | $ | 65,000 | $ | 82,394 | $ | 0 | $ | 0 | $ | 10,000 | $ | 157,394 | ||||||||||||
Robert B. Millard | $ | 82,500 | $ | 82,394 | $ | 0 | $ | 0 | $ | 0 | $ | 164,894 | ||||||||||||
Lloyd W. Newton | $ | 75,000 | $ | 82,394 | $ | 0 | $ | 0 | $ | 10,000 | $ | 167,394 |
Non-Employee Director | Fees Earned or Paid in Cash $(1) | Stock Awards $(2) | Option Awards $(3) | Change in Pension Value and Nonqualified Deferred Compensation Earnings $(4) | All Other Compensation $(5) | Total $ | ||||||||||||
James F. Albaugh | $ | 111,250 | $ | 140,000 | $ | 0 | $ | 0 | $ | 0 | $ | 251,250 | ||||||
Sallie B. Bailey | $ | 17,500 | $ | 96,638 | $ | 0 | $ | 0 | $ | 0 | $ | 114,138 | ||||||
Peter W. Chiarelli | $ | 118,500 | $ | 140,000 | $ | 0 | $ | 0 | $ | 0 | $ | 258,500 | ||||||
Thomas A. Dattilo | $ | 141,250 | $ | 140,000 | $ | 0 | $ | 0 | $ | 0 | $ | 281,250 | ||||||
Roger B. Fradin | $ | 112,500 | $ | 140,000 | $ | 0 | $ | 0 | $ | 0 | $ | 252,500 | ||||||
Terry D. Growcock | $ | 148,750 | $ | 140,000 | $ | 0 | $ | 0 | $ | 10,000 | $ | 298,750 | ||||||
Lewis Hay III | $ | 132,250 | $ | 140,000 | $ | 0 | $ | 0 | $ | 10,000 | $ | 282,250 | ||||||
Vyomesh I. Joshi | $ | 112,000 | $ | 140,000 | $ | 0 | $ | 0 | $ | 0 | $ | 252,000 | ||||||
Leslie F. Kenne | $ | 112,000 | $ | 140,000 | $ | 0 | $ | 0 | $ | 0 | $ | 252,000 | ||||||
Dr. James C. Stoffel | $ | 127,000 | $ | 140,000 | $ | 0 | $ | 0 | $ | 10,000 | $ | 277,000 | ||||||
Gregory T. Swienton | $ | 143,000 | $ | 140,000 | $ | 0 | $ | 0 | $ | 0 | $ | 283,000 | ||||||
Hansel E. Tookes II | $ | 132,250 | $ | 140,000 | $ | 0 | $ | 0 | $ | 10,000 | $ | 282,250 |
(1) | Reflects total cash compensation earned in our fiscal |
(2) | Reflects the aggregate grant date fair value computed in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation — Stock Compensation (“ASC 718”) |
Under ASC 718, the fair value of the director share unit awards was determined as of the grant date using the closing market price of L3Harris common stock on the grant date. These amounts reflect our accounting for these awards and |
As of January 3, 2020, our |
(3) | Stock options |
(4) | There were no above-market or preferential earnings in |
(5) | As noted above, our non-employee directors |
L3HARRIS 2020 PROXY STATEMENT 32 |
Our Board unanimously recommends voting FOR approval of the compensation of our named executive officers as disclosed in this proxy | |||||
> | Directly align the interests of our executives with those of our shareholders. |
> | Provide competitive compensation and benefits to attract, motivate and retain executives that drive our desired business results. |
> | Ensure that a significant portion of compensation is at-risk and based on company and personal performance so as to motivate achievement of our financial goals and strategic objectives. |
> | Align an executive’s realized pay with his or her performance through above-target compensation for above-target performance and below-target compensation for below-target performance. |
33 L3HARRIS 2020 PROXY STATEMENT |
L3HARRIS 2020 PROXY STATEMENT 34 |
Executive Summary | 35 |
Our Executive Compensation Philosophy and Practices | 39 |
Overview of Our Main Executive Compensation Elements | 44 |
Executive Compensation Decisions for Our Six-Month Fiscal Transition Period | 47 |
Employment Agreements | 52 |
Other Compensation Elements | 55 |
Other Compensation Policies | 57 |
35 L3HARRIS 2020 PROXY STATEMENT |
William M. Brown | Christopher E. Kubasik | Jesus Malave, Jr. | Todd W. Gautier | Edward J. Zoiss |
Chairman and Chief Executive Officer | Vice Chairman, President and Chief Operating Officer | Senior Vice President and Chief Financial Officer | President, Aviation Systems | President, Space and Airborne Systems |
> | Executing seamless integration of L3 and Harris, including achieving at least $500 million in gross cost synergies from the Merger by the end of 2021; |
> | Driving flawless execution and margin expansion through our e3 (excellence everywhere every day) operational excellence program; |
> | Building a new performance culture with a strong bias for action and accountability; |
> | Growing revenue through investments in differentiated technology and innovation; |
> | Reshaping our portfolio to focus on high margin, high growth businesses; and |
> | Maximizing cash flow with shareholder friendly capital deployment. |
(in millions, except per share amounts) | Fiscal Transition Period ($) | Fiscal 2019 ($) | ||||||
Orders (funded) | $ | 9,428 | $ | 7,451 | ||||
Revenue | $ | 9,263 | $ | 6,801 | ||||
Net income | $ | 834 | $ | 949 | ||||
Adjusted EBIT* | $ | 1,601 | $ | 1,345 | ||||
Operating cash flow | $ | 939 | $ | 1,185 | ||||
Adjusted free cash flow* | $ | 1,449 | $ | 1,055 | ||||
Cash used to repurchase shares of our common stock | $ | 1,500 | $ | 200 | ||||
Annualized cash dividend rate per share** | $ | 3.00 | $ | 2.74 |
* | See Appendix A for reconciliations of GAAP to non-GAAP financial measures. |
** | On February 28, 2020, our Board increased our quarterly cash dividend rate from $.75 per share to $.85 per share, for an annualized cash dividend rate of $3.40 per share. |
L3HARRIS 2020 PROXY STATEMENT 36 |
■ | L3Harris Technologies, Inc. |
■ | S&P 500 |
■ | Compensation Comparison Peer Group, Median |
(1) | TSR results reflect reinvestment of dividends. As noted above, the closing of the Merger occurred on June 29, 2019, and thus TSR results reflect L3Harris results for the fiscal transition period and Harris standalone results for prior periods. |
37 L3HARRIS 2020 PROXY STATEMENT |
L3HARRIS 2020 PROXY STATEMENT 38 |
Align with Shareholders’ Interests We believe an executive’s interests are directly aligned with our shareholders’ interests when our compensation programs appropriately balance short-and long-term financial performance, create a “pay for profitable growth” environment, are impacted by our stock price performance and require meaningful ownership of our stock. | Be Competitive at Target Performance Level We believe an executive’s total compensation should be competitive at the target performance level to motivate performance and to attract, retain, develop and reward executives who possess the abilities and skills to build long-term shareholder value. | |||||
Motivate Achievement of Financial Goals and Strategic Objectives We believe an effective way to incentivize an executive to create long-term shareholder value is to make a significant portion of overall compensation dependent on the achievement of our short- and long-term financial goals and strategic objectives and on the value of our stock. | Align Realized Pay with Performance We believe that although an executive’s total compensation should be tied to achievement of financial goals and strategic objectives and should be competitive at the target performance level, above-target performance should be appropriately rewarded and there should be downside risk of below-target compensation if we do not achieve our financial goals and strategic objectives. | |||||
39 L3HARRIS 2020 PROXY STATEMENT |
WHAT WE DO | WHAT WE DON’T DO | |||||
> Place executive compensation decisions | ||||||
directors > Retain an independent executive compensation consulting firm | ||||||
> Periodically review and change composition of compensation comparison peer group, as appropriate | ||||||
> Make a significant portion of each executive’s overall compensation dependent on our performance against pre-determined targets for short- and long-term financial measures | ||||||
> Make a significant portion of each executive’s overall compensation opportunity | ||||||
> Align performance share unit award payouts with our stock price performance | ||||||
> Have meaningful stock ownership guidelines to maintain alignment of executives’ interests with those of our shareholders | ||||||
> Hold annual “say-on-pay” advisory vote and seek input of | ||||||
> Regularly review and evaluate plans for management development, succession and | ||||||
diversity > Pay cash severance | ||||||
> Have a “clawback” policy to recover cash and equity incentive payments from executives |
> Provide for accelerated vesting of equity-based compensation granted after fiscal 2019 only on a “double trigger” basis > Maintain a 12-month minimum vesting period for annual cycle awards of equity-based compensation, except in the case of death, disability or a qualifying termination after a change in control | |||
> Provide excessive perquisites | |||
> Permit repricing or back-dating of options | |||
> Provide excise tax gross-ups under executive change in control severance agreements | |||
> Pay dividend equivalents to executive officers on performance share unit and restricted stock unit awards | |||
> Permit directors, executives | |||
> Permit directors or executives > Provide guaranteed incentive payouts over multi-year periods |
L3HARRIS 2020 PROXY STATEMENT 40 |
41 L3HARRIS 2020 PROXY STATEMENT |
WHAT WE DO PRIOR TO OR EARLY IN A NEW FISCAL YEAR | ||||||
Consider program design changes Determine what changes, if any, should be made to the executive compensation program for the new fiscal year (after receiving input from our CEO, COO and independent compensation consultant, and an assessment of compensation trends and competitive market data). Set target compensation values The process for setting target compensation values includes a review of: > the executive’s three-year compensation history, including base salary level and annual cash incentive and equity awards; > the types and levels of other benefits available to the executive, such as change in control severance arrangements; and > compensation comparison peer group data or broad compensation market data, including surveys. Establish performance measures and targets and individual performance objectives Establish: > short- and long-term financial performance measures and their relative weighting and associated targets for | performance-based, at-risk elements of compensation for the new fiscal year; and > individual performance objectives for each executive and for his or her business unit or organization. These measures, weightings and targets and performance objectives are intended to align with our Board-approved annual operating plan and long-term strategic plan and create a “pay for profitable growth environment” and thereby encourage and reward the creation of sustainable, long-term value for our shareholders. Make equity grants Annual equity award grants to executive officers are made at meetings, the dates for which usually are set one year or more in advance, and annual equity award grants to our other eligible employees typically are made on the same date. We do not time equity grants to take advantage of information, either positive or negative, about us that has not been publicly disclosed. In special circumstances, such as new hires or promotions or for retention or recognition, grants may occur outside of the typical cycle. Under a policy adopted by our Compensation Committee, such grants are made on the first trading day of the month following the hiring, promotion or other event (if this day falls during a “quiet period” under our insider trading policy, then on the first trading day after such period ends). | |||||
WHAT WE DO AFTER THAT FISCAL YEAR ENDS | ||||||
Conduct performance reviews > For our CEO and COO, the independent directors of our Board conduct a performance review, evaluating such executive officer’s achievement of objectives established early in the fiscal year, other accomplishments, overall company performance and such executive officer’s self-evaluation of performance for the fiscal year. This review occurs in executive session, under the leadership of our Compensation Committee Chairperson and without our CEO, COO or other members of management present. > For our other executive officers, our CEO, with input from our COO, provides our Compensation Committee with specific compensation recommendations based | on a review and assessment of each executive officer’s performance, including achievement of objectives established early in the fiscal year for the executive and his or her business unit or organization, contribution to company performance and other accomplishments. Determine payouts Payouts of performance-based, at-risk elements of compensation to executives are determined based on performance reviews relative to pre-determined objectives and formulaic calculations of our financial results for the fiscal year against pre-determined targets, typically after audited financial statements become available approximately two months after the fiscal year end. |
L3HARRIS 2020 PROXY STATEMENT 42 |
Eaton Corporation plc | Lockheed Martin Corporation | Rockwell Automation, Inc. |
Emerson Electric Co. | Motorola Solutions, Inc. | Spirit AeroSystems Holdings, Inc. |
General Dynamics Corporation | Northrop Grumman Corporation | Textron Inc. |
Honeywell International Inc. | Parker Hannifin Corporation | United Technologies Corporation |
Leidos Holdings, Inc. | Raytheon Company |
> | ||
Companies removed: Curtiss-Wright Corporation, | ||
43 L3HARRIS 2020 PROXY STATEMENT |
> | base salary; |
> | annual cash incentive award compensation; and |
> | equity-based long-term incentive compensation. |
> | our performance against specific pre-determined financial performance measures; and |
> | named executive officer performance against pre-determined individual objectives and contribution to our overall results. |
> | the upside potential of above-target payouts if our financial performance is above target; and |
> | the downside risk of below-target payouts if our financial performance is below target. |
L3HARRIS 2020 PROXY STATEMENT 44 |
> | Performance share units. Performance share unit awards motivate our executives to achieve our multi-year financial and operating goals because the number of units ultimately earned depends on how we perform, generally over a three-year performance period, against financial performance measures and their relative weighting and associated targets established early in the first fiscal year of each performance period. As with all forms of equity-based compensation, the value of performance share units also is impacted directly by increases or decreases in our stock price. |
> | Stock options. Stock options motivate our executives to increase shareholder value because the options have value, and compensation can be realized, only to the extent the price of our common stock increases between the grant date and the date of exercise. |
> | Restricted stock units. Restricted stock unit awards primarily facilitate retention and succession planning because they carry restrictions that typically expire only if the executive is still employed with us at the end of a three-year period. |
45 L3HARRIS 2020 PROXY STATEMENT |
L3HARRIS 2020 PROXY STATEMENT 46 |
> | Exercise price equal to the closing price of our common stock on |
> | Vesting in equal installments of one-third each on the first, second and third anniversary of the grant date, subject to the recipient’s continued employment through the applicable vesting date (except in the case of performance stock options granted in our fiscal transition period, which have “cliff” vesting of 100% on June 29, 2022, the third anniversary of the Merger, reflecting alignment with the performance metric for those options); |
> | Expiration 10 years from the grant date; and |
> | “Double trigger” accelerated vesting (for options granted after fiscal 2019; accelerated vesting upon a change in control or other events for options granted through fiscal 2019). |
Fiscal 2019 Annual Base Salary Level | Fiscal Transition Period Annual Base Salary Level | % Change | Reason for Change | |||||||||||||
Mr. Brown | $ | 1,350,000 | $ | 1,450,000 | 7.4 | % | Merit / market (larger company) | |||||||||
Mr. Kubasik | $ | — | $ | 1,450,000 | N/A | N/A | ||||||||||
Mr. Malave | $ | — | $ | 625,000 | N/A | N/A | ||||||||||
Mr. Gautier | $ | — | $ | 600,000 | N/A | N/A | ||||||||||
Mr. Zoiss | $ | 500,000 | $ | 600,000 | 20 | % | Merit / market (larger business) |
47 L3HARRIS 2020 PROXY STATEMENT |
Fiscal Transition Period Cash Incentive Target Value | Fiscal 2019 Cash Incentive Target Value (as % of Base Salary) | Fiscal Transition Period CashIncentive Target Value (as % of Base Salary)* | % Change | Reason for Change | ||||||||||||||||
Mr. Brown | $ | 1,250,000 | 170 | % | 172 | % | 1 | % | Rounding | |||||||||||
Mr. Kubasik | $ | 1,250,000 | — | % | 172 | % | N/A | N/A | ||||||||||||
Mr. Malave | $ | 312,500 | — | % | 100 | % | N/A | N/A | ||||||||||||
Mr. Gautier | $ | 300,000 | — | % | 100 | % | N/A | N/A | ||||||||||||
Mr. Zoiss | $ | 300,000 | 75 | % | 100 | % | 33 | % | Merit / market (larger business) |
* | Calculated based on 100% of full-year value (as opposed to 50% of full-year value) for comparability with fiscal 2019 amount. |
40% EARNINGS BEFORE INTEREST AND TAXES (EBIT) | 40% FREE CASH FLOW (FCF) | 20% REVENUE |
Our ability to generate profits from revenue: can be increased by efficient management and operation of our business, including reducing costs, improving procurement and sourcing practices and achieving operational excellence. | The cash we generate after accounting for capital expenditures: can be increased by accelerating cash receipts, improving payment terms, reducing inventory, increasing prices and reducing expenses. | What we generate from normal business activities: can be increased by improving market share, introducing new products, entering new markets, enhancing execution and pricing effectively. |
L3Harris | Aviation Systems | Space & Airborne Systems | ||||||||||
EBIT | $ | 1,537 | $ | 316 | $ | 441 | ||||||
FCF | $ | 1,328 | 366 | $ | 340 | |||||||
Revenue | $ | 9,229 | 2,123 | $ | 2,329 |
As the graphic shows, varying performance levels were linked to specific resulting payout percentages, with performance below threshold (set at 80% of target performance) resulting in a payout percentage of zero. |
L3HARRIS 2020 PROXY STATEMENT 48 |
Financial Performance Measure | Target1 (in millions) | Result (in millions) | Adjusted Result2 (in millions) | Adjusted Result Relative to Target | Resulting Payout % | Weighted Payout % | ||||||||||||||||||||
L3HARRIS | ||||||||||||||||||||||||||
EBIT | — 40 | % | $ | 1,537 | $ | 1,031 | $ | 1,601 | 104.1 | % | 108.2 | % | 117.4% | |||||||||||||
FCF | — 40 | % | $ | 1,328 | $ | 766 | $ | 1,450 | 109.2 | % | 135.2 | % | ||||||||||||||
Revenue | — 20 | % | $ | 9,229 | $ | 9,263 | $ | 9,240 | 100.1 | % | 100.2 | % |
EBIT | — 40 | % | $ | 316 | $ | 289 | $ | 289 | 91.5 | % | 80.7 | % | 70.7% | |||||||||||||
FCF | — 40 | % | $ | 366 | $ | 288 | $ | 293 | 80.0 | % | 50.0 | % | ||||||||||||||
Revenue | — 20 | % | $ | 2,123 | $ | 2,038 | $ | 2,038 | 96.0 | % | 92.0 | % |
EBIT | — 40 | % | $ | 441 | $ | 442 | $ | 442 | 100.2 | % | 100.4 | % | 140.7% | |||||||||||||
FCF | — 40 | % | $ | 340 | $ | 441 | $ | 441 | 129.6 | % | 200.0 | % | ||||||||||||||
Revenue | — 20 | % | $ | 2,329 | $ | 2,360 | $ | 2,360 | 101.3 | % | 102.6 | % |
(1) | The types of Merger-related adjustments to our adjusted results as described in footnote (2) below were anticipated when targets were approved and thus were reflected in the targets, which makes them comparable. |
(2) | Calculations are based on our financial results calculated in accordance with GAAP, adjusted as permitted under our Annual Incentive Plan in recognition of unusual or nonrecurring events affecting us or our financial statements. These adjustments are made in accordance with pre-established guidelines, including that any adjustment must be objectively measurable under GAAP. |
Annual Incentive Plan Target Granted | Weighted Payout % Under Annual Incentive Plan | Actual Payout (in $) | Actual Payout (as % of Target) | |||||||||||||
Mr. Brown | $ | 1,250,000 | 117.4 | % | $ | 1,467,500 | 117.4 | % | ||||||||
Mr. Kubasik | $ | 1,250,000 | 117.4 | % | $ | 1,467,500 | 117.4 | % | ||||||||
Mr. Malave | $ | 312,500 | 117.4 | % | $ | 367,000 | 117.4 | % | ||||||||
Mr. Gautier | $ | 300,000 | 94.1 | %* | $ | 283,000 | 94.3 | % | ||||||||
Mr. Zoiss | $ | 300,000 | 129.1 | %* | $ | 388,000 | 129.3 | % |
* | Weighted payout percentage reflects 50% of calculated weighted payout percentage for applicable segment (Aviation Systems for Mr. Gautier and Space and Airborne Systems for Mr. Zoiss) and 50% of calculated weighted payout percentage for L3 Harris in accordance with provisions designed to incentivize segment executives to drive both segment and overall company results. |
49 L3HARRIS 2020 PROXY STATEMENT |
> | Restricted stock units in respect of our annual cycle awards of long-term incentive compensation cycle: |
■ | granted only to certain executive officers—those employed with Harris at the time of the Merger who in accordance with Harris’ ordinary course annual compensation cycle practices would have received equity-based awards in August 2019 (and as noted above, granted with target values at 50% of full-year values, reflecting the six-month duration of our fiscal transition period). |
■ | restricted stock units chosen based on their retention value; alignment with outstanding restricted stock units of L3Harris executive officers who were employed with L3 at the time of the Merger granted to them by L3 in early calendar 2019 prior to the Merger in accordance with L3’s ordinary course annual compensation cycle practices and the terms of the Merger Agreement; and concurrence of FW Cook and PM in support of their respective work for the Compensation Committees of L3 and Harris prior to the Merger. |
■ | 3-year cliff vesting. |
> | Special, one-time integration-related awards consisting of performance share units and performance stock options designed to drive successful execution of the integration of L3 and Harris (a strategic objective following the Merger): |
■ | granted to all named executive officers. |
■ | mix of performance share units and performance stock options, chosen based on their value in motivating achievement of synergy targets and other financial performance that our named executive officers can influence directly; their retention value; the terms of the employment arrangements with Messrs. Brown and Kubasik and alignment of incentives for other named executive officers; and concurrence of FW Cook and PM in support of their respective work for the Compensation Committees of L3 and Harris prior to the Merger. |
■ | 3-year cliff vesting. |
Fiscal 2019 Target Value | Fiscal Transition Period Target Value | % Change (on Full-Year Basis)* | Reason for Change (on Full-Year Basis) | ||||||||||
Mr. Brown | $ | 8,800,000 | $ | 5,125,000 | 16 | % | Merit / market (larger company) | ||||||
Mr. Zoiss | $ | 1,050,000 | $ | 800,000 | 52 | % | Merit / market (larger business) |
* | Calculated based on fiscal transition period target value at 100% of full-year value (as opposed to 50% of full-year value) for comparability with fiscal 2019 amount. |
> | These target values were allocated 100% as restricted stock units. |
L3HARRIS 2020 PROXY STATEMENT 50 |
Total Target Value | Performance Share Units Target Value | Performance Stock Options Target Value | ||||||||||
Mr. Brown | $ | 7,500,000 | $ | 2,500,000 | $ | 5,000,000 | ||||||
Mr. Kubasik | $ | 7,500,000 | $ | 2,500,000 | $ | 5,000,000 | ||||||
Mr. Malave | $ | 2,000,000 | $ | 660,000 | $ | 1,340,000 | ||||||
Mr. Gautier | $ | 2,000,000 | $ | 660,000 | $ | 1,340,000 | ||||||
Mr. Zoiss | $ | 2,000,000 | $ | 660,000 | $ | 1,340,000 |
> | 33% as performance share units |
> | 67% as performance stock options |
> | The performance share units are subject to future vesting and adjustment based on an award payout formula that measures, as of December 31, 2021, L3Harris achievement relative to a target level of $500 million for full-year run rate gross synergies from the Merger (with a minimum threshold set at 80% of target performance), with an upward or downward modifier for achievement relative to a target for cumulative earnings per share. Actual payouts for the performance share units will be made in shares of L3Harris common stock and can range from 0% to 400% of the target number of performance share units granted (0% to 200% for full-year run rate gross synergies performance relative to the $500 million target, with a 50% to 200% modifier for cumulative earnings per share performance relative to target). Vesting does not occur until June 29, 2022 and is conditioned on the executive officer’s continuing employment with us through that date (with certain exceptions). |
> | The performance stock options are subject to future vesting based on L3Harris achievement by December 31, 2021 of a threshold level for full-year run rate gross synergies from the Merger. Vesting does not occur until June 29, 2022 and is conditioned on the executive officer’s continuing employment with us through that date (with certain exceptions). |
51 L3HARRIS 2020 PROXY STATEMENT |
> | base salary; |
> | annual cash incentive opportunity under our Annual Incentive Plan; |
> | eligibility for annual grants of equity-based long-term incentives; and |
> | eligibility to participate in our retirement and employee welfare and benefit plans in accordance with their terms. |
> | Mr. Brown will serve as Chairman and Chief Executive Officer of L3Harris through the second anniversary of the closing of the Merger (the “Initial Period”). For the one-year period thereafter (the “Subsequent Period”), he will serve as Chairman of L3Harris. On the third anniversary of the closing of the Merger, he will retire as an officer and employee of L3Harris and will resign as a member of L3Harris’ Board of Directors. |
L3HARRIS 2020 PROXY STATEMENT 52 |
> | During the Initial Period, Mr. Brown’s annual base salary is $1,450,000, his target annual cash bonus award is $2,500,000, the target value of his annual long-term incentive awards is $10,250,000 and in no case will any such compensation element be less than that paid or granted to Mr. Kubasik. (The Board maintains discretion to increase these amounts.) |
> | After the closing of the Merger, L3Harris would grant Mr. Brown a one-time integration-related award composed of performance share units with a target value of $2,500,000 (subject to certain performance-based multipliers) and performance-based non-qualified stock options with a grant date value of $5,000,000 and a ten-year term. Both components of the integration-related award will be subject to three-year cliff vesting and will vest (if at all) subject to continued employment and achievement of performance conditions established by the L3Harris Compensation Committee. (This award was granted in August 2019 as described above in this CD&A; for further information related to the terms and conditions, see the Grants of Plan-Based Awards in Fiscal Transition Period Table on page 65 and related notes.) |
> | If during the Subsequent Period there is a qualifying termination of Mr. Brown (as defined in his Executive Change in Control Severance Agreement entered into with Harris), Mr. Brown would be eligible for the compensation, benefits and other rights provided under that Executive Change in Control Severance Agreement, with such amounts determined using a “3X” multiple. In addition, his outstanding stock options (other than those granted as part of the integration award) and restricted stock units would become fully vested and exercisable and payable (as applicable), and options would remain exercisable for their full remaining term. Outstanding performance share units (other than those granted as part of the integration award) would remain outstanding and eligible to vest based on the attainment of performance goals. Mr. Brown would also receive benefit continuation payments in lieu of providing in-kind medical and prescription drug coverage until he reaches the age of 65 (or, if earlier, the date he becomes eligible to receive comparable benefits from another employer). Additionally, if such qualifying termination occurs in the Initial Period, the integration award would remain outstanding and eligible to vest as to a portion of the award based on the date of termination and attainment of applicable performance goals. If such qualifying termination occurs during the Subsequent Period, the integration award would remain outstanding and eligible to vest based on the greater of target performance and the actual attainment of applicable performance goals. The integration award options that vest would remain exercisable for their full term. |
> | Upon his retirement at the end of the Subsequent Period, Mr. Brown will not receive any cash severance, but his equity awards (other than those comprising the integration award) will be treated as described above regarding a qualifying termination, and his integration award will pay or vest, as applicable, based on actual performance. In addition, Mr. Brown will receive the benefit continuation payments described above regarding a qualifying termination, and for 12 months following his retirement, have access to office space and administrative support provided by L3Harris. |
> | Except as expressly modified by the Brown Letter Agreement, the terms of Mr. Brown’s pre-merger Executive Change in Control Severance Agreement with Harris and his 2011 employment agreement with Harris remain in full force and effect, including the restrictive covenants and confidentiality provisions of those agreements. |
> | Mr. Kubasik will serve as Vice Chairman, President and Chief Operating Officer of L3Harris through the Initial Period. Upon the commencement of the Subsequent Period (or, if earlier, the date that Mr. Brown ceases to serve as the Chief Executive Officer of L3Harris), Mr. Kubasik will become the Chief Executive Officer of L3Harris. On the third anniversary of the closing of the Merger, Mr. Kubasik will also become Chairman of L3Harris. |
> | During the Initial Period, Mr. Kubasik’s annual base salary is $1,450,000, his target annual cash bonus award is $2,500,000, the target value of his annual long-term incentive awards is $10,250,000 and in no case will any such compensation element be less than that paid or granted to Mr. Brown. (The Board maintains discretion to increase these amounts.) |
> | After the closing of the Merger, L3Harris would grant Mr. Kubasik a one-time integration-related award composed of performance share units with a target value of $2,500,000 (subject to certain performance-based multipliers) and performance-based non-qualified stock options with a grant date value of $5,000,000 and a ten-year term. Both components of the integration-related award will be subject to three-year cliff vesting and will vest (if at all) subject to continued employment and achievement of performance conditions established by the L3Harris Compensation Committee. (This award was granted in August 2019 as described above in this CD&A; for further information related to the terms and conditions, see the Grants of Plan-Based Awards in Fiscal Transition Period Table on page 65 and related notes.) |
53 L3HARRIS 2020 PROXY STATEMENT |
> | In the event that L3Harris terminates him without “cause” or he terminates his employment for “good reason,” Mr. Kubasik’s outstanding stock options (other than those granted as part of the integration award) and restricted stock units would become fully vested and exercisable and payable (as applicable), and options would remain exercisable for their full remaining term. Outstanding performance share units (other than those granted as part of the integration award) would remain outstanding and eligible to vest based on the attainment of performance goals. Additionally, if such qualifying termination occurs in the Initial Period, the integration award would remain outstanding and eligible to vest as to a portion of the award based on the date of termination and attainment of applicable performance goals. If such qualifying termination occurs during the Subsequent Period, the integration award would remain outstanding and eligible to vest based on the greater of target performance and the actual attainment of applicable performance goals. The integration award options that vest would remain exercisable for their full term. |
> | The protection period under which Mr. Kubasik will be covered by L3’s Amended and Restated Change in Control Severance Plan (the “L3 CIC Plan”) was extended until the fourth anniversary of the closing of the Merger, in the event of his termination without “cause” or for “good reason” (each as defined in the L3 CIC Plan and modified in the Kubasik Letter Agreement). |
> | The definition of “cause” under the L3 CIC Plan as applicable to Mr. Kubasik was modified to include an act of misconduct in violation of certain L3Harris policies or federal or applicable state law regarding discrimination or sexual harassment of subordinate employees that creates a material risk of meaningful harm to L3Harris. |
> | The definition of “good reason” under the L3 CIC Plan as applicable to Mr. Kubasik was modified to include the following events: failure to promote him to the contemplated new roles upon and after the closing of the Merger; failure of Mr. Brown to cease providing services to L3Harris on or before the third anniversary of the closing of the Merger; or L3Harris’ material breach of the Kubasik Letter Agreement. Mr. Kubasik also agreed to a limited waiver of his “good reason” rights related to his contemplated relocation to Florida, certain across-the-board changes in employee benefits and his transition to the role of Vice Chairman, President and Chief Operating Officer at the closing of the Merger. |
> | Mr. Kubasik is eligible to receive an additional payment of up to $1,250,000 for relocation-related expenses, with gross up of amounts taxed as ordinary income. |
> | Certain restrictive covenants and confidentiality provisions of the L3 CIC Plan apply as a condition to severance benefits under the L3 CIC Plan and are extended to 24 months following termination of employment. |
> | base salary at the annual rate of $625,000; |
> | eligibility to receive an annual cash incentive under our Annual Incentive Plan with a target value of 100% of his base salary (with annual cash incentive payment for six-month fiscal transition period equal to 50% of annual target); |
> | commencing with calendar year 2020, eligibility to receive annual equity awards granted under our Equity Incentive Plan with a target value of $2,000,000; |
> | a one-time restricted stock unit award under our Equity Incentive Plan with a grant date value of $950,000 and subject to ratable vesting over three years. (This award was granted in August 2019; for further information related to the terms and conditions, see the Grants of Plan-Based Awards in Fiscal Transition Period Table on page 65 and related notes.); |
> | a one-time momentum equity award under our Equity Incentive Plan consisting of performance share units with a target value of $660,000 and performance-based stock options with a grant date value of $1,340,000 and a term of ten years, both subject to 3-year cliff vesting based on achievement relative to a specified level for full-year run rate gross synergies from the Merger. (This award was granted in August 2019 and is summarized in the discussion of the special, one-time integration-related equity-based awards we granted in our fiscal transition period; for further information related to the terms and conditions, see the Grants of Plan-Based Awards in Fiscal Transition Period Table on page 65 and related notes.); |
> | a one-time cash sign-on bonus of $200,000; |
> | eligibility to participate in our retirement and employee health and welfare plans; and |
> | certain relocation benefits, including a $10,000 “disruption payment” to cover miscellaneous expenses related to his relocation. |
L3HARRIS 2020 PROXY STATEMENT 54 |
FY17 Results | FY18 Results | Change | ||||||||||
(in millions, except per share amounts) | ||||||||||||
Orders | $ | 6,026 | $ | 7,429 | 23 | % | ||||||
Revenue | $ | 5,900 | $ | 6,182 | 5 | % | ||||||
Operating income | $ | 1,073 | $ | 1,122 | 5 | % | ||||||
Non-GAAP operating income* | $ | 1,131 | $ | 1,186 | 5 | % | ||||||
Income from continuing operations per diluted common share | $ | 5.12 | $ | 5.94 | 16 | % | ||||||
Non-GAAP income from continuing operations per diluted common share* | $ | 5.53 | $ | 6.50 | 18 | % | ||||||
Operating cash flow | $ | 569 | $ | 751 | $ | 182 | ||||||
Adjusted free cash flow* | $ | 850 | $ | 915 | $ | 65 | ||||||
Cash used to retire debt | $ | 575 | $ | 555 | n/m | |||||||
Cash used to repurchase shares of our common stock | $ | 710 | $ | 272 | n/m | |||||||
Annualized cash dividend rate per share** | $ | 2.12 | $ | 2.28 | 8 | % | ||||||
Cash used to pay dividends | $ | 262 | $ | 272 | n/m | |||||||
Cash used to make voluntary contributions to qualified defined benefit pension plans | $ | 400 | $ | 300 | n/m | |||||||
Company-sponsored research and development | $ | 310 | $ | 311 | — |
Fiscal 2017 Base Salary Rate | Fiscal 2018 Base Salary Rate | % Increase | Reason for Increase | |||||||||
Mr. Brown | $ | 1,250,000 | $ | 1,300,000 | 4.0 | % | Merit | |||||
Mr. Ghai | $ | 500,000 | $ | 550,000 | 10.0 | % | Merit and market adjustment | |||||
Mr. Fox | $ | 540,000 | $ | 555,000 | 2.8 | % | Merit | |||||
Mr. Mehnert | $ | 540,000 | $ | 555,000 | 2.8 | % | Merit | |||||
Mr. Mikuen | $ | 525,000 | $ | 550,000 | 4.8 | % | Merit |
Financial Performance Measures and Weighting | Targets (in millions) | Payout % for Financial Results as % of Each Measure’s Associated Target | ||||||||||||||||||||
Below 80% | 80% (Threshold) | 95% | 100% (Target) | 105% | 120% and Above | |||||||||||||||||
Operating Income – 40% | $ | 1,168 | 0 | % | 50 | % | 90 | % | 100 | % | 110 | % | 200 | % | ||||||||
Free Cash Flow – 30% | $ | 850 | 0 | % | 50 | % | 90 | % | 100 | % | 110 | % | 200 | % | ||||||||
Revenue – 30% | $ | 6,114 | 0 | % | 50 | % | 90 | % | 100 | % | 110 | % | 200 | % |
Fiscal 2017 Cash Incentive Target as % of Base Salary Rate | Fiscal 2018 Cash Incentive Target as % of Base Salary Rate | Fiscal 2018 Cash Incentive Target in Dollars | % Change | Reason for Change | ||||||||||
Mr. Brown | 168 | % | 169 | % | $ | 2,200,000 | 1 | % | rounding | |||||
Mr. Ghai | 75 | % | 75 | % | $ | 412,500 | 0 | % | — | |||||
Mr. Fox | 75 | % | 75 | % | $ | 416,250 | 0 | % | — | |||||
Mr. Mehnert | 75 | % | 75 | % | $ | 416,250 | 0 | % | — | |||||
Mr. Mikuen | 70 | % | 70 | % | $ | 385,000 | 0 | % | — |
Financial Performance Measures and Weighting | Targets (in millions) | Reported Financial Results (in millions) | Adjusted Financial Results* (in millions) | Adjusted Financial Results as % of Target | Resulting Payout % For Adjusted Financial Results | Weighted Adjusted Financial Measure Achievement Under Annual Incentive Plan (%) | |||||||||||||||
Operating Income – 40% | $ | 1,168 | $ | 1,122 | $ | 1,136 | 97.3 | % | 94.6 | % | } | 99.6% | |||||||||
Free Cash Flow – 30% | $ | 850 | $ | 615 | $ | 865 | 101.8 | % | 103.6 | % | |||||||||||
Revenue – 30% | $ | 6,114 | $ | 6,182 | $ | 6,182 | 101.1 | % | 102.2 | % |
Participant’s Annual Incentive Plan Target in Dollars | Weighted Adjusted Financial Measure Achievement Under Annual Incentive Plan | Participant’s Actual Annual Incentive Plan Payout | Participant’s Actual Payout as % of Target | |||||||||
Mr. Brown | $ | 2,200,000 | 99.6% | $ | 2,640,000 | 120.0% | ||||||
Mr. Ghai | $ | 412,500 | 99.6% | $ | 500,000 | 121.2% | ||||||
Mr. Fox | $ | 416,250 | 99.6% | $ | 414,585 | 99.6% | ||||||
Mr. Mehnert | $ | 416,250 | 99.6% | $ | 414,585 | 99.6% | ||||||
Mr. Mikuen | $ | 385,000 | 99.6% | $ | 425,000 | 110.4% |
Fiscal 2017 Equity Compensation Target Value in Dollars | Fiscal 2018 Equity Compensation Target Value in Dollars | % Change | Reason for Change | |||||||||
Mr. Brown | $ | 7,650,000 | $ | 8,200,000 | 7.2 | % | Merit | |||||
Mr. Ghai | $ | 1,150,000 | $ | 1,300,000 | 13 | % | Merit and market adjustment | |||||
Mr. Fox | $ | 1,150,000 | $ | 1,150,000 | 0 | % | — | |||||
Mr. Mehnert | $ | 1,150,000 | $ | 1,150,000 | 0 | % | — | |||||
Mr. Mikuen | $ | 1,000,000 | $ | 1,100,000 | 10 | % | Merit |
Financial Performance Measures and Weighting | Targets | Payout % for Financial Results as % of Performance Measure’s Associated Target | Potential Relative TSR Payout Adjustment | |||||||||||||||||||||
Below80% | 80% (Threshold) | 85% | 90% | 95% | 100% (Target) | 105% | 110% | 115% | 120% and above | |||||||||||||||
EPS CAGR – 50% | 10.0% | 0% | 50% | 63% | 75% | 88% | 100% | 113% | 125% | 138% | 150% | +/- up to 33% | ||||||||||||
Average Annual ROIC – 50% | 11.5% | 0% | 50% | 63% | 75% | 88% | 100% | 113% | 125% | 138% | 150% | +/- up to 33% |
Relative TSR Payout Adjustment | ||||||||||
Quintile | Top | 2nd | 3rd | 4th | Bottom | |||||
Payout Adjustment | +33% | +15% | 0% | -15% | -33% |
Financial Performance Measures and Weighting | Original Targets | Adjusted Targets* | Reported Financial Results | Adjusted Financial Results** | Adjusted Financial Results as % of Adjusted Target | Resulting Payout % | Relative TSR Payout Adjustments*** | Relative TSR Adjusted Payout % | ||||||||
EPS CAGR – 50% | 10.0% | 10.0% | 30.5% | 8.7% | 87.0% | 67.5% | +33.0% | 89.8% | ||||||||
Average Annual ROIC – 50% | 11.5% | 12.4% | 11.6% | 11.7% | 94.4% | 85.9% | +33.0% | 114.2% | ||||||||
Approved Weighted Adjusted Payout % | 102.0% |
Performance Share Units Granted | Weighted Relative TSR Adjusted Payout % | Shares Paid Out | ||||
Mr. Brown | 44,140 | 102.0% | 45,023 | |||
Mr. Ghai | 2,210 | 102.0% | 2,254 | |||
Mr. Fox | 7,255 | 102.0% | 7,400 | |||
Mr. Mehnert | 7,255 | 102.0% | 7,400 | |||
Mr. Mikuen | 6,310 | 102.0% | 6,436 |
Performance Stock Options at Target | Performance Stock Options Vested at Maximum | |||
Mr. Ghai | 11,550 | 23,100 | ||
Mr. Fox | 28,860 | 57,720 | ||
Mr. Mikuen | 14,430 | 28,860 |
L3HARRIS 2020 PROXY STATEMENT 56 |
57 L3HARRIS 2020 PROXY STATEMENT |
CEO | 6x | |||||
President and COO | 6x | |||||
Other Senior corporate officers & segment Presidents (including the other named executive officers) | 3x | |||||
Other corporate officers | 2x |
L3HARRIS 2020 PROXY STATEMENT 58 |
59 L3HARRIS 2020 PROXY STATEMENT |
L3HARRIS 2020 PROXY STATEMENT 60 |
> | An emphasis on long-term compensation that utilizes a balanced portfolio of compensation elements, such as cash and equity, and delivers rewards based on sustained performance over time; |
> | The Compensation Committee’s power to set short-and long-term performance objectives for incentive plans, which appropriately correlated with shareholder value and which use multiple financial metrics to measure performance; |
> | Performance share unit awards that generally are tied to financial performance measures spanning overlapping three-year performance periods, creating a focus on driving sustained performance over multiple performance periods, which mitigates the potential for executives to take excessive risks to drive one-time, short-term performance spikes in any one performance period; |
> | The use of equity awards with vesting periods to foster retention and align executives’ interests with those of shareholders; |
> | Capping potential payouts under both short-and long-term incentive plans to eliminate the potential for any windfalls; |
> | A “clawback” policy that allows recovery of all or a portion of any performance-based compensation if financial statements are restated as a result of errors, omissions or fraud; |
> | Share ownership guidelines; and |
> | A broad array of competitive benefit programs that offer employees and executives an opportunity to build meaningful retirement assets and benefit protections throughout their careers. |
Our compensation strategy, plans, programs, policies and practices did not materially change from those of Harris prior to the Merger, and we did not materially change them in our fiscal transition period. As a result, both management and our Compensation Committee have again concluded that our compensation strategies, plans, programs, policies and practices are not reasonably likely to have a material adverse effect on us. |
61 L3HARRIS 2020 PROXY STATEMENT |
Name and Principal Position | Year | Salary $(1) | Bonus $ | Stock Awards $(2) | Option Awards $(3) | Non-Equity Incentive Plan Compensation $(4) | Change in Pension Value and Nonqualified Deferred Compensation Earnings $ | All Other Compensation $(5) | Total $ | ||||||||||||||||
William M. Brown Chairman, President and Chief Executive Officer | 2018 | $ | 1,287,500 | $ | 0 | $ | 6,974,118 | $ | 2,201,394 | $ | 2,640,000 | $ | 0 | $ | 913,101 | $ | 14,016,113 | ||||||||
2017 | $ | 1,237,499 | $ | 0 | $ | 4,492,551 | $ | 4,198,276 | $ | 2,100,000 | $ | 0 | $ | 447,824 | $ | 12,476,150 | |||||||||
2016 | $ | 1,172,913 | $ | 0 | $ | 5,108,799 | $ | 4,945,794 | $ | 2,000,000 | $ | 0 | $ | 651,384 | $ | 13,878,890 | |||||||||
Rahul Ghai (6) Senior Vice President and Chief Financial Officer | 2018 | $ | 537,499 | $ | 0 | $ | 1,105,791 | $ | 349,014 | $ | 500,000 | $ | 0 | $ | 72,075 | $ | 2,564,379 | ||||||||
2017 | $ | 487,500 | $ | 0 | $ | 675,798 | $ | 631,220 | $ | 400,000 | $ | 0 | $ | 217,199 | $ | 2,411,717 | |||||||||
2016 | $ | 376,238 | $ | 0 | $ | 174,899 | $ | 163,343 | $ | 300,000 | $ | 0 | $ | 50,132 | $ | 1,064,612 | |||||||||
Sheldon J. Fox Senior Vice President, Operations and Information Technology | 2018 | $ | 551,250 | $ | 0 | $ | 978,156 | $ | 308,733 | $ | 414,585 | $ | 0 | $ | 103,788 | $ | 2,356,512 | ||||||||
2017 | $ | 536,250 | $ | 0 | $ | 675,798 | $ | 631,220 | $ | 365,000 | $ | 0 | $ | 108,203 | $ | 2,316,471 | |||||||||
2016 | $ | 521,346 | $ | 0 | $ | 574,161 | $ | 536,663 | $ | 375,000 | $ | 0 | $ | 152,520 | $ | 2,159,690 | |||||||||
Dana A. Mehnert Senior Vice President, Chief Global Business Development Officer | 2018 | $ | 551,251 | $ | 0 | $ | 978,156 | $ | 308,733 | $ | 414,585 | $ | 0 | $ | 103,788 | $ | 2,356,513 | ||||||||
2017 | $ | 536,250 | $ | 0 | $ | 675,798 | $ | 631,220 | $ | 365,000 | $ | 0 | $ | 101,435 | $ | 2,309,703 | |||||||||
2016 | $ | 527,770 | $ | 0 | $ | 574,161 | $ | 536,663 | $ | 375,000 | $ | 0 | $ | 111,477 | $ | 2,125,071 | |||||||||
Scott T. Mikuen Senior Vice President, General Counsel and Secretary | 2018 | $ | 543,750 | $ | 0 | $ | 935,737 | $ | 295,312 | $ | 425,000 | $ | 0 | $ | 98,000 | $ | 2,297,799 | ||||||||
2017 | $ | 518,750 | $ | 0 | $ | 587,672 | $ | 548,863 | $ | 380,000 | $ | 0 | $ | 98,195 | $ | 2,133,480 | |||||||||
2016 | $ | 495,683 | $ | 0 | $ | 499,373 | $ | 466,587 | $ | 340,000 | $ | 0 | $ | 130,627 | $ | 1,932,270 |
Name and Principal Position* | Year | Salary $(1) | Bonus $(2) | Stock Awards $(3) | Option Awards $(4) | Non-Equity Incentive Plan Compensation $(5) | Change in Pension Value and Nonqualified Deferred Compensation Earnings $(6) | All Other Compensation $(7) | Total $ | ||||||||||||||||||
William M. Brown | Fiscal Transition | ||||||||||||||||||||||||||
Chairman and | Period | $ | 752,885 | $0 | $ | 7,625,336 | $ | 5,000,034 | $ | 1,467,500 | $0 | $ | 899,875 | $ | 15,745,630 | ||||||||||||
Chief Executive | 2019 | $ | 1,338,462 | $0 | $ | 7,491,095 | $ | 2,269,511 | $ | 3,735,000 | $0 | $ | 889,464 | $ | 15,723,532 | ||||||||||||
Officer | 2018 | $ | 1,287,500 | $0 | $ | 6,974,118 | $ | 2,201,394 | $ | 2,640,000 | $0 | $ | 913,101 | $ | 14,016,113 | ||||||||||||
2017 | $ | 1,237,499 | $0 | $ | 4,492,551 | $ | 4,198,276 | $ | 2,100,000 | $0 | $ | 447,824 | $ | 12,476,150 | |||||||||||||
Christopher E. | Fiscal Transition | $ | 752,885 | $0 | $ | 2,500,194 | $ | 5,000,034 | $ | 1,467,500 | $0 | $ | 5,454,550 | $ | 15,175,163 | ||||||||||||
Kubasik(8) | Period | ||||||||||||||||||||||||||
Vice Chairman, | |||||||||||||||||||||||||||
President and Chief | |||||||||||||||||||||||||||
Operating Officer | |||||||||||||||||||||||||||
Jesus Malave, Jr.(9) | Fiscal Transition | $ | 324,519 | $200,000 | $ | 1,610,121 | $ | 1,340,037 | $ | 367,000 | $0 | $ | 140,008 | $ | 3,981,685 | ||||||||||||
Senior Vice President | Period | ||||||||||||||||||||||||||
and Chief Financial | |||||||||||||||||||||||||||
Officer | |||||||||||||||||||||||||||
Todd W. Gautier(10) | Fiscal Transition | $ | 311,538 | $0 | $ | 660,027 | $ | 1,340,037 | $ | 283,000 | $ 174,750 | $ | 2,736,271 | $ | 5,505,623 | ||||||||||||
President, | Period | ||||||||||||||||||||||||||
Aviation Systems | |||||||||||||||||||||||||||
Edward J. Zoiss(11) | Fiscal Transition | $ | 311,538 | $0 | $ | 1,460,171 | $ | 1,340,037 | $ | 388,000 | $0 | $ | 116,455 | $ | 3,616,201 | ||||||||||||
President, | Period | ||||||||||||||||||||||||||
Space and Airborne | |||||||||||||||||||||||||||
Systems | |||||||||||||||||||||||||||
(1) | The “Salary” column reflects the base salary amount (not base salary |
(2) | The amount shown for Mr. Malave for the fiscal transition period represents a one-time cash sign-on bonus paid under the terms of his employment letter agreement. |
L3HARRIS 2020 PROXY STATEMENT 62 |
(3) | The “Stock Awards” column reflects the aggregate grant date fair value computed in accordance with ASC 718 for the fiscal transition period or respective fiscal year with respect to performance share units and restricted stock units granted to our named executive officers. Amounts reflect our accounting for these awards and do not necessarily correspond to the actual values that may be realized by our named executive officers. The grant date fair values of |
As noted, the grant date fair values of performance share units granted prior to our fiscal transition period reflect discounts (because dividends are not payable on performance share units during the performance period), which were approximately: (a) $8.54 per share for fiscal 2019 performance share units granted in August 2018; (b) $7.18 per share for fiscal 2018 performance share units granted in August 2017; and (c) $6.68 per share for fiscal 2017 performance share units granted in August 2016. For all grants of performance share units, each performance share unit earned at the end of the applicable multi-year performance period and paid out receives accrued dividend equivalents in an amount equal to the cash dividends or other distributions, if any, which are paid with respect to an issued and outstanding share of our common stock during the performance period. Payment of such dividend equivalents is made in cash at the time of the actual payout of performance share units ultimately earned as determined after completion of the performance period. Dividends declared with respect to issued and outstanding shares of our common stock were $1.50, $2.74, $2.28 and $2.12 per share in our fiscal transition period and fiscal 2019, 2018 and 2017, respectively. The dollar value of dividend equivalents on vested performance share units is included in the “All Other Compensation” column. |
The grant date fair values of performance share units were computed based on the probable outcome of the performance conditions as of the grant date of such awards, which was at target. The respective grant date fair values of the performance share units granted in our fiscal transition period and fiscal 2019, 2018 or 2017, as applicable, assuming at such grant date the maximum payment (400% of target for the special, one-time integration-related performance share units granted in our fiscal transition period and 200% of target for performance share units granted prior to our fiscal transition period), would have been as follows: Mr. Brown — $10,000,776, $10,218,486, $9,541,398 and $8,985,102; Mr. Kubasik — $10,000,776; Mr. Malave — $2,640,108; Mr. Gautier — $2,640,108; and Mr. Zoiss — $2,640,108. See the Grants of Plan-Based Awards in Fiscal Transition Period Table on page 65 and related notes and the “Compensation Discussion and Analysis” section of this proxy statement for information with respect to equity awards granted in our fiscal transition period and the Outstanding Equity Awards at Fiscal Transition Period End Table on page 67 and related notes for information with respect to equity awards granted prior to our fiscal transition period. |
The “Option Awards” column reflects the aggregate grant date fair value computed in accordance with ASC 718 for the fiscal transition period or respective fiscal year with respect to performance stock options and stock options granted to our named executive officers. Amounts reflect our accounting for these option grants and do not necessarily correspond to the actual values that may be realized by our named executive officers. The grant date fair values of these option grants were calculated |
The “Non-Equity Incentive Plan Compensation” column reflects payouts to our named executive officers of cash amounts earned under our Annual Incentive |
(6) | As described in the “Nonqualified Deferred Compensation” section beginning on page 70 of this proxy statement, Mr. Gautier participated in the legacy L3 Supplemental Executive Retirement Plan, a non-qualified, unfunded, defined benefit pension plan. The amount shown for Mr. Gautier represents the change between the actuarial present value of Mr. Gautier’s total accumulated pension benefit thereunder from June 29, 2019 to December 31, 2019. The legacy L3 Supplemental Executive Retirement Plan was combined with the ERSP effective December 31, 2019, and there will be no further participation in the legacy L3 Supplemental Executive Retirement Plan by Mr. Gautier or any of our other employees after December 31, 2019. |
The following table describes the components of the “All Other Compensation” column for our fiscal |
Insurance Premiums | Company Contributions to RSP or L3 401(k) Plan | Company Credits to ERSP/SSP-II (nonqualified) | Perquisites and Other Personal Benefits | Dividend Equivalents on Vested Stock Awards | Merger- Related Accelerated Payouts | |||||||||||||||||||||||
Name | (a) | (b) | (c) | (d) | (e) | (f) | Total | |||||||||||||||||||||
William M. Brown | $ | 2,256 | $ | 3,346 | $ | 267,485 | $ | 42,238 | $ | 584,550 | $ | — | $ | 899,875 | ||||||||||||||
Christopher E. Kubasik | $ | 13,176 | $ | 3,346 | $ | 87,731 | $ | 293,407 | $ | 275,890 | $ | 4,781,000 | $ | 5,454,550 | ||||||||||||||
Jesus Malave, Jr. | $ | 868 | $ | — | $ | — | $ | 139,140 | $ | — | $ | — | $ | 140,008 | ||||||||||||||
Todd W. Gautier | $ | 11,346 | $ | 1,385 | $ | 46,353 | $ | 8,840 | $ | 51,976 | $ | 2,616,371 | $ | 2,736,271 | ||||||||||||||
Edward J. Zoiss | $ | 833 | $ | 1,385 | $ | 50,885 | $ | — | $ | 63,352 | $ | — | $ | 116,455 |
63 L3HARRIS 2020 PROXY STATEMENT |
Name | Insurance Premiums (a) | Company Contributions to Retirement Plan (b) | Company Credits to SERP (nonqualified) (c) | Perquisites and Other Personal Benefits (d) | Dividend Equivalents on Vested Stock Awards (e) | Total | ||||||||||||
William M. Brown | $ | 4,914 | $ | 9,500 | $ | 193,692 | $ | 126,288 | $ | 578,707 | $ | 913,101 | ||||||
Rahul Ghai | $ | 1,456 | $ | 13,962 | $ | 42,231 | $ | — | $ | 14,426 | $ | 72,075 | ||||||
Sheldon J. Fox | $ | 1,470 | $ | 9,535 | $ | 45,423 | $ | — | $ | 47,360 | $ | 103,788 | ||||||
Dana A. Mehnert | $ | 1,470 | $ | 9,535 | $ | 45,423 | $ | — | $ | 47,360 | $ | 103,788 | ||||||
Scott T. Mikuen | $ | 1,414 | $ | 9,615 | $ | 45,781 | $ | — | $ | 41,190 | $ | 98,000 |
(a) | Reflects the dollar value of premiums paid by us |
(b) | Reflects our contributions credited to accounts of our named executive officers under our |
(c) | Reflects our credits to accounts of our named executive officers under our |
(d) | The amount for Mr. Brown was for personal use of |
The incremental cost to us of personal use of |
As noted above, we also offer a supplemental long-term disability benefit to employees with eligible compensation in excess of $400,000 and offer our executives the option to participate in a group excess liability umbrella policy. No premiums are payable by us for these benefits and there is no incremental cost reflected for our named executive officers. |
Certain Company-related events may include meetings and receptions with our customers, executive management or Board attended by the named executive officer and a spouse or guest. If the Company-owned aircraft is used and a spouse or guest travels with the named executive officer, no amounts are included because there is no incremental cost to us. We also have Company-purchased tickets to athletic or other events generally for business purposes. In limited instances, executives, including our named executive officers, may have personal use of Company-purchased event tickets. No amounts are included because there is no incremental cost to us of such personal use. For a discussion of perquisites and other personal benefits provided to our named executive officers, see the “Compensation Discussion and Analysis” section of this proxy statement. |
(e) | Reflects the dollar value of dividend equivalents paid in cash to our named executive officers with respect to performance share units |
(f) | Reflects payouts to Messrs. Kubasik and Gautier of cash amounts under legacy L3 multi-year performance cash and annual cash incentive plans as a result of the change in control due to the Merger, based on payout determinations made shortly before the Merger by the compensation committee of the board of directors of L3 after consultation with Harris. For Mr. Gautier, also reflects his cash distribution under the legacy L3 Supplemental Executive Retirement Plan, a non-qualified, unfunded, defined benefit pension plan, as a result of the change in control due to the Merger. |
Mr. |
(9) | Mr. Malave joined L3Harris on June 29, 2019 and was not a named |
(10) | Mr. Gautier was employed with L3 at the time of the Merger and |
(11) | Mr. Zoiss was not a named executive officer of L3Harris prior to the fiscal transition period. |
Name | ||||
Salary and Bonus as Fiscal | ||||
William M. Brown | 4.8 | % | ||
Christopher E. Kubasik | 5.0 | % | ||
Jesus Malave, Jr. | 13.2 | % | ||
Todd W. Gautier | 5.7 | % | ||
Edward J. Zoiss | 8.6 | % |
L3HARRIS 2020 PROXY STATEMENT 64 |
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | All Other |
| Exercise | Grant Date | ||||||||||||||||||||||||||||||
Name/Type of Award | Grant Date | Approval Date | Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | Stock or Units (#)(3) | Options (#) | Awards ($/Share)(4) | Awards ($)(5) | |||||||||||||||||||||||
William M. Brown | |||||||||||||||||||||||||||||||||||
Annual Incentive Plan | — | — | $ | 125,000 | $ | 1,250,000 | $ | 2,500,000 | — | — | — | — | — | — | — | ||||||||||||||||||||
Restricted stock units | 8/1/19 | 7/23/19 | — | — | — | 25,019 | — | — | $ | 5,125,142 | |||||||||||||||||||||||||
Performance share units | 8/1/19 | 7/23/19 | 3,051 | 12,205 | 48,820 | — | — | — | $ | 2,500,194 | |||||||||||||||||||||||||
Performance stock options | 8/1/19 | 7/23/19 | — | 129,501 | — | — | — | $ | 204.85 | $ | 5,000,034 | ||||||||||||||||||||||||
Christopher E. Kubasik | |||||||||||||||||||||||||||||||||||
Annual Incentive Plan | — | — | $ | 125,000 | $ | 1,250,000 | $ | 2,500,000 | — | — | — | — | — | — | — | ||||||||||||||||||||
Performance share units | 8/1/19 | 7/23/19 | 3,051 | 12,205 | 48,820 | — | — | — | $ | 2,500,194 | |||||||||||||||||||||||||
Performance Stock options | 8/1/19 | 7/23/19 | — | 129,501 | — | — | — | $ | 204.85 | $ | 5,000,034 | ||||||||||||||||||||||||
Jesus Malave, Jr. | |||||||||||||||||||||||||||||||||||
Annual Incentive Plan | — | — | $ | 31,250 | $ | 312,500 | $ | 625,000 | — | — | — | — | — | — | — | ||||||||||||||||||||
Restricted stock units | 8/1/19 | 7/23/19 | — | — | — | 4,638 | — | — | $ | 950,094 | |||||||||||||||||||||||||
Performance share units | 8/1/19 | 7/23/19 | 806 | 3,222 | 12,888 | — | — | — | $ | 660,027 | |||||||||||||||||||||||||
Performance stock options | 8/1/19 | 7/23/19 | — | 34,707 | — | — | — | $ | 204.85 | $ | 1,340,037 | ||||||||||||||||||||||||
Todd W. Gautier | |||||||||||||||||||||||||||||||||||
Annual Incentive Plan | — | — | $ | 15,000 | $ | 300,000 | $ | 600,000 | — | — | — | — | — | — | — | ||||||||||||||||||||
Performance share units | 8/1/19 | 7/23/19 | 806 | 3,222 | 12,888 | — | — | — | $ | 660,027 | |||||||||||||||||||||||||
Performance Stock options | 8/1/19 | 7/23/19 | — | 34,707 | — | — | — | $ | 204.85 | $ | 1,340,037 | ||||||||||||||||||||||||
Edward J. Zoiss | |||||||||||||||||||||||||||||||||||
Annual Incentive Plan | — | — | $ | 15,000 | $ | 300,000 | $ | 600,000 | — | — | — | — | — | — | — | ||||||||||||||||||||
Restricted stock units | 8/1/19 | 7/23/19 | — | — | — | 3,906 | — | — | $ | 800,144 | |||||||||||||||||||||||||
Performance share units | 8/1/19 | 7/23/19 | 806 | 3,222 | 12,888 | — | — | — | $ | 660,027 | |||||||||||||||||||||||||
Performance stock options | 8/1/19 | 7/23/19 | — | 34,707 | — | — | — | $ | 204.85 | $ | 1,340,037 |
65 L3HARRIS 2020 PROXY STATEMENT |
Name | Type of Award | Grant Date | Approval Date | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards(1) | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | All Other Option Awards: Number of Securities Underlying Options (#)(4) | Exercise or Base Price of Option Awards ($/Share) (5) | Grant Date Fair Value of Stock and Option Awards ($)(6) | |||||||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||||||||||||
William M. Brown | Annual Incentive Plan | — | — | $ | 330,000 | $ | 2,200,000 | $ | 4,400,000 | — | — | — | — | — | — | — | ||||||||||||||
Performance Reward Plan | — | — | $ | 0 | $ | 0 | $ | 450,864 | — | — | — | — | — | — | — | |||||||||||||||
Performance share units | 8/25/17 | 8/25/17 | 6,169 | 36,828 | 73,656 | — | — | — | $ | 4,770,699 | ||||||||||||||||||||
Restricted stock units | 8/25/17 | 8/25/17 | 18,414 | — | — | $ | 2,203,419 | |||||||||||||||||||||||
Stock options | 8/25/17 | 8/25/17 | 118,429 | $ | 119.66 | $ | 2,201,394 | |||||||||||||||||||||||
Rahul Ghai | Annual Incentive Plan | — | — | $ | 61,875 | $ | 412,500 | $ | 825,000 | — | — | — | — | — | — | — | ||||||||||||||
Performance Reward Plan | — | — | $ | 0 | $ | 0 | $ | 104,864 | — | — | — | — | — | — | — | |||||||||||||||
Performance share units | 8/25/17 | 8/24/17 | 978 | 5,839 | 11,678 | — | — | — | $ | 756,384 | ||||||||||||||||||||
Restricted stock units | 8/25/17 | 8/24/17 | 2,920 | — | — | $ | 349,407 | |||||||||||||||||||||||
Stock options | 8/25/17 | 8/24/17 | 18,776 | $ | 119.66 | $ | 349,014 | |||||||||||||||||||||||
Sheldon J. Fox | Annual Incentive Plan | — | — | $ | 62,438 | $ | 416,250 | $ | 832,500 | — | — | — | — | — | — | — | ||||||||||||||
Performance Reward Plan | — | — | $ | 0 | $ | 0 | $ | 105,864 | — | — | — | — | — | — | — | |||||||||||||||
Performance share units | 8/25/17 | 8/24/17 | 865 | 5,165 | 10,330 | — | — | — | $ | 669,074 | ||||||||||||||||||||
Restricted stock units | 8/25/17 | 8/24/17 | 2,583 | — | — | $ | 309,082 | |||||||||||||||||||||||
Stock options | 8/25/17 | 8/24/17 | 16,609 | $ | 119.66 | $ | 308,733 | |||||||||||||||||||||||
Dana A. Mehnert | Annual Incentive Plan | — | — | $ | 62,438 | $ | 416,250 | $ | 832,500 | — | — | — | — | — | — | — | ||||||||||||||
Performance Reward Plan | — | — | $ | 0 | $ | 0 | $ | 105,864 | — | — | — | — | — | — | — | |||||||||||||||
Performance share units | 8/25/17 | 8/24/17 | 865 | 5,165 | 10,330 | — | — | — | $ | 669,074 | ||||||||||||||||||||
Restricted stock units | 8/25/17 | 8/24/17 | 2,583 | — | — | $ | 309,082 | |||||||||||||||||||||||
Stock options | 8/25/17 | 8/24/17 | 16,609 | $ | 119.66 | $ | 308,733 | |||||||||||||||||||||||
Scott T. Mikuen | Annual Incentive Plan | — | — | $ | 57,750 | $ | 385,000 | $ | 770,000 | — | — | — | — | — | — | — | ||||||||||||||
Performance Reward Plan | — | — | $ | 0 | $ | 0 | $ | 100,464 | — | — | — | — | — | — | — | |||||||||||||||
Performance share units | 8/25/17 | 8/24/17 | 828 | 4,941 | 9,882 | — | — | — | $ | 640,057 | ||||||||||||||||||||
Restricted stock units | 8/25/17 | 8/24/17 | 2,471 | — | — | $ | 295,680 | |||||||||||||||||||||||
Stock options | 8/25/17 | 8/24/17 | 15,887 | $ | 119.66 | $ | 295,312 |
(1) | The “Estimated Possible Payouts Under Non-Equity Incentive Plan Awards” column shows the range of cash payouts that were possible in respect of awards under our Annual Incentive Plan (no payout is made for performance below threshold) |
(2) | The “Estimated Future Payouts Under Equity Incentive Plan Awards” column shows the range of shares that |
For these grants of performance share units, the number of shares that were possible to earn at the time of grant ranged from 0% to a maximum of 400% of the target number of performance share units based on an award payout formula of 0% to 200% for L3Harris achievement, as of December 31, 2021, relative to a target level of $500 million for full-year run rate gross synergies from the Merger (with a minimum threshold set at 80% of target performance), with a 50% to 200% modifier (i.e., downward or upward) for L3Harris achievement, as of December 31, 2021, relative to a target for cumulative earnings per share. For additional information related to the performance measures and associated weighting and targets, see the “Compensation Discussion and Analysis” section of this proxy statement. For these grants, cash dividend equivalents are not payable during the performance period on performance share units, and instead, each performance share unit earned and paid out receives accrued dividend equivalents in an amount per share equal to the cash dividends or other distributions, if any, paid with respect to an issued and outstanding share of our common stock during the performance period, with payment of such dividend equivalents to be made in cash at the time of the actual payout of performance share units ultimately earned as determined after completion of the performance period. For these grants, an executive officer must remain employed with us through June 29, 2022 to earn an award. See the “Potential Payments Upon Termination or a Change in Control” section of this proxy statement beginning on page 72 for the |
For these grants of performance stock options, the number of options that were possible to earn and vest at the time of grant were either 0% or 100% of the target number of performance stock options based on the performance vesting condition of L3Harris achievement by December 31, 2021 of a threshold level for full-year run rate gross synergies from the Merger. For additional information related to the performance measure and associated target, see the “Compensation Discussion and Analysis” section of this proxy statement. For these grants, an executive officer must remain employed with us through June 29, 2022 for these options to be earned and to vest. See the “Potential Payments Upon Termination or a Change in Control” section of this proxy statement beginning on page 72 for the treatment of these performance stock options and upon a termination of employment or change in control. These performance stock options expire no later than 10 years from grant date. For additional information related to the terms and conditions of these performance stock options, see the Outstanding Equity Awards at Fiscal Transition Period End Table on page 77 and related notes. |
(3) | The “All Other Stock Awards: Number of Shares of Stock or Units” column shows restricted stock units granted under our Equity Incentive Plan in our fiscal |
(4) |
The “Exercise or Base Price of Option Awards” column shows the exercise price per share for the performance stock options at the time of grant, which was the closing market price per share of our common stock on the grant |
The “Grant Date Fair Value of Stock and Option Awards” column shows the aggregate grant date fair value computed in accordance with ASC 718 of performance share units (at target), performance stock options (at target) and restricted stock units |
The grant date fair values of these performance share units were computed based on the probable outcome of the performance conditions as of the grant date of such awards (which was at target) and were determined as of the grant date using the $204.85 closing market price of our common stock on the grant date. |
The grant date fair values of these performance stock options were calculated at the grant date using the Black-Scholes-Merton option-pricing model and were computed based on the probable outcome of the performance vesting condition as of the grant date of the performance stock options (which was at target). The grant date fair value per share of our common stock underlying these performance stock options was $38.61. |
The grant date fair values of restricted stock units were determined as of the grant date using the $204.85 closing market price of our common stock on the grant date. |
The assumptions used for the valuations are set forth in Note 16 to our audited consolidated financial statements in our Transition Report on Form 10-KT for the fiscal transition period ended January 3, 2020. These amounts reflect our accounting for these grants and do not necessarily correspond to the actual values that may be realized by our named executive officers. |
L3HARRIS 2020 PROXY STATEMENT 66 |
Option Awards | Stock Awards | ||||||||||||||||||||||||||||||||
Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities UnderlyingUnexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number ofUnderlying Unexercised Unearned Options (#)(2) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(3) | Market Value of Shares or Units of Stock That Have Not Vested ($)(4) | Equity Incentive Plan Awards: | ||||||||||||||||||||||||||
Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(5) | Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(6) | ||||||||||||||||||||||||||||||||
Name/Option Grant Date(1) | |||||||||||||||||||||||||||||||||
William M. Brown 8/25/2012 | 181,600 | 0 | — | $ | 46.53 | 8/25/2022 | 25,019 | $ | 5,265,749 | 48,820 | $ | 10,275,145 | |||||||||||||||||||||
8/23/2013 | 177,900 | 0 | — | $ | 56.97 | 8/23/2023 | |||||||||||||||||||||||||||
8/23/2014 | 138,000 | 0 | — | $ | 71.02 | 8/23/2024 | |||||||||||||||||||||||||||
8/28/2015 | 390,290 | 0 | — | $ | 77.54 | 8/28/2025 | |||||||||||||||||||||||||||
8/27/2016 | 303,820 | 0 | — | $ | 90.84 | 8/27/2026 | |||||||||||||||||||||||||||
8/25/2017 | 118,429 | 0 | — | $ | 119.66 | 8/25/2027 | |||||||||||||||||||||||||||
8/25/2018 | 75,524 | 0 | — | $ | 163.23 | 8/25/2028 | |||||||||||||||||||||||||||
8/1/2019 | 1,385,563 — | 0 — | 129,501 | $ | 204.85 | 8/1/2029 | |||||||||||||||||||||||||||
Christopher E. Kubasik 10/30/2015 | 66,258 | 0 | — | $ | 97.24 | 10/30/2025 | 11,830 | $ | 2,489,860 | 48,820 | $ | 10,275,145 | |||||||||||||||||||||
2/16/2016 | 76,190 | 0 | — | $ | 89.39 | 2/16/2026 | 31,792 | $ | 6,691,262 | ||||||||||||||||||||||||
2/21/2017 | 56,624 | 0 | — | $ | 129.85 | 2/21/2027 | 43,622 | $ | 9,181,122 | ||||||||||||||||||||||||
12/20/2017 | 112,138 | 0 | — | $ | 149.31 | 12/20/2027 | |||||||||||||||||||||||||||
2/20/2018 | 97,171 | 0 | — | $ | 162.30 | 2/20/2028 | |||||||||||||||||||||||||||
8/1/2019 | 408,381 — | 0 — | 129,501 | $ | 204.85 | 8/1/2029 | |||||||||||||||||||||||||||
Jesus Malave, Jr. 8/1/2019 | — | — | 34,707 | $ | 204.85 | 8/1/2029 | 4,638 | $ | 976,160 | 12,888 | $ | 2,712,537 | |||||||||||||||||||||
Todd W. Gautier 2/21/2017 | 15,571 | 0 | — | $ | 129.85 | 2/21/2027 | 8,181 | $ | 1,721,855 | 12,888 | $ | 2,712,537 | |||||||||||||||||||||
2/20/2018 | 13,158 | 0 | — | $ | 162.30 | 2/20/2028 | 1,602 | $ | 337,173 | ||||||||||||||||||||||||
8/1/2019 | 28,729 — | 0 — | 34,707 | $ | 204.85 | 8/1/2029 | 9,783 | $ | 2,059,028 | ||||||||||||||||||||||||
Edward J. Zoiss 8/22/2014 | 5,300 | 0 | — | $ | 71.02 | 8/22/2024 | 3,906 | $ | 822,096 | 12,888 | $ | 2,712,537 | |||||||||||||||||||||
8/28/2015 | 18,410 | 0 | — | $ | 77.54 | 8/28/2025 | |||||||||||||||||||||||||||
8/26/2016 | 27,800 | 0 | — | $ | 90.84 | 8/26/2026 | |||||||||||||||||||||||||||
8/25/2017 | 12,277 | 0 | — | $ | 119.66 | 8/25/2027 | |||||||||||||||||||||||||||
8/24/2018 | 9,012 | 0 | — | $ | 163.23 | 8/24/2028 | |||||||||||||||||||||||||||
8/1/2019 | 72,799 — | 0 — | 34,707 | $ | 204.85 | 8/1/2029 |
Name | Option Awards | Stock Awards | ||||||||||||||||||||||||||||||||
Option Grant Date (1) | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable (2) | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#)(3) | Market Value of Shares or Units of Stock That Have Not Vested ($)(4) | Equity Incentive Plan Awards: | ||||||||||||||||||||||||||
Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(5) | Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(6) | |||||||||||||||||||||||||||||||||
William M. Brown | 11/1/2011 | 366,552 | 0 | — | $ | 36.66 | 11/1/2021 | 18,414 | $ | 2,661,560 | 93,800 | $ | 13,557,852 | |||||||||||||||||||||
8/25/2012 | 181,600 | 0 | — | $ | 46.53 | 8/25/2022 | 73,656 | $ | 10,646,238 | |||||||||||||||||||||||||
8/23/2013 | 177,900 | 0 | — | $ | 56.97 | 8/23/2023 | 167,456 | $ | 24,204,090 | |||||||||||||||||||||||||
8/23/2014 | 138,000 | 0 | — | $ | 71.02 | 8/23/2024 | ||||||||||||||||||||||||||||
8/28/2015 | 171,827 | 218,463 | — | $ | 77.54 | 8/28/2025 | ||||||||||||||||||||||||||||
8/27/2016 | 101,274 | 202,546 | — | $ | 90.84 | 8/27/2026 | ||||||||||||||||||||||||||||
8/25/2017 | 0 | 118,429 | — | $ | 119.66 | 8/25/2027 | ||||||||||||||||||||||||||||
1,137,153 | 539,438 | |||||||||||||||||||||||||||||||||
Rahul Ghai | 6/1/2015 | 23,100 | 0 | — | $ | 79.70 | 6/1/2025 | 2,920 | $ | 422,057 | 14,110 | $ | 2,039,459 | |||||||||||||||||||||
8/28/2015 | 8,594 | 4,296 | — | $ | 77.54 | 8/28/2025 | 11,678 | $ | 1,687,938 | |||||||||||||||||||||||||
8/26/2016 | 15,227 | 30,453 | — | $ | 90.84 | 8/26/2026 | 25,788 | $ | 3,727,397 | |||||||||||||||||||||||||
8/25/2017 | 0 | 18,776 | — | $ | 119.66 | 8/25/2027 | ||||||||||||||||||||||||||||
46,921 | 53,525 | |||||||||||||||||||||||||||||||||
Sheldon J. Fox | 8/24/2012 | 45,800 | 0 | — | $ | 46.53 | 8/24/2022 | 2,583 | $ | 373,347 | 14,110 | $ | 2,039,459 | |||||||||||||||||||||
8/23/2013 | 51,200 | 0 | — | $ | 56.97 | 8/23/2023 | 10,330 | $ | 1,493,098 | |||||||||||||||||||||||||
8/22/2014 | 35,400 | 0 | — | $ | 71.02 | 8/22/2024 | 24,440 | $ | 3,532,557 | |||||||||||||||||||||||||
6/1/2015 | 57,720 | 0 | — | $ | 79.70 | 6/1/2025 | ||||||||||||||||||||||||||||
8/28/2015 | 28,234 | 14,116 | — | $ | 77.54 | 8/28/2025 | ||||||||||||||||||||||||||||
8/26/2016 | 15,227 | 30,453 | — | $ | 90.84 | 8/26/2026 | ||||||||||||||||||||||||||||
8/25/2017 | 0 | 16,609 | — | $ | 119.66 | 8/25/2027 | ||||||||||||||||||||||||||||
233,581 | 61,178 | |||||||||||||||||||||||||||||||||
Dana A. Mehnert | 8/22/2014 | 30,800 | 0 | — | $ | 71.02 | 8/22/2024 | 2,583 | $ | 373,347 | 14,110 | $ | 2,039,459 | |||||||||||||||||||||
8/28/2015 | 28,234 | 14,116 | — | $ | 77.54 | 8/28/2025 | 10,330 | $ | 1,493,098 | |||||||||||||||||||||||||
8/26/2016 | 15,227 | 30,453 | — | $ | 90.84 | 8/26/2026 | 24,440 | $ | 3,532,557 | |||||||||||||||||||||||||
8/25/2017 | 0 | 16,609 | — | $ | 119.66 | 8/25/2027 | ||||||||||||||||||||||||||||
74,261 | 61,178 | |||||||||||||||||||||||||||||||||
Scott T. Mikuen | 3/1/2013 | 700 | 0 | — | $ | 47.71 | 3/1/2023 | 2,471 | $ | 357,158 | 12,270 | $ | 1,773,506 | |||||||||||||||||||||
8/23/2013 | 40,000 | 0 | — | $ | 56.97 | 8/23/2023 | 9,882 | $ | 1,428,344 | |||||||||||||||||||||||||
8/22/2014 | 30,800 | 0 | — | $ | 71.02 | 8/22/2024 | 22,152 | $ | 3,201,850 | |||||||||||||||||||||||||
6/1/2015 | 28,860 | 0 | — | $ | 79.70 | 6/1/2025 | ||||||||||||||||||||||||||||
8/28/2015 | 24,547 | 12,273 | — | $ | 77.54 | 8/28/2025 | ||||||||||||||||||||||||||||
8/26/2016 | 13,240 | 26,480 | — | $ | 90.84 | 8/26/2026 | ||||||||||||||||||||||||||||
8/25/2017 | 0 | 15,887 | — | $ | 119.66 | 8/25/2027 | ||||||||||||||||||||||||||||
138,147 | 54,640 |
67 L3HARRIS 2020 PROXY STATEMENT |
(1) | All options granted are nonqualified stock options. The exercise price for all stock |
(2) | The following table details the regular vesting schedule for all unvested stock options as of January 3, 2020 for each named executive officer. In general, options expire 10 years from the grant date. (As noted in note (1) above, all then-outstanding unvested options immediately vested on June 29, 2019 as a result of the Merger, which constituted a change in control pursuant to their terms and conditions.) |
Name | Grant Date | Option Vesting Date | Number of UnderlyingShares Options | |||
William M. Brown | 8/ | |||||
Christopher E. Kubasik | 8/ | |||||
129,501 | ||||||
Jesus Malave, Jr. | 8/ | |||||
8/ | ||||||
Edward J. Zoiss | 8/ | |||||
34,707 |
These are performance stock options shown at target, which were granted as part of the special, one-time integration-related awards in our fiscal transition period and for which the number of options that were possible to earn and vest at the time of grant were either 0% or 100% of the target number of performance stock options based on the performance vesting condition of L3Harris achievement by December 31, 2021 of a threshold level for full-year run rate gross synergies from the Merger. For additional information related to the performance measure and associated target, see the “Compensation Discussion and Analysis” section of this proxy statement. For these performance stock options, an executive officer must remain employed with us through June 29, 2022 for these options to be earned and to vest. See the “Potential Payments Upon Termination or a Change in Control” section of this proxy statement beginning on page 72 for the treatment of these performance stock options in these situations and upon a termination of employment or change in control. These performance stock options expire no later than 10 years from grant date. |
(3) | These are restricted stock unit awards and restricted stock awards, as follows: (a) in the case of Messrs. Brown and Zoiss, restricted stock units granted on August For these restricted stock unit awards, cash dividend equivalents are not payable during the |
(4) | The market value shown was determined by multiplying the number of restricted stock units or shares of restricted stock that |
(5) | These are |
L3HARRIS 2020 PROXY STATEMENT 68 |
For more information regarding performance share units, see the Grants of Plan-Based Awards in Fiscal |
(6) | The market value shown was determined by multiplying the number of unearned and unvested performance share units (at maximum) by the |
Option Awards | Stock Awards | |||||||||||||||
Name | Number of Shares Acquired on Exercise (#)(1) | Value Realized on Exercise ($)(1) | Number of Shares Acquired on Vesting (#)(2) | Value Realized on Vesting ($)(2) | ||||||||||||
William M. Brown | 366,552 | $ | 64,032,589 | 145,552(3) | $ | 27,528,250 | ||||||||||
Christopher E. Kubasik | — | — | 59,177(4) | $ | 11,210,098 | |||||||||||
Jesus Malave, Jr. | — | — | — | — | ||||||||||||
Todd W. Gautier | 12,727 | $ | 2,548,841 | 9,936(5) | $ | 1,884,134 | ||||||||||
Edward J. Zoiss | — | — | 16,094(6) | $ | 3,043,858 |
Option Awards | Stock Awards | ||||||||
Name | Number of Shares Acquired on Exercise (#)(1) | Value Realized on Exercise ($)(1) | Number of Shares Acquired on Vesting (#)(2) | Value Realized on Vesting ($)(2) | |||||
William M. Brown | — | $ | — | 90,423 (3) | $ | 13,069,740 | |||
Rahul Ghai | — | $ | — | 9,630 (4) | $ | 1,438,167 | |||
Sheldon J. Fox | 50,300 | $ | 3,951,220 | 12,279 (5) | $ | 1,807,097 | |||
Dana Mehnert | 51,200 | $ | 4,926,464 | 7,400 (6) | $ | 1,069,596 | |||
Scott T. Mikuen | 33,600 | $ | 3,137,917 | 8,877 (7) | $ | 1,299,235 |
(1) | Value realized on exercise of stock options was determined by multiplying the number of options exercised by the difference between the weighted-average selling price of the shares of our common stock sold on the date of exercise and the exercise price, irrespective of any taxes owed upon exercise. |
(2) |
(3) | Consists of (a) |
(4) | Consists of (a) |
(5) | Consists of (a) 4,425 shares earned and vested in respect of L3 performance share unit awards granted in February 2017 and February 2018, |
(6) | |
Consists of (a) |
69 L3HARRIS 2020 PROXY STATEMENT | |
L3HARRIS 2020 PROXY STATEMENT 70 |
Name | Executive Contributions in Last Fiscal Year ($)(1) | Registrant Contributions in Last Fiscal Year ($)(2) | Aggregate Earnings in Last Fiscal Year ($)(3) | Aggregate Withdrawals/ Distributions ($)(4) | Aggregate Balance at Last Fiscal Year End ($)(4) | |||||||||||||||
William M. Brown | $ | 163,115 | $ | 267,485 | $ | (145,226 | ) | $ | 4,398,938 | $ | 607,025 | |||||||||
Christopher E. Kubasik | $ | 29,786 | $ | 87,731 | $ | (7,433 | ) | $ | 632,693 | $ | 29,568 | |||||||||
Jesus Malave, Jr. | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||||
Todd W. Gautier | $ | 15,505 | $ | 46,353 | $ | (7,818 | ) | $ | 191,005 | $ | 15,532 | |||||||||
Edward J. Zoiss | $ | 227,154 | $ | 50,885 | $ | 16,992 | $ | 723,660 | $ | 477,346 |
Name | Executive Contributions in Last Fiscal Year ($)(1) | Registrant Contributions in Last Fiscal Year ($)(2) | Aggregate Earnings in Last Fiscal Year ($)(3) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last Fiscal Year End ($)(4) | ||||||||||
William M. Brown | $ | 387,885 | $ | 193,692 | $ | 483,291 | $ | 0 | $ | 3,639,758 | |||||
Rahul Ghai | $ | 56,423 | $ | 42,231 | $ | 28,388 | $ | 0 | $ | 192,937 | |||||
Sheldon J. Fox | $ | 91,415 | $ | 45,423 | $ | 303,074 | $ | 0 | $ | 1,950,304 | |||||
Dana A. Mehnert | $ | 91,415 | $ | 45,423 | $ | 267,837 | $ | 0 | $ | 3,069,156 | |||||
Scott T. Mikuen | $ | 92,292 | $ | 45,781 | $ | 427,708 | $ | 0 | $ | 2,883,816 |
(1) | Represents contributions to our |
(2) | Represents contributions by us to our |
(3) | None of the earnings in this column are included in the Fiscal |
(4) | Includes amounts reported as compensation in the Fiscal |
71 L3HARRIS 2020 PROXY STATEMENT |
> | A substantial and continual failure or refusal by him to perform his material duties under his employment agreement (other than any failure resulting from illness or disability); |
> | A willful breach by him of any material provision of his employment agreement; |
> | Any reckless or willful misconduct (including action or failures to act) by him that causes material harm to our business or reputation; |
> | Any unexcused, repeated or prolonged absence from work by him (other than as a result of, or in connection with, sickness, injury or disability) during a period of 90 consecutive days; |
> | A conviction of him for the commission of a felony (including entry of a nolo contendere plea) or an indictment of him for the commission of a felony under the U.S. Federal securities laws; |
> | Embezzlement or willful misappropriation by him of our property; |
> | A willful and substantial violation by him of a material Company policy that is generally applicable to all employees or all of our officers (including our Code of Conduct); or |
> | A failure by him to cooperate in an internal investigation after being instructed by our Board to cooperate. |
> | A reduction in his annual base salary or current annual cash incentive target award, other than a reduction also applicable in a substantially similar manner and proportion to our other senior executive officers; |
> | Our removal of him from his position as Chief Executive Officer or President (The Brown Letter Agreement providing for Mr. Brown’s role as Chairman and CEO following the Merger constituted Mr. Brown’s consent to removal of him as President.); |
> | Our assignment to him of duties or responsibilities that are materially inconsistent with his positions with us; |
> | Any requirement by us that he relocate his principal place of employment to a location other than our principal headquarters; |
> | Our failure to nominate him for reelection to our Board upon expiration of his term at any annual meeting of our shareholders during the term of his employment; |
> | Our failure to obtain an assumption of his employment agreement by a successor of the Company; |
> | Our delivery of a notice not to renew his employment term pursuant to his employment agreement; or |
> | Our termination of the indemnification agreement we have entered into with him without entering into a replacement or successor agreement, or making other appropriate indemnification arrangements in favor of him, on terms reasonably acceptable to him and no less favorable to him than to our other senior executives. |
L3HARRIS 2020 PROXY STATEMENT 72 |
> | Pro-rated annual cash incentive compensation for the fiscal year of termination based on the achievement of performance objectives; |
> | Severance payments, paid in substantially equal monthly installments over a 24-month period, in an aggregate amount equal to two times the sum of his then-current base salary and target annual cash incentive compensation for the year of termination; |
> | COBRA continuation medical benefits for a period of 18 months following the termination date; |
> | Each unvested time-based vesting stock option will continue to vest in accordance with its ordinary vesting schedule for the two-year period following the date of termination, at which time any remaining unvested portion of the stock options will be forfeited, and to the extent vested, will remain outstanding for the 27-month period following the termination date, but in no event beyond the normal expiration period; |
> | Each performance share unit will remain outstanding and eligible to vest for the remainder of the applicable performance period if the termination date is prior to the end of the applicable performance period, with vesting subject to attainment of the applicable performance goals and to pro-ration based on the portion of the applicable performance period which has elapsed as of the termination date (with the remainder of the award forfeited); and |
> | Each other equity award will be treated in the manner set forth in the applicable plan and award agreement. |
> | Accrued but unpaid base salary and unpaid vacation time through the date of termination; |
> | Earned but unpaid annual cash incentive compensation under our Annual Incentive Plan (or any successor plan) for the prior fiscal year; |
> | Reimbursement of reasonable business expenses incurred prior to the date of termination; and |
> | Other or additional compensation benefits, if any, in accordance with the terms of our applicable plans or employee benefit programs for terminated employees. |
> | Hold a 5% or greater equity, voting or profit participation interest in, or associate with, an enterprise that competes with us; or |
> | Solicit any customer or any employee to leave us. |
> | Mr. Brown will serve as Chairman and Chief Executive Officer of L3Harris through the two-year Initial Period following the Merger. For the one-year Subsequent Period, he will serve as Chairman of L3Harris. On the third anniversary of the closing of the Merger, he will retire as an officer and employee of L3Harris and will resign as a member of L3Harris’ Board of Directors. |
> | During the Initial Period, Mr. Brown’s annual base salary is $1,450,000, his target annual cash bonus award is $2,500,000, the target value of his annual long-term incentive awards is $10,250,000 and in no case will any such compensation element be less than that paid or granted to Mr. Kubasik. (Our Board maintains discretion to increase these amounts.) |
> | After the closing of the Merger, L3Harris would grant Mr. Brown a one-time integration award composed of performance stock units with a target value of $2,500,000 (subject to certain performance-based multipliers) and performance-based non-qualified stock options with a grant date value of $5,000,000 and a ten-year term. Both components of the integration award will be subject to three-year cliff vesting and will vest (if at all) subject to continued employment and achievement of performance conditions established by the L3Harris Compensation Committee. (This award was granted in August 2019.) |
73 L3HARRIS 2020 PROXY STATEMENT |
> | If during the Subsequent Period there is a qualifying termination of Mr. Brown (as defined in his Executive Change in Control Severance Agreement entered into with Harris), Mr. Brown would be eligible for the compensation, benefits and other rights provided under that Executive Change in Control Severance Agreement, with such amounts determined using a “3X” multiple. In addition, his outstanding stock options (other than those granted as part of the integration award) and restricted stock units would become fully vested, exercisable and payable (as applicable), and options would remain exercisable for their full remaining term. Outstanding performance stock units (other than those granted as part of the integration award) would remain outstanding and eligible to vest based on the attainment of performance goals. Mr. Brown would also receive benefit continuation payments in lieu of providing in-kind medical and prescription drug coverage until he reaches the age of 65 (or, if earlier, the date he becomes eligible to receive comparable benefits from another employer). Additionally, if such qualifying termination occurs in the Initial Period, the integration award would remain outstanding and eligible to vest as to a portion of the award based on the date of termination and attainment of applicable performance goals. If such qualifying termination occurs during the Subsequent Period, the integration award would remain outstanding and eligible to vest based on the greater of target performance and the actual attainment of applicable performance goals. The integration award options that vest would remain exercisable for their full term. |
> | Upon his retirement at the end of the Subsequent Period, Mr. Brown will not receive any cash severance, but his equity awards (other than those comprising the integration award) will be treated as described above regarding a qualifying termination, and his integration award will pay or vest, as applicable, based on actual performance. In addition, Mr. Brown will receive the benefit continuation payments described above regarding a qualifying termination, and for 12 months following his retirement, have access to office space and administrative support provided by L3Harris. |
> | Except as expressly modified by the Brown Letter Agreement, the terms of Mr. Brown’s pre-Merger Executive Change in Control Severance Agreement with Harris and his 2011 employment agreement with Harris remain in full force and effect, including the restrictive covenants and confidentiality provisions of those agreements. |
> | Mr. Kubasik will serve as Vice Chairman, President and Chief Operating Officer of L3Harris through the Initial Period. Upon the commencement of the Subsequent Period (or, if earlier, the date that Mr. Brown ceases to serve as the Chief Executive Officer of L3Harris), Mr. Kubasik will become the Chief Executive Officer of L3Harris. On the third anniversary of the closing of the Merger, Mr. Kubasik will also become Chairman of L3Harris. |
> | During the Initial Period, Mr. Kubasik’s annual base salary is $1,450,000, his target annual cash bonus award is $2,500,000, the target value of his annual long-term incentive awards is $10,250,000 and in no case will any such compensation element be less than that paid or granted to Mr. Brown. (Our Board maintains discretion to increase these amounts.) |
> | After the closing of the Merger, L3Harris would grant Mr. Kubasik a one-time integration award composed of performance stock units with a target value of $2,500,000 (subject to certain performance-based multipliers) and performance-based non-qualified stock options with a grant date value of $5,000,000 and a ten-year term. Both components of the integration award will be subject to three-year cliff vesting and will vest (if at all) subject to continued employment and achievement of performance conditions established by the L3Harris Compensation Committee. (This award was granted in August 2019.) |
> | In the event that L3Harris terminates him without “cause” or he terminates his employment for “good reason,” Mr. Kubasik’s outstanding stock options (other than those granted as part of the integration award) and restricted stock units would become fully vested, exercisable and payable (as applicable), and options would remain exercisable for their full remaining term. Outstanding performance stock units (other than those granted as part of the integration award) would remain outstanding and eligible to vest based on the attainment of performance goals. Additionally, if such qualifying termination occurs in the Initial Period, the integration award would remain outstanding and eligible to vest as to a portion of the award based on the date of termination and attainment of applicable performance goals. If such qualifying termination occurs during the Subsequent Period, the integration award would remain outstanding and eligible to vest based on the greater of target performance and the actual attainment of applicable performance goals. The integration award options that vest would remain exercisable for their full term. |
> | The protection period under which Mr. Kubasik will be covered by L3’s Amended and Restated Change in Control Severance Plan (the “L3 CIC Plan”) was extended until the fourth anniversary of the closing of the Merger, in the event of his termination without “cause” or for “good reason” (each as defined in the L3 CIC Plan and modified in the Kubasik Letter Agreement). |
> | The definition of “cause” under the L3 CIC Plan as applicable to Mr. Kubasik was modified to include an act of misconduct in violation of certain L3Harris policies or federal or applicable state law regarding discrimination or sexual harassment of subordinate employees that creates a material risk of meaningful harm to L3Harris. |
L3HARRIS 2020 PROXY STATEMENT 74 |
> | The definition of “good reason” under the L3 CIC Plan as applicable to Mr. Kubasik was modified to include the following events: failure to promote him to the contemplated new roles upon and after the closing of the Merger; failure of Mr. Brown to cease providing services to L3Harris on or before the third anniversary of the closing of the Merger; or L3Harris’ material breach of the Kubasik Letter Agreement. Mr. Kubasik also agreed to a limited waiver of his “good reason” rights related to his contemplated relocation to Florida, certain across-the-board changes in employee benefits and his transition to the role of Vice Chairman, President and Chief Operating Officer at the closing of the Merger. |
> | Mr. Kubasik is eligible to receive an additional payment of up to $1,250,000 for relocation-related expenses, with gross up of amounts taxed as ordinary income. |
> | Certain restrictive covenants and confidentiality provisions of the L3 CIC Plan apply as a condition to severance benefits under the L3 CIC Plan and are extended to 24 months following termination of employment. |
> | base salary at the annual rate of $625,000; |
> | eligibility to receive an annual cash incentive under our Annual Incentive Plan with a target value of 100% of his base salary; |
> | commencing with calendar year 2020, eligibility to receive annual equity awards granted under our Equity Incentive Plan with a target value of $2,000,000; |
> | one-time restricted stock unit award granted in August 2019 under our Equity Incentive Plan with a grant date value of $950,000 (“One-Time RSU Award”), subject to vesting ratably over three years; |
> | a one-time momentum equity award granted in August 2019 under our Equity Incentive Plan comprised of (a) performance share units with a target value of $660,000; and (b) performance-based stock options with a grant date value of $1,340,000 and a term of ten years. Both components of the momentum equity award will be subject to three-year cliff vesting and will vest (if at all) subject to achievement of applicable cost synergy goals for the Merger established by the Compensation Committee; |
> | a one-time cash sign-on bonus of $200,000; |
> | eligibility to participate in our retirement and employee health and welfare plans; and |
> | certain relocation benefits. |
> | the One-Time RSU Award will become fully vested; |
> | if such termination is not in connection with a “change in control” (as defined in the Malave Letter Agreement), then subject to certain conditions, Mr. Malave will receive a severance benefit equal to (i) his then current annual base salary (provided that, in the event of a termination by him for Good Reason due to material reduction in his base salary, the severance will be in an amount equal to his annual base salary before such material reduction), and (ii) a pro rata annual cash bonus for the performance period in which his termination occurs, subject to actual achievement of applicable performance goals through the end of such performance period; and |
> | if (in either case) such termination is on or following a “change in control” and within 36 months after the Start Date, then, in lieu of any severance benefits payable as described above, and subject to certain conditions, Mr. Malave will receive a severance benefit equal to (i) a “2X” multiple of his then current annual base salary (provided that, in the event of a termination by him for Good Reason due to material reduction in his base salary, the severance will be in an amount equal to his annual base salary before such material reduction) plus his then current target annual cash bonus, and (ii) a pro rata annual cash bonus for the performance period in which his termination occurs, subject to actual achievement of applicable performance goals through the end of such performance period, pro-rated based on the number of days he was employed during such performance period. |
75 L3HARRIS 2020 PROXY STATEMENT |
> | The executive terminates employment for “good reason;” or |
> | We terminate the executive’s employment for any reason other than for “cause” (all terms as defined in the change in control severance agreement and summarized below). |
> | Any person becomes the beneficial owner of 20% or more of the combined voting power of our outstanding common stock; |
> | A change in the majority of our Board not approved by two-thirds of our incumbent directors; |
> | The consummation of a merger, consolidation or reorganization, unless immediately following such transaction: (1) more than 60% of the total voting power resulting from the transaction is represented by shares that were our voting securities immediately prior to the transaction; (2) no person becomes the beneficial owner of 20% or more of the total voting power of our outstanding voting securities as a result of the transaction; and (3) at least a majority of the members of the board of directors of the company resulting from the transaction were our incumbent directors at the time of our Board’s approval of the execution of the initial agreement providing for the transaction; |
> | Our shareholders approve a plan of complete liquidation or dissolution of L3Harris; or |
> | We consummate a sale or disposition of all or substantially all of our assets. |
The Merger constituted a change in the majoritycontrol under these agreements.
> | A reduction in the executive’s annual base salary or current annual incentive target award; |
> | The assignment of duties or responsibilities that are inconsistent in any material adverse respect with the executive’s position, duties, responsibility or status with us immediately prior to the change in control; |
> | A material adverse change in the executive’s reporting responsibilities, titles or offices with us as in effect immediately prior to the change in control; |
> | Any requirement that the executive: (1) be based more than 50 miles from the facility where the executive was located at the time of the change in control or (2) travel on L3Harris business to an extent substantially greater than the travel obligations of the executive immediately prior to the change in control; or |
> | Failure by us to continue in effect any employee benefit or compensation plans or provide the executive with employee benefits as in effect for the executive immediately prior to the change in control. |
> | A material breach by the executive of the duties and responsibilities of the executive’s position; or |
> | The conviction of the executive of, or plea of nolo contendere by the executive to, a felony involving willful misconduct that is materially injurious to us. |
> | Unpaid base salary through the date of termination; |
> | A pro-rated annual bonus (as determined under the change in control severance agreement); |
> | Any unpaid accrued vacation pay; |
> | To the extent permitted under Section 409A of the Internal Revenue Code, any other benefits or awards that have been earned or became payable pursuant to the terms of any compensation plan but that have not yet been paid to the executive; |
L3HARRIS 2020 PROXY STATEMENT 76 |
> | Two times the executive’s highest annual rate of base salary during the 12-month period prior to the date of termination (following the Merger, “three times” in the case of Mr. Brown pursuant to the Brown Letter Agreement); and |
> | Two times the greatest of the executive’s (1) highest annual bonus in the three years prior to the change in control, (2) target bonus for the year in which the change in control occurred or (3) target bonus for the year in which the executive’s employment is terminated (following the Merger, “three times” in the case of Mr. Brown pursuant to the Brown Letter Agreement). |
> | Receipt of the same level of medical, dental, accident, disability and life insurance and any similar benefits as are in effect on the date of termination (or the highest level of coverage provided to active executives immediately prior to the change in control, if more favorable), for the two years following the date of termination, but in no event later than age 65 (benefit continuation payments in lieu of providing in-kind medical and prescription drug coverage, in the case of Mr. Brown pursuant to the Brown Letter Agreement); |
> | Reimbursement for any relocation expense related to the pursuit of other business opportunities incurred within two years following the date of termination; |
> | Reimbursement for recruitment or placement services of up to $4,000; and |
> | Reimbursement for professional financial or tax planning services of up to $5,000 per year for the calendar year in which the termination occurs and the next calendar year. |
> | The executive terminates employment for “good reason”; or |
> | The executive’s employment is terminated without “cause” (all terms as defined in the L3 CIC Plan and summarized below). |
> | the acquisition by any person or group (including a group within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act), other than L3 or any of its subsidiaries, of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of a majority of the combined voting power of L3’s then outstanding voting securities, other than by any employee benefit plan maintained by L3; |
> | the sale of all or substantially all of the assets of L3 and its subsidiaries taken as a whole; or |
> | the election, including the filling of vacancies, during any period of 24 months or less, of 50% or more of the members of the board of directors of L3, without the approval of L3’s incumbent directors at the beginning of such period. |
> | A reduction in the executive’s base salary or annual or long-term incentive opportunity (including target bonus, if applicable); |
> | An adverse change to the calculation methodology for determining bonuses or long-term incentives which is reasonably likely to have an adverse impact on the amounts the executive has the potential to earn under such programs; |
77 L3HARRIS 2020 PROXY STATEMENT |
> | Any failure by the acquiror to continue to provide employee benefits that are substantially similar in the aggregate to those afforded to the executive immediately prior to the change in control; |
> | A material adverse change in executive’s duties or responsibilities; |
> | A relocation of executive’s principal place of business of 50 miles or more, provided that such relocation also increases the executive’s commute by at least 25 miles; |
> | A failure to pay the executive’s base salary and other amounts earned by the executive within 10 days after the date such compensation is due; or |
> | Failure of any successor or assignee to all or substantially all of the business and/or assets of L3 in connection with any change in control, by agreement in writing in form and substance reasonably satisfactory to the executive, expressly, absolutely and unconditionally to assume and agree to perform all obligations under the L3 CIC Plan. |
> | Intentional failure to perform reasonably assigned duties; |
> | Dishonesty or willful misconduct in the performance of duties; |
> | Engaging in a transaction in connection with the performance of duties to L3 or its affiliates which transaction is adverse to the interests of L3 and is engaged in for personal profit; or |
> | Willful violation of any law, rule or regulation in connection with the performance of duties (other than traffic violations or similar offenses). |
> | A multiple of current annual salary and average annual incentive plan awards for the prior three years: (a) chief executive officer, chief operating officer, chief financial officer and chief legal officer – three times (including for Mr. Kubasik), and (b) segment presidents – two and a half times (including for Mr. Gautier). The annual incentive plan award for the year of termination is a pro rata award based on (a) the number of months worked in the year of termination and (b) the average annual incentive plan awards for the prior three years (or the actual annual incentive plan award payable for the full year of termination, if performance is determinable at the time of termination). |
> | Receipt of continued medical and life insurance benefits at the same cost to the executive, or cash equal to any increased premiums, for the same period as the severance multiple described above; |
> | Reasonable outplacement services paid for by L3; and |
> | If eligible, L3-paid financial planning services for the one-year period after a change in control under an L3 policy that is separate from the L3 CIC Plan. |
> | Do not provide for a tax gross-up of excise taxes; |
> | Do provide for a “best net after-tax” payment approach that reduces payments and benefits to an executive if the reduction would result in the executive receiving higher payments and benefits on a net after-tax basis; |
> | Do provide that we will reimburse the executive for any legal fees and costs with respect to any dispute arising under the agreement; and |
L3HARRIS 2020 PROXY STATEMENT 78 |
> | Do provide that, not later than the date on which a change in control occurs, we are required to contribute to an irrevocable “rabbi trust” in cash or other liquid assets, an amount equal to the total payments expected to be paid under the agreements, assuming that the employment of the executives is terminated, plus the amount of trust administration and trustee fees reasonably expected to be incurred (in recognition that in certain situations payments under the agreements will be required to be deferred for up to six months following the triggering event to comply with Section 409A of the Internal Revenue Code). (This funding requirement was waived in respect of the Merger.) |
> | Accrued salary and pay for unused vacation; |
> | Distributions of vested plan balances under our RSP and ERSP (and the SSP-II and L3 Supplemental Executive Retirement Plan, where applicable); and |
> | Earned but unpaid bonuses. |
> | Vested options may be exercised until the sooner of 90 days following such termination or the regularly scheduled expiration date; |
> | Unvested options are forfeited; |
> | Vested performance stock options may be exercised until the regularly scheduled expiration date; |
> | Unvested performance stock options are forfeited, although a pro-rata portion (based on the period worked during the performance period) will remain outstanding and eligible to be earned and to vest based on satisfaction of the performance vesting condition and become exercisable upon expiration of the service period; |
> | Unvested performance share units are forfeited, although a pro-rata portion (based on the period worked during the performance period) will remain outstanding and eligible to be earned based on attainment of applicable performance targets; provided that if termination occurs on or after June 29, 2021 and through June 29, 2022, vesting shall be at not less than the target level; |
79 L3HARRIS 2020 PROXY STATEMENT |
> | Shares of restricted stock are paid pro-rata based on the period worked during the restriction period, promptly following involuntary termination without cause (but subject to any delay required by U.S. Federal tax law); and |
> | Restricted stock units immediately fully vest and are paid as soon as practicable. |
> | Vested performance stock options may be exercised until the regularly scheduled expiration date; |
> | Unvested performance stock options are forfeited, although a pro-rata portion (based on the period worked during the performance period) will remain outstanding and eligible to be earned and to vest based on satisfaction of the performance vesting condition and become exercisable upon termination of the service period; |
> | Unvested performance share units are forfeited, although a pro-rata portion (based on the period worked during the performance period) will remain outstanding and eligible to be earned based on attainment of applicable performance targets; provided that if termination occurs on or after June 29, 2021 and through June 29, 2022, vesting shall be at not less than the target level; and |
> | Restricted stock units immediately vest and are paid as soon as practicable. |
> | Account balances in our RSP and ERSP become fully vested; |
> | If the executive was employed for a minimum of 180 days during the fiscal year, annual incentive compensation awards are paid pro-rata based on the period worked during such fiscal year, with payment made after the fiscal year end based on our performance; |
> | Performance stock options immediately vest at target and will be exercisable by the beneficiaries (or by the executive officer in the case of disability) for up to 12 months following the date of death (or disability) but not later than the regularly scheduled expiration date; |
> | Subject to a minimum one-year vesting period, stock options (other than performance stock options) immediately vest at target and will be exercisable by the beneficiaries (or by the executive officer in the case of disability) for up to 12 months following the date of death (or disability) but not later than the regularly scheduled expiration date; |
> | Performance share units immediately vest at target and are paid out as soon as administratively practicable following death and, in the case of disability, following the earlier of expiration of the service period or the occurrence of a change in control that qualifies as a “change in control event” within the meaning of Treasury Regulations section 1.409-3(i)(5); |
> | Subject to a minimum one-year holding period, shares of restricted stock immediately fully vest; and |
> | Restricted stock units immediately fully vest and are paid out as soon as administratively practicable. |
> | Account balances in our RSP and ERSP become fully vested; |
> | If the executive was employed a minimum of 180 days during the fiscal year, annual incentive compensation awards are paid pro-rata based on the period worked during such fiscal year, with payment made after the fiscal year end based on our performance; |
L3HARRIS 2020 PROXY STATEMENT 80 |
> | If after age 55 with 10 or more years of full-time service, but before age 62 options exercisable at the time of retirement remain exercisable until the regularly scheduled expiration date; |
> | If after age 62 with 10 or more years of full-time service, options remain exercisable until the regularly scheduled expiration date; |
> | If after age 55 with 10 or more years of full-time service on or after June 29, 2020, performance stock options cease vesting, and performance stock options exercisable at the time of retirement remain exercisable until the regularly scheduled expiration date, but unvested performance stock options are forfeited; |
> | Performance share units are forfeited; and |
> | If after age 55 with 10 or more years of full-time service on or after June 29, 2020 restricted stock units are paid pro-rata based on the period worked during the restriction period, promptly following retirement (but subject to any delay required by U.S. Federal tax law). |
> | Annual cash incentive compensation awards under our Annual Incentive Plan are fully earned and paid out promptly following the change in control or, in certain instances, following the end of the fiscal year, in each case at not less than the target level; |
> | Options (other than performance stock options) immediately vest and become exercisable until the regularly scheduled expiration date; |
> | All Performance stock options vest at target and become exercisable upon expiration of the service period, subject to accelerated payout or forfeiture in certain circumstances; |
> | All Performance share units are deemed fully earned and fully vested immediately and will be paid as soon as administratively practicable following expiration of the service period at not less than the target level, subject to accelerated payout or forfeiture in certain circumstances; and |
> | Shares of restricted stock immediately fully vest and will be paid out as soon as administratively practicable following the change in control. |
> | We have assumed that the hypothetical termination event occurred as of January 3, 2020, the last day of our fiscal transition period, and that the value of our common stock was $210.47 per share based on the closing market price on such date; |
> | The applicable provisions as of January 3, 2020 in the agreements and other arrangements between the named executive officer and us, which are summarized on pages 72-81; |
> | Cash severance includes multiples of salary and annual incentive compensation, but does not include paid or unpaid salary or annual incentive compensation or cash incentives earned for our fiscal transition period because a named executive officer is entitled to annual incentive compensation if employed on January 3, 2020; |
> | We have not included the value of any options that were vested prior to January 3, 2020; |
81 L3HARRIS 2020 PROXY STATEMENT |
> | We have assumed that all unvested, in-the-money options that were not automatically forfeited on January 3, 2020 vested and were exercised on such day; |
> | The value of accelerated performance share units is based on the target number of performance share units previously granted and includes the dollar value of dividend equivalents paid in cash with respect to such accelerated performance share units; |
> | The value of accelerated restricted stock units includes the dollar value of dividend equivalents paid in cash with respect to such accelerated restricted stock units; |
> | We have not included any payment of the aggregate balance shown in the Fiscal Transition Period Nonqualified Deferred Compensation Table on page 71 of this proxy statement; |
> | We have included the estimated value of continuation of health and welfare benefits and perquisites, where applicable; and |
> | For a termination by us without cause or by the named executive officer for good reason following a change in control, the “Other Benefits” line includes $4,000 for placement services, $10,000 ($5,000 per year for two years) for financial or tax planning services, $300,000 for estimated relocation assistance and an estimate of reimbursement for taxes associated with relocation assistance, in each case pursuant to our executive change in control severance agreements. |
Executive Benefits and Payment | Termination by Harris for Cause | Voluntary Termination/ Resignation | Termination by Executive for Constructive Termination | Involuntary Termination by Harris without Cause | Death | Disability | Change in Control without Termination | Termination by Harris without Cause/by Executive for Good Reason Following a Change in Control | ||||||||||||||||||||||||
Cash Severance | $ | 0 | $ | 0 | $ | 7,000,000 | $ | 7,000,000 | $ | 0 | $ | 0 | $ | 0 | $ | 7,000,000 | ||||||||||||||||
Value of Accelerated or Continued Vesting of Unvested Options | $ | 0 | $ | 0 | $ | 27,478,092 | * | $ | 27,478,092 | * | $ | 25,513,741 | $ | 25,513,741 | $ | 28,460,255 | $ | 28,460,255 | ||||||||||||||
Value of Accelerated Vesting of Unvested Restricted Stock Units | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 2,703,543 | $ | 2,703,543 | ||||||||||||||||
Value of Accelerated or Continued Vesting of Unvested Performance Share Units | $ | 0 | $ | 0 | $ | 6,442,206 | * | $ | 6,442,206 | * | $ | 6,442,206 | $ | 6,442,206 | $ | 12,392,373 | $ | 12,392,373 | ||||||||||||||
Health and Welfare Benefits | $ | 0 | $ | 0 | $ | 32,633 | $ | 32,633 | $ | 0 | $ | 0 | $ | 0 | $ | 59,236 | ||||||||||||||||
Other Benefits | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 511,237 | ||||||||||||||||
TOTAL | $ | 0 | $ | 0 | $ | 40,952,931 | $ | 40,952,931 | $ | 31,955,947 | $ | 31,955,947 | $ | 43,556,171 | $ | 51,126,644 |
Executive Benefits and Payment | Termination by L3Harris for Cause | Voluntary Termination/ Resignation | Termination by Executive for Constructive Termination | Involuntary Termination by L3Harris without Cause | Death | Disability | Change in Control without Termination | Termination by L3Harris without Cause/by Executive for Good Reason Following a Change in Control | ||||||||||||||||||||||||
Cash Severance | $ | 0 | $ | 0 | $ | 15,555,000 | $ | 15,555,000 | $ | 0 | $ | 0 | $ | 0 | $ | 15,555,000 | ||||||||||||||||
Value of Accelerated or Continued Vesting of Unvested Options | $ | 0 | $ | 0 | $ | 242,599 | $ | 242,599 | $ | 727,796 | $ | 727,796 | $ | 0 | $ | 727,796 | ||||||||||||||||
Value of Accelerated Vesting of Unvested Restricted Stock Units | $ | 0 | $ | 0 | $ | 5,303,277 | $ | 5,303,277 | $ | 5,303,277 | $ | 5,303,277 | $ | 0 | $ | 5,303,277 | ||||||||||||||||
Value of Accelerated Vesting of Unvested Performance Share Units | $ | 0 | $ | 0 | $ | 862,294 | $ | 862,294 | $ | 2,587,094 | $ | 2,587,094 | $ | 0 | $ | 2,587,094 | ||||||||||||||||
Health and Welfare Benefits | $ | 0 | $ | 0 | $ | 193,960 | $ | 193,960 | $ | 0 | $ | 0 | $ | 0 | $ | 193,960 | ||||||||||||||||
Other Benefits | $ | 0 | $ | 0 | $ | 511,236 | $ | 511,236 | $ | 0 | $ | 0 | $ | 0 | $ | 511,236 | ||||||||||||||||
TOTAL | $ | 0 | $ | 0 | $ | 22,668,336 | $ | 22,668,336 | $ | 8,618,167 | $ | 8,618,167 | $ | 0 | $ | 24,878,363 |
L3HARRIS 2020 PROXY STATEMENT 82 |
Executive Benefits and Payment | Termination by L3Harris for Cause | Voluntary Termination/ Resignation | Termination by Executive for Constructive Termination | Involuntary Termination by L3Harris without Cause | Death | Disability | Change in Control without Termination | Termination by L3Harris without Cause/by Executive for Good Reason Following a Change in Control | ||||||||||||||||||||||||
Cash Severance | $ | 0 | $ | 0 | $ | 11,850,000 | $ | 11,850,000 | $ | 0 | $ | 0 | $ | 0 | $ | 11,850,000 | ||||||||||||||||
Value of Accelerated Vesting of Unvested Options | $ | 0 | $ | 0 | $ | 242,599 | $ | 242,599 | $ | 727,726 | $ | 727,726 | $ | 0 | $ | 727,726 | ||||||||||||||||
Value of Accelerated Vesting of Unvested Restricted Stock and Restricted Stock Units | $ | 0 | $ | 0 | $ | 6,738,950 | $ | 6,738,950 | $ | 6,738,950 | $ | 6,738,950 | $ | 0 | $ | 6,738,950 | ||||||||||||||||
Value of Accelerated Vesting of Unvested Performance Share Units | $ | 0 | $ | 0 | $ | 862,294 | $ | 862,294 | $ | 2,587,094 | $ | 2,587,094 | $ | 0 | $ | 2,587,094 | ||||||||||||||||
Value of Unvested Legacy L3 Performance Cash | $ | 0 | $ | 0 | $ | 1,920,000 | $ | 1,920,000 | $ | 599,601 | $ | 599,601 | $ | 0 | $ | 1,920,000 | ||||||||||||||||
Health and Welfare Benefits | $ | 0 | $ | 0 | $ | 61,076 | $ | 61,076 | $ | 0 | $ | 0 | $ | 0 | $ | 61,076 | ||||||||||||||||
Other Benefits | $ | 0 | $ | 0 | $ | 18,000 | $ | 18,000 | $ | 0 | $ | 0 | $ | 0 | $ | 18,000 | ||||||||||||||||
TOTAL | $ | 0 | $ | 0 | $ | 21,692,919 | $ | 21,692,919 | $ | 10,653,442 | $ | 10,653,442 | $ | 0 | $ | 23,902,916 |
Executive Benefits and Payment | Termination by L3Harris for Cause | Voluntary Termination/ Resignation | Termination by Executive for Constructive Termination | Involuntary Termination by L3Harris without Cause | Death | Disability | Change in Control without Termination | Termination by L3Harris without Cause/by Executive for Good Reason Following a Change in Control | ||||||||||||||||||||||||
Cash Severance | $ | 0 | $ | 0 | $ | 625,000 | $ | 625,000 | $ | 0 | $ | 0 | $ | 0 | $ | 2,500,000 | ||||||||||||||||
Value of Accelerated Vesting of Unvested Options | $ | 0 | $ | 0 | $ | 65,018 | $ | 65,018 | $ | 195,053 | $ | 195,053 | $ | 0 | $ | 195,053 | ||||||||||||||||
Value of Accelerated Vesting of Unvested Restricted Stock Units | $ | 0 | $ | 0 | $ | 139,052 | $ | 139,052 | $ | 983,117 | $ | 983,117 | $ | 0 | $ | 983,117 | ||||||||||||||||
Value of Accelerated Vesting of Unvested Performance Share Units | $ | 0 | $ | 0 | $ | 227,656 | $ | 227,656 | $ | 682,967 | $ | 682,967 | $ | 0 | $ | 682,967 | ||||||||||||||||
Health and Welfare Benefits | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 53,792 | ||||||||||||||||
Other Benefits | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 511,236 | ||||||||||||||||
TOTAL | $ | 0 | $ | 0 | $ | 1,056,726 | $ | 1,056,726 | $ | 1,861,137 | $ | 1,861,137 | $ | 0 | $ | 4,926,165 |
83 L3HARRIS 2020 PROXY STATEMENT |
Executive Benefits and Payment | Termination by L3Harris for Cause | Voluntary Termination/ Resignation | Termination by Executive for Constructive Termination | Involuntary Termination by L3Harris without Cause | Death | Disability | Retirement | Change in Control without Termination | Termination by L3Harris without Cause/ by Executive for Good Reason Following a Change in Control | |||||||||||||||||||||||||
Cash Severance | $ | 0 | $ | 0 | $ | 3,447,417 | $ | 3,447,417 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 3,447,417 | ||||||||||||||||
Value of Accelerated Vesting of Unvested Options | $ | 0 | $ | 0 | $ | 65,018 | $ | 65,018 | $ | 195,053 | $ | 195,053 | $ | 0 | $ | 0 | $ | 195,053 | ||||||||||||||||
Value of Accelerated Vesting of Unvested Restricted Stock Units | $ | 0 | $ | 0 | $ | 2,059,028 | $ | 2,059,028 | $ | 443,039 | $ | 443,039 | $ | 0 | $ | 0 | $ | 1,721,855 | ||||||||||||||||
Value of Accelerated Vesting of Unvested Performance Share Units | $ | 0 | $ | 0 | $ | 227,656 | $ | 227,656 | $ | 682,967 | $ | 682,967 | $ | 0 | $ | 0 | $ | 682,967 | ||||||||||||||||
Value of Unvested Legacy L3 Performance Cash | $ | 0 | $ | 0 | $ | 260,000 | $ | 260,000 | $ | 81,196 | $ | 81,196 | $ | 0 | $ | 0 | $ | 260,000 | ||||||||||||||||
Health and Welfare Benefits | $ | 0 | $ | 0 | $ | 80,581 | $ | 80,581 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 80,581 | ||||||||||||||||
Other Benefits | $ | 0 | $ | 0 | $ | 18,000 | $ | 18,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 18,000 | ||||||||||||||||
TOTAL | $ | 0 | $ | 0 | $ | 6,157,700 | $ | 6,157,700 | $ | 1,402,255 | $ | 1,402,255 | $ | 0 | $ | 0 | $ | 6,405,873 |
Executive Benefits and Payment | Termination by L3Harris for Cause | Voluntary Termination/ Resignation | Termination by Executive for Constructive Termination | Involuntary Termination by L3Harris without Cause | Death | Disability | Retirement | Change in Control without Termination | Termination by L3Harris without Cause/ by Executive for Good Reason Following a Change in Control | |||||||||||||||||||||||||
Cash Severance | $ | 0 | $ | 0 | $ | 2,400,000 | $ | 2,400,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 2,400,000 | ||||||||||||||||
Value of Accelerated Vesting of Unvested Options | $ | 0 | $ | 0 | $ | 65,018 | $ | 65,018 | $ | 195,053 | $ | 195,053 | $ | 0 | $ | 0 | $ | 195,053 | ||||||||||||||||
Value of Accelerated Vesting of Unvested Restricted Stock Units | $ | 0 | $ | 0 | $ | 827,955 | $ | 827,955 | $ | 827,955 | $ | 827,955 | $ | 0 | $ | 0 | $ | 827,955 | ||||||||||||||||
Value of Accelerated Vesting of Unvested Performance Share Units | $ | 0 | $ | 0 | $ | 227,656 | $ | 227,656 | $ | 682,967 | $ | 682,967 | $ | 0 | $ | 0 | $ | 682,967 | ||||||||||||||||
Health and Welfare Benefits | $ | 0 | $ | 0 | $ | 67,530 | $ | 67,530 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 67,530 | ||||||||||||||||
Other Benefits | $ | 0 | $ | 0 | $ | 511,236 | $ | 511,236 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 511,236 | ||||||||||||||||
TOTAL | $ | 0 | $ | 0 | $ | 4,099,395 | $ | 4,099,395 | $ | 1,705,975 | $ | 1,705,975 | $ | 0 | $ | 0 | $ | 4,684,741 |
L3HARRIS 2020 PROXY STATEMENT 84 |
Executive Benefits and Payment | Termination by Harris for Cause | Voluntary Termination/ Resignation | Termination by Executive for Good Reason | Involuntary Termination by Harris without Cause | Death | Disability | Change in Control without Termination | Termination by Harris without Cause/by Executive for Good Reason Following a Change in Control | ||||||||||||||||||||||||
Cash Severance | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 1,925,000 | ||||||||||||||||
Value of Accelerated Vesting of Unvested Options | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 1,923,158 | $ | 1,923,158 | $ | 2,390,305 | $ | 2,390,305 | ||||||||||||||||
Value of Accelerated Vesting of Unvested Restricted Stock Units | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 428,714 | $ | 428,714 | ||||||||||||||||
Value of Accelerated Vesting of Unvested Performance Share Units | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 983,678 | $ | 983,678 | $ | 1,908,054 | $ | 1,908,054 | ||||||||||||||||
Health and Welfare Benefits | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 51,588 | ||||||||||||||||
Other Benefits | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 511,237 | ||||||||||||||||
TOTAL | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 2,906,836 | $ | 2,906,836 | $ | 4,727,073 | $ | 7,214,898 |
Executive Benefits and Payment | Termination by Harris for Cause | Voluntary Termination/ Resignation | Termination by Executive for Good Reason | Involuntary Termination by Harris without Cause | Death | Disability | Retirement | Change in Control without Termination | Termination by Harris without Cause/by Executive for Good Reason Following a Change in Control | |||||||||||||||||||||||||||
Cash Severance | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 1,961,665 | * | |||||||||||||||||
Value of Accelerated Vesting of Unvested Options | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 2,581,098 | $ | 2,581,098 | $ | 0 | $ | 2,994,330 | $ | 2,994,330 | ||||||||||||||||||
Value of Accelerated Vesting of Unvested Restricted Stock Units | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 379,236 | $ | 379,236 | ||||||||||||||||||
Value of Accelerated Vesting of Unvested Performance Share Units | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 951,084 | $ | 951,084 | $ | 951,084 | $ | 1,809,097 | $ | 1,809,097 | ||||||||||||||||||
Health and Welfare Benefits | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 45,571 | ||||||||||||||||||
Other Benefits | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 511,237 | ||||||||||||||||||
TOTAL | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 3,532,182 | $ | 3,532,182 | $ | 951,084 | $ | 5,182,663 | $ | 7,701,136 |
Executive Benefits and Payment | Termination by Harris for Cause | Voluntary Termination/ Resignation | Termination by Executive for Good Reason | Involuntary Termination by Harris without Cause | Death | Disability | Retirement | Change in Control without Termination | Termination by Harris without Cause/by Executive for Good Reason Following a Change in Control | |||||||||||||||||||||||||||
Cash Severance | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 1,944,165 | * | |||||||||||||||||
Value of Accelerated Vesting of Unvested Options | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 2,581,098 | $ | 2,581,098 | $ | 0 | $ | 2,994,330 | $ | 2,994,330 | ||||||||||||||||||
Value of Accelerated Vesting of Unvested Restricted Stock Units | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 379,236 | $ | 379,236 | ||||||||||||||||||
Value of Accelerated Vesting of Unvested Performance Share Units | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 951,084 | $ | 951,084 | $ | 951,084 | $ | 1,809,097 | $ | 1,809,097 | ||||||||||||||||||
Health and Welfare Benefits | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 66,150 | ||||||||||||||||||
Other Benefits | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 511,237 | ||||||||||||||||||
TOTAL | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 3,532,182 | $ | 3,532,182 | $ | 951,084 | $ | 5,182,663 | $ | 7,704,215 |
Executive Benefits and Payment | Termination by Harris for Cause | Voluntary Termination/ Resignation | Termination by Executive for Good Reason | Involuntary Termination by Harris without Cause | Death | Disability | Retirement | Change in Control without Termination | Termination by Harris without Cause/by Executive for Good Reason Following a Change in Control | |||||||||||||||||||||||||||
Cash Severance | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 1,950,000 | ||||||||||||||||||
Value of Accelerated Vesting of Unvested Options | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 2,244,267 | $ | 2,244,267 | $ | 0 | $ | 2,639,536 | $ | 2,639,536 | ||||||||||||||||||
Value of Accelerated Vesting of Unvested Restricted Stock Units | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 362,792 | $ | 362,792 | ||||||||||||||||||
Value of Accelerated Vesting of Unvested Performance Share Units | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 848,771 | $ | 848,771 | $ | 848,771 | $ | 1,639,185 | $ | 1,639,185 | ||||||||||||||||||
Health and Welfare Benefits | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 64,838 | ||||||||||||||||||
Other Benefits | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 511,237 | ||||||||||||||||||
TOTAL | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 3,093,038 | $ | 3,093,038 | $ | 848,771 | $ | 4,641,513 | $ | 7,167,588 |
1 | Approximate number of non-U.S. employees excluded, by jurisdiction: Australia (175), Canada (116), Germany (78), Pakistan (25), United Arab Emirates (16), United Kingdom (310) and 10 or fewer in each of Algeria, Brazil, Estonia, France, Hong Kong, India, Japan, Italy, Malaysia, Poland, Qatar, Romania, Saudi Arabia, Singapore and Taiwan. |
85 L3HARRIS 2020 PROXY STATEMENT |
> | the integrity of L3Harris’ financial statements; |
> | L3Harris’ compliance with relevant legal and regulatory requirements; |
> | L3Harris’ internal control over financial reporting; |
> | the qualifications and independence of L3Harris’ independent registered public accounting firm; and |
> | the performance of L3Harris’ internal audit function and independent registered public accounting firm. |
> | reviewed and discussed with management and EY L3Harris’ internal control over financial reporting, including a review of management’s report on its assessment and EY’s audit of the effectiveness of L3Harris’ internal control over financial reporting and any significant deficiencies or material weaknesses; |
> | considered, reviewed and discussed the audited financial statements with management and EY, including a discussion of the quality of the accounting principles, the reasonableness thereof, significant adjustments, if any, and the clarity of disclosures in the financial statements, as well as critical accounting policies and other financial accounting and reporting principles and practices; |
> | discussed with EY the matters required to be discussed under the Public Company Accounting Oversight Board Auditing Standard No. 1301, Communications with Audit Committees, and No. 2410, Related Parties; |
L3HARRIS 2020 PROXY STATEMENT 86 |
> | received, reviewed and discussed the written disclosures and the letter from EY required by applicable requirements of the Public Company Accounting Oversight Board regarding EY’s communications with an audit committee concerning independence, and discussed with EY its independence; |
> | reviewed the services provided by EY other than its audit services and considered whether the provision of such other services by EY is compatible with maintaining its independence, discussed with EY its independence, and concluded that EY is independent from L3Harris and its management; and |
> | reviewed the contents of SEC-required certification statements from the Chief Executive Officer and Chief Financial Officer and also discussed and reviewed the process and internal controls for providing reasonable assurances that the financial statements included in L3Harris’ Transition Report on Form 10-KT for the fiscal transition period ended January 3, 2020 are true in all important respects, and that the report contains all appropriate material information of which they are aware. |
87 L3HARRIS 2020 PROXY STATEMENT |
Our Board unanimously recommends voting FOR ratification of appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending January 1, 2021. | |||
L3HARRIS 2020 PROXY STATEMENT 88 |
Fiscal Transition Period | Fiscal 2019 | Fiscal 2018 | ||||||||||
Audit Fees(1) | $ | 14,922,674 | $ | 9,679,000 | $ | 12,243,000 | ||||||
Audit-Related Fees(2) | $ | 6,431 | $ | 0 | $ | 0 | ||||||
Tax Fees(3) | $ | 460,529 | $ | 455,000 | $ | 1,425,000 | ||||||
All Other Fees(4) | $ | 10,615 | $ | 0 | $ | 0 | ||||||
Total | $ | 15,400,249 | $ | 10,134,000 | $ | 13,668,000 |
(1) | Audit fees included fees associated with the annual audit and the audit of internal control over financial reporting, as well as reviews of our quarterly reports on Form 10-Q, SEC registration statements and other filings, comfort letter procedures, accounting and reporting consultations and statutory audits required internationally for certain of our subsidiaries. |
Fiscal 2018 | Fiscal 2017 | ||||||
Audit Fees1 | $ | 12,243,000 | $ | 12,595,427 | |||
Audit-Related Fees2 | 0 | 2,500,000 | |||||
Tax Fees3 | 1,425,000 | 3,606,000 | |||||
All Other Fees4 | 0 | 0 | |||||
Total | $ | 13,668,000 | $ | 18,701,427 |
(2) | No audit-related services were rendered or fees billed for fiscal 2019 or 2018. |
(3) | Tax fees for our fiscal transition period consisted of $204,142 related to tax compliance, including foreign and domestic return preparation and transfer pricing studies, and $256,387 related to tax planning and tax advisory services. Tax fees for fiscal 2019 consisted of $125,000 related to tax compliance, including foreign and domestic return preparation and transfer pricing studies, and $330,000 related to tax planning and tax advisory services. Tax fees for fiscal 2018 consisted of $782,000 related to tax compliance, including foreign and domestic return preparation and transfer pricing studies, and $643,000 related to tax planning and tax advisory services. |
(4) |
For fiscal 2019 and 2018, no professional services were rendered or fees billed for services not included within Audit Fees, Audit-Related Fees or Tax Fees. |
89 L3HARRIS 2020 PROXY STATEMENT |
> | Remove supermajority voting and “fair price” requirements for business combinations involving interested shareholders (Proposal 4) |
> | Remove the “anti-greenmail” provision (Proposal 5) |
> | Remove the requirement that we have cumulative voting for directors if there is a 40% shareholder (Proposal 6) |
Our Board unanimously recommends voting FOR the amendment to our Restated Certificate of Incorporation to eliminate the supermajority voting and “fair price” requirements for business combinations involving interested shareholders. | > The supermajority voting and “fair price” requirements for business combinations involving interested shareholders were designed to protect our shareholders against hostile takeovers by activist investors. > Our Board believes the concerns that prompted adopting such supermajority voting and “fair price” requirements in 1984 are now adequately addressed by the corporate law of Delaware, the state in which we are incorporated. > Eliminating these requirements would modernize our Restated Certificate of Incorporation and be more consistent with current corporate governance best practices and governance practices of other S&P 500 companies. |
> | Supermajority voting requirement. Article Ninth requires the affirmative vote of holders of at least 80% of our common stock to approve certain business combinations involving an interested shareholder (generally defined for this purpose as a holder of more than 10% of our common stock). Article Ninth includes exceptions to this supermajority voting requirement |
L3HARRIS 2020 PROXY STATEMENT 90 |
if the business combination with the interested shareholder either has been approved by a majority of our “continuing directors” (as defined in Article Ninth) or satisfies the “fair price” requirement described below. If either of these exceptions applies, the business combination with the interested shareholder instead would be subject to the usual voting requirements of the Delaware General Corporation Law (the “DGCL”). |
> | “Fair price” requirement. The “fair price” exception (to the supermajority voting requirement) in Article Ninth requires that the consideration to be received by shareholders in the business combination with the interested shareholder meet or exceed the highest of certain prices previously paid by the interested shareholder and be in cash or generally the same form as previously paid by the interested shareholder. These criteria as to amount and form of consideration, in addition to certain notice and information criteria, were common elements of a “fair price” requirement, an anti-takeover measure intended to defend against two-tiered tender offers in which a potential acquirer offers one price for shares needed to gain control of a target company and a lower price (or other less attractive consideration) for the remaining shares, which can pressure shareholders to tender their shares for the tender offer price regardless of their value. A standard “fair price” provision encourages a potential acquirer to negotiate with a company’s board of directors by requiring the potential acquirer to pay a “fair price” for all shares based on a formula or other criteria unless the acquirer’s offer satisfies specified approval requirements of the company’s board of directors or shareholders. |
> | the company’s board approved either the business combination or the transaction that resulted in the shareholder becoming an interested shareholder prior to such business combination or transaction; |
> | the shareholder owned at least 85% of the company’s outstanding voting stock (excluding shares owned by persons who are directors and also officers of the company and shares owned by certain employee benefit plans) upon consummation of the transaction that resulted in the shareholder becoming an interested shareholder; or |
> | the business combination was approved by the company’s board of directors and by the affirmative vote of at least 66 and 2/3% of the company’s outstanding voting stock not owned by the interested shareholder. |
91 L3HARRIS 2020 PROXY STATEMENT |
Our Board unanimously recommends voting FOR the amendment to our Restated Certificate of Incorporation to eliminate the “anti-greenmail” provision. | > “Anti-greenmail” provisions were commonly implemented in the 1980s to prohibit companies from making “greenmail” payments – premium payments to activist investors. > Our Board believes that our anti-greenmail provision is no longer necessary to combat the threats that it was originally intended to address when adopted in 1985, due to subsequent laws that sufficiently deter “greenmail” payments and the behavior of activist investors that originally prompted those payments. > Anti-greenmail provisions now are less common among S&P 500 companies, and our Board believes eliminating our anti-greenmail provision is consistent with current corporate governance best practices. |
L3HARRIS 2020 PROXY STATEMENT 92 |
> | If this proposal and Proposal 6 are both approved: we will file an amendment to our Restated Certificate of Incorporation with the Secretary of State of the State of Delaware promptly after the 2020 Annual Meeting to amend and restate Article Tenth to read in its entirety: “TENTH: Reserved.” |
> | If neither this proposal nor Proposal 6 is approved: Article Tenth will not be amended and will remain unchanged and as currently in effect. |
> | If this proposal is approved, but Proposal 6 is not approved: we will file an amendment to our Restated Certificate of Incorporation with the Delaware Secretary of State promptly after the 2020 Annual Meeting to amend and restate Article Tenth to read in its entirety as set forth in Appendix B-1 to this proxy statement. |
> | If this proposal is not approved, but Proposal 6 is approved: we will file an amendment to our Restated Certificate of Incorporation with the Delaware Secretary of State promptly after the 2020 Annual Meeting to amend and restate Article Tenth to read in its entirety as set forth in Appendix B-2 to this proxy statement. |
93 L3HARRIS 2020 PROXY STATEMENT |
Our Board unanimously recommends voting FOR the amendment to our Restated Certificate of Incorporation to eliminate the cumulative voting provision that applies when we have a 40% shareholder. | > The only cumulative voting requirement in our Restated Certificate of Incorporation is in Article Tenth, Section 2; it applies when we have a 40% shareholder and was originally adopted in 1985 as an anti-takeover measure. > Cumulative voting generally is rare among S&P 500 companies, and our Board believes that this limited cumulative voting right is not necessary to protect our shareholders against activist investors. > Our Board also believes that eliminating this limited cumulative voting right is consistent with current corporate governance best practices, the governance practices of other S&P 500 companies, and the majority voting standard that otherwise applies to the election of our directors. |
L3HARRIS 2020 PROXY STATEMENT 94 |
> | If Proposal 5 and this proposal are both approved: we will file an amendment to our Restated Certificate of Incorporation with the Secretary of State of the State of Delaware promptly after the 2020 Annual Meeting to amend and restate Article Tenth to read in its entirety: “TENTH: Reserved.” |
> | If neither Proposal 5 nor this proposal is approved: Article Tenth will not be amended and will remain unchanged and as currently in effect. |
> | If Proposal 5 is approved, but this proposal is not approved: we will file an amendment to our Restated Certificate of Incorporation with the Secretary of State of the State of Delaware promptly after the 2020 Annual Meeting to amend and restate Article Tenth to read in its entirety as set forth in Appendix B-1 to this proxy statement. |
> | If Proposal 5 is not approved, but this proposal is approved: we will file an amendment to our Restated Certificate of Incorporation with the Secretary of State of the State of Delaware promptly after the 2020 Annual Meeting to amend and restate Article Tenth to read in its entirety as set forth in Appendix B-2 to this proxy statement. |
95 L3HARRIS 2020 PROXY STATEMENT |
Our Board unanimously recommends voting AGAINST the shareholder proposal to permit the ability of shareholders to act by written consent. | > We received the shareholder proposal and supporting statement set forth below from John Chevedden. According to the information provided to us, John Chevedden, whose address is 2215 Nelson Avenue, No. 205, Redondo Beach, California 90278, owns more than $2,000 in market value of our common stock as of the date the proposal was submitted to us. The shareholder proposal is required to be voted on at our Annual Meeting only if properly presented at our Annual Meeting. In accordance with the applicable proxy statement regulations, the shareholder proposal and supporting statement, for which the Board of Directors of L3Harris accepts no responsibility, are as follows: |
L3HARRIS 2020 PROXY STATEMENT 96 |
> | Annual election of directors, with majority voting and a resignation policy for directors in uncontested elections. |
> | Proxy access provisions (proactively adopted), which enable shareholders to nominate directors to be included in our proxy materials subject to satisfying procedural and eligibility requirements. |
> | Shareholders’ ability to submit proposals to be considered at our annual meetings. |
> | Lead Independent Director with expansive duties. |
> | Engaged, experienced and diverse Board, which held 17 Board and committee meetings during our fiscal transition period and 36 Board and committee meetings during our fiscal 2019. |
> | Shareholder access to our Board, as described in the “Communicating with our Board of Directors” section of this proxy statement beginning on page 22. |
> | No “poison pill.” |
97 L3HARRIS 2020 PROXY STATEMENT |
Name | Shares Beneficially Owned | |||
Shares Owned(1) | Shares Under Exercisable Options(2) | Total Shares Beneficially Owned(3) | Percentage of Shares | |
DIRECTORS AND NOMINEES | ||||
Sallie B. Bailey | 1,604 | — | 1,604 | * |
Peter W. Chiarelli | 1,412 | — | 1,412 | * |
Thomas A. Corcoran | 22,078 | — | 22,078 | * |
Thomas A. Dattilo | 3,412 | — | 3,412 | * |
Roger B. Fradin | 1,137 | — | 1,137 | * |
Lewis Hay III | 15,440 | — | 15,440 | * |
Lewis Kramer | 19,690 | — | 19,690 | * |
Rita S. Lane | 2,226 | — | 2,226 | * |
Robert B. Millard | 224,784 | — | 224,784 | * |
Lloyd W. Newton | 11,424 | — | 11,424 | * |
NAMED EXECUTIVE OFFICERS | ||||
William M. Brown† | 367,474 | 1,385,563 | 1,753,037 | * |
Christopher E. Kubasik† | 73,160 | 408,381 | 481,541 | * |
Jesus Malave, Jr. | - | - | - | - |
Todd W. Gautier | 17,608 | 28,729 | 46,337 | * |
Edward J. Zoiss | 21,292 | 72.799 | 94,091 | * |
All Directors and Executive Officers, as a group (20 persons)(4) | 967,046 | 2,151,405 | 3,118,451 | 1.4% |
Name | Shares Beneficially Owned | Stock Equivalent Units(4) | ||||||||||||
Shares Owned(1) | Shares Under Exercisable Options(2) | Total Shares Beneficially Owned(3) | Percentage of Shares | |||||||||||
DIRECTORS AND NOMINEES: | ||||||||||||||
James F. Albaugh | 1,725 | — | 1,725 | * | 2,066 | |||||||||
Sallie B. Bailey | 492 | — | 492 | * | 167 | |||||||||
Peter W. Chiarelli | 1,000 | — | 1,000 | * | 9,575 | |||||||||
Thomas A. Dattilo | 1,000 | — | 1,000 | * | 10,000 | |||||||||
Roger B. Fradin | 725 | — | 725 | * | 1,827 | |||||||||
Terry D. Growcock | 2,021 | — | 2,021 | * | 3,592 | |||||||||
Lewis Hay III | 5,228 | — | 5,228 | * | 21,777 | |||||||||
Vyomesh I. Joshi | 1,000 | — | 1,000 | * | 6,717 | |||||||||
Leslie F. Kenne | 1,000 | — | 1,000 | * | 17,393 | |||||||||
James C. Stoffel | 1,000 | — | 1,000 | * | 360 | |||||||||
Gregory T. Swienton | 1,000 | — | 1,000 | * | 26,245 | |||||||||
Hansel E. Tookes II | 2,000 | — | 2,000 | * | 16,336 | |||||||||
NAMED EXECUTIVE OFFICERS: | ||||||||||||||
William M. Brown† | 233,474 | 1,496,366 | 1,729,840 | 1.47 | % | 145,918 | ||||||||
Rahul Ghai | 10,603 | 72,703 | 83,306 | * | 23,775 | |||||||||
Sheldon J. Fox | 54,136 | 222,661 | 276,797 | * | 20,278 | |||||||||
Dana A. Mehnert | 78,380 | 109,141 | 187,521 | * | 22,037 | |||||||||
Scott T. Mikuen | 51,146 | 168,956 | 220,102 | * | 20,646 | |||||||||
All Directors and Executive Officers, as a group (22 persons)(5) | 510,699 | 2,438,145 | 2,948,844 | 2.51 | % | 412,345 |
* | Less than 1%. |
† |
(1) | Includes shares over which the individual or his or her immediate family members hold or share voting and/or investment power and excludes shares listed under the “Shares Under Exercisable Options” |
(2) | Includes shares underlying options granted by us that are exercisable as of |
(3) | Represents the total of shares listed under the “Shares Owned” and “Shares Under Exercisable Options” columns. |
(4) |
L3HARRIS 2020 PROXY STATEMENT 98 |
Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | |
The Vanguard Group | 18,808,425(1) | 8.5%(1) | |
100 Vanguard Boulevard | |||
BlackRock, Inc. | 17,211,998(2) | 7.8%(2) | |
55 East 52nd Street | |||
(1) | Based on information contained in Amendment No. |
(2) | Based on information contained in Schedule 13G filed with the SEC on February 5, 2020 by BlackRock, Inc. indicating that, as of December 31, 2019, BlackRock, Inc. had sole voting power over 15,637,261 shares, shared voting power over 0 shares, sole dispositive power over |
99 L3HARRIS 2020 PROXY STATEMENT |
L3HARRIS 2020 PROXY STATEMENT 100 |
> | Our name changed from “Harris Corporation” to “L3Harris Technologies, Inc.”; |
> | Shares of our common stock, which previously traded under ticker symbol “HRS” on the NYSE prior to completion of the Merger, now are traded under ticker symbol “LHX”; |
> | Our Board now is comprised of 12 directors: William M. Brown, Chairman and CEO (formerly Harris’ Chairman, President and CEO); Christopher E. Kubasik, Vice Chairman, President and COO (formerly L3’s Chairman, CEO and President); 5 independent directors from the Harris Board; and 5 independent directors from the L3 Board; and |
> | We transitioned to a calendar year oriented financial reporting cycle, and our fiscal year now ends on the Friday nearest December 31. |
101 L3HARRIS 2020 PROXY STATEMENT |
> | Over the Internet; |
> | By telephone; |
> | By mail; or |
> | In person at the Annual Meeting. |
> | By sending a written notice of revocation to our Secretary at L3Harris Technologies, Inc., Attention: Secretary, 1025 West NASA Boulevard, Melbourne, Florida 32919; |
> | By duly signing and delivering a proxy/voting instruction card that bears a later date; |
> | By subsequently voting over the Internet or by telephone as described above; or |
> | By attending the Annual Meeting and voting in person by ballot. |
103 L3HARRIS 2020 PROXY STATEMENT |
> | FOR election of all 12 of the nominees for director named in this proxy statement for a one-year term expiring at the 2021 Annual Meeting of Shareholders (see Proposal 1); |
> | FOR approval, in an advisory vote, of the compensation of our named executive officers as disclosed in this proxy statement (see Proposal 2); and |
> | FOR ratification of our Audit Committee’s appointment of Ernst & Young LLP as our independent registered public accounting firm for our fiscal year 2020 (see Proposal 3); |
> | FOR an amendment to our Restated Certificate of Incorporation to eliminate the supermajority voting and “fair price” requirements for business combinations involving interested shareholders (see Proposal 4); |
> | FOR an amendment to our Restated Certificate of Incorporation to eliminate the “anti-greenmail” provision (see Proposal 5); |
> | FOR an amendment to our Restated Certificate of Incorporation to eliminate the cumulative voting provision that applies when we have a 40% shareholder (see Proposal 6); and |
> | AGAINST the shareholder proposal to permit the ability of shareholders to act by written consent (see Proposal 7). |
L3HARRIS 2020 PROXY STATEMENT 104 |
Proposals | Vote Required for Approval | Effect of Abstentions | Effect of Broker Non-Votes |
Proposal 1: Elect our Board’s 12 nominees for director for a one-year term expiring at the 2021 Annual Meeting of Shareholders | A nominee must receive more FOR votes than AGAINST votes | None | None |
Proposal 2: Approve, in an advisory vote, the compensation of our named executive officers as disclosed in this proxy statement | A majority of the shares present or represented at the Annual Meeting and entitled to vote on this proposal must vote FOR this proposal | Counted as a vote AGAINST | None |
Proposal 3: Ratify appointment of Ernst & Young LLP as our independent registered public accounting firm for fiscal year 2020 | A majority of the shares present or represented at the Annual Meeting and entitled to vote on this proposal must vote FOR this proposal | Counted as a vote AGAINST | None |
Proposal 4: Amend our Restated Certificate of Incorporation to eliminate the supermajority voting and “fair price” requirements for business combinations involving interested shareholders | 80% of the outstanding shares entitled to vote generally in the election of directors (or 173,516,956 shares) must vote FOR this proposal | Counted as a vote AGAINST | Counted as a vote AGAINST |
Proposal 5: Amend our Restated Certificate of Incorporation to eliminate the “anti-greenmail” provision | 80% of the outstanding shares entitled to vote generally in the election of directors (or 173,516,956 shares) must vote FOR this proposal | Counted as a vote AGAINST | Counted as a vote AGAINST |
Proposal 6: Amend our Restated Certificate of Incorporation to eliminate the cumulative voting provision that applies when we have a 40% shareholder | 80% of the outstanding shares entitled to vote generally in the election of directors (or 173,516,956 shares) must vote FOR this proposal | Counted as a vote AGAINST | Counted as a vote AGAINST |
Proposal 7: Shareholder proposal to permit the ability of shareholders to act by written consent, if such proposal is properly presented at the Annual Meeting | A majority of the shares present or represented at the Annual Meeting and entitled to vote on this proposal must vote FOR this proposal | Counted as a vote AGAINST | None |
105 L3HARRIS 2020 PROXY STATEMENT |
L3HARRIS 2020 PROXY STATEMENT 106 |
Transition Period Ended January 3, 2020 | ||||||||
GAAP income from continuing operations per diluted common share | $ | 3.68 | ||||||
Adjustments: | ||||||||
(Gain) loss on sale of businesses | (1.02 | ) | ||||||
Gain on sale of asset group | (0.05 | ) | ||||||
L3Harris Merger transaction and integration costs, including change-in-control (CIC) charges | 0.68 | |||||||
L3Harris Merger integration costs | 0.84 | |||||||
Charges related to consolidation of facilities | 0.22 | |||||||
Gain on pension curtailment | (0.10 | ) | ||||||
Additional cost of sales related to the fair value step-up in inventory sold | 0.64 | |||||||
Amortization of acquisition-related intangibles | 1.30 | |||||||
Non-cash cumulative adjustment to lease expense | 0.04 | |||||||
Losses and other costs related to debt refinancing | 0.01 | |||||||
Total pre-tax adjustments | 2.56 | |||||||
Income taxes on above adjustments | (0.81 | ) | ||||||
Total adjustments after-tax | 1.75 | |||||||
Non-GAAP income from continuing operations per diluted common share | $ | 5.43 | ||||||
ADJUSTED FREE CASH FLOW | ||||||||
Dollars in Millions | Transition Period Ended January 3, 2020 | Fiscal Year Ended June 28, 2019 | ||||||
Net cash provided by operating activities | $ | 939 | $ | 1,185 | ||||
Net additions of property, plant and equipment | (173 | ) | (161 | ) | ||||
Free cash flow | 766 | 1,024 | ||||||
Cash used for L3Harris Merger transaction and integration costs, including CIC payments | 381 | 31 | ||||||
Voluntary contribution to defined pension plans | 302 | - | ||||||
Adjusted free cash flow | $ | 1,449 | $ | 1,055 |
A-1 L3HARRIS 2020 PROXY STATEMENT |
NON-GAAP OPERATING INCOME | |||||||||||||||||
FY2016 | FY2017 | FY2018 | |||||||||||||||
(in millions) | |||||||||||||||||
GAAP income from continuing operations before income taxes | $ | 884 | $ | 905 | $ | 926 | |||||||||||
Net interest expense | 181 | 170 | 168 | ||||||||||||||
Non-operating (income) loss | (10 | ) | (2 | ) | 28 | ||||||||||||
GAAP operating income | $ | 1,055 | $ | 1,073 | $ | 1,122 | |||||||||||
Adjustments (a), (b) | 53 | 58 | 64 | ||||||||||||||
Non-GAAP operating income | $ | 1,108 | $ | 1,131 | $ | 1,186 | |||||||||||
NON-GAAP INCOME FROM CONTINUING OPERATIONS PER DILUTED COMMON SHARE | |||||||||||||||||
FY2015 | FY2016 | FY2017 | FY2018 | ||||||||||||||
GAAP income from continuing operations per diluted common share | $ | 2.67 | $ | 4.87 | $ | 5.12 | $ | 5.94 | |||||||||
Adjustment (c), (d) | 1.91 | 0.27 | 0.41 | 0.56 | |||||||||||||
Non-GAAP income from continuing operations per diluted common share | $ | 4.58 | $ | 5.14 | $ | 5.53 | $ | 6.50 | |||||||||
ADJUSTED FREE CASH FLOW | |||||||||||||||||
FY2016 | FY2017 | FY2018 | |||||||||||||||
(in millions) | |||||||||||||||||
Net cash provided by operating activities | $ | 924 | $ | 569 | $ | 751 | |||||||||||
Adjustment for voluntary contribution to qualified pension plan | — | 400 | 300 | ||||||||||||||
Less net capital expenditures (e) | (152 | ) | (119 | ) | (136 | ) | |||||||||||
Adjusted free cash flow | $ | 772 | $ | 850 | $ | 915 | |||||||||||
(a) | Adjustments for Exelis Inc. acquisition-related charges and other items. | ||||||||||||||||
(b) | Adjustments for the fiscal year ended June 29, 2018 also included costs related to a decision to transition and exit a commercial line of business and other items and a one-time non-cash charge from an adjustment for deferred compensation. | ||||||||||||||||
(c) | Adjustments for the per share impact of Exelis Inc. acquisition-related charges and other items. | ||||||||||||||||
(d) | Adjustments for the fiscal year ended June 29, 2018 also included the per share impact of charges related to a decision to transition and exit a commercial line of business and other items, losses and other costs related to debt refinancing and one-time non-cash charges from an adjustment for deferred compensation and the impact of tax reform. | ||||||||||||||||
(e) | Reflects additions of property, plant and equipment, net of proceeds from the sale of property, plant and equipment. |
Adjusted EBIT | ||||||||
Dollars in Millions | Fiscal Transition Period January 3, 2020 | Fiscal Year Ended June 28, 2019 | ||||||
Net income | $ | 834 | $ | 949 | ||||
Adjustments: | ||||||||
Discontinued operations, net of income taxes | 1 | 4 | ||||||
Net interest expense | 123 | 167 | ||||||
Income taxes | 73 | 160 | ||||||
(Gain) loss on sale of businesses | (229 | ) | - | |||||
Gain on sale of asset group | (12 | ) | - | |||||
L3Harris Merger transaction and integration costs, including CIC charges | 342 | 65 | ||||||
Charges related to consolidation of facilities | 48 | - | ||||||
Gain on pension curtailment | (23 | ) | - | |||||
Additional cost of sales related to the fair value step-up in inventory sold | 142 | - | ||||||
Amortization of acquisition-related intangibles | 289 | - | ||||||
Non-cash cumulative adjustment to lease expense | 10 | - | ||||||
Losses and other costs related to debt refinancing | 3 | - | ||||||
Total adjustments | $ | 767 | $ | 396 | ||||
Adjusted EBIT | $ | 1,601 | $ | 1,345 |
L3HARRIS 2020 PROXY STATEMENT | A-1.1 |
A. | A “person” shall mean any individual, firm, corporation, or other entity. |
B. | “Voting Stock” shall mean the outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors. |
C. | “Affiliate” or “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on April 27, 1984, and shall include in any case any person that directly or indirectly controls or is controlled by or is under common control with the person specified. |
D. | “40 percent Shareholder” shall mean any person (other than the corporation or any Subsidiary) who or which: |
(i) | is the beneficial owner, directly or indirectly, of 40 percent or more of the voting power of the outstanding Voting Stock; or |
(ii) | is an Affiliate of the corporation and at any time within the 2-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 40 percent or more of the voting power of the then outstanding Voting Stock; or |
(iii) | is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the 2-year period immediately prior to the date in question beneficially owned by any 40 percent Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. |
E. | A person shall be a “beneficial owner” of any Voting Stock: |
(i) | which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; or |
(ii) | which such person or any of its Affiliates or Associates has (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement, or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement, or understanding; or |
B-1 L3HARRIS 2020 PROXY STATEMENT |
(iii) | which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement, or understanding for the purpose of acquiring, holding, voting, or disposing of any shares of Voting Stock. |
F. | For the purpose of determining whether a person is a 40 percent Shareholder pursuant to this Section 4, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of Paragraph E of this Section 4, but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement, or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. |
G. | “Market Price” means the last closing sale price immediately preceding the time in question of a share of the stock in question on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the last closing bid quotation with respect to a share of such stock immediately preceding the time in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use (or any other system of reporting or ascertaining quotations then available), or if such stock is not so quoted, the fair market value at the time in question of a share of such stock as determined by the Board in good faith. |
H. | Reserved. |
I. | “Disinterested Director” means any member of the Board of Directors of the corporation (the “Board”) who is unaffiliated with any 40 percent Shareholder and was a member of the Board prior to the time that any 40 percent Shareholder became a 40 percent Shareholder, and any successor of a Disinterested Director who is unaffiliated with any 40 percent Shareholder and is recommended to succeed a Disinterested Director by a majority of Disinterested Directors then on the Board. |
B-1.1 |
(i) | the voting power of the shares of Voting Stock of which the Interested Shareholder is the beneficial owner, and |
(ii) | a majority of the voting power of the remaining outstanding shares of Voting Stock, voting together as a single class. |
(i) | to give or cause to be given written notice to the corporation, immediately upon becoming an Interested Shareholder, of such person’s status as an Interested Shareholder and of such other information as the corporation may reasonably require with respect to identifying all owners and amount of ownership of the outstanding Voting Stock of which such Interested Shareholder is a beneficial owner as defined herein, and |
(ii) | to notify the corporation promptly in writing of any change in the information provided in subparagraph (i) of this Section 3, provided, however, that the failure of an Interested Shareholder to comply with the provisions of this Section 3 shall not in any way be construed to prevent the corporation from enforcing the provisions of this Article. |
A. | A “person” shall mean any individual, firm, corporation, or other entity. |
B. | “Voting Stock” shall mean the outstanding shares of capital stock of the corporation entitled to vote generally in the election of directors. |
C. | “Interested Shareholder” shall mean any person (other than the corporation or any Subsidiary) who or which: |
(i) | is the beneficial owner, directly, or indirectly, of 5 percent or more of the voting power of the outstanding Voting Stock; or |
(ii) | is an Affiliate of the corporation and at any time within the 2-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 5 percent or more of the voting power of the then outstanding Voting Stock; or |
(iii) | is an assignee of or has otherwise succeeded to any shares of Voting Stock which were at any time within the 2-year period immediately prior to the date in question beneficially owned by any Interested Shareholder, if such assignment or succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933. |
D. | “Affiliate” or “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on April 27, 1984, and shall include in any case any person that directly or indirectly controls or is controlled by or is under common control with the person specified. |
E. | A person shall be a “beneficial owner” of any Voting Stock: |
(i) | which such person or any of its Affiliates or Associates beneficially owns, directly or indirectly; or |
(ii) | which such person or any of its Affiliates or Associates has (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement, or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement, or understanding; or |
B-2 L3HARRIS 2020 PROXY STATEMENT |
(iii) | which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement, or understanding for the purpose of acquiring, holding, voting, or disposing of any shares of Voting Stock. |
F. | For the purpose of determining whether a person is an Interested Shareholder pursuant to this Section 4, the number of shares of Voting Stock deemed to be outstanding shall include shares deemed owned through application of Paragraph E of this Section 4 but shall not include any other shares of Voting Stock which may be issuable pursuant to any agreement, arrangement, or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. |
G. | “Market Price” means the last closing sale price immediately preceding the time in question of a share of the stock in question on the Composite Tape for New York Stock Exchange-Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the last closing bid quotation with respect to a share of such stock immediately preceding the time in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use (or any other system of reporting or ascertaining quotations then available), or if such stock is not so quoted, the fair market value at the time in question of a share of such stock as determined by the Board in good faith. |
H. | Reserved. |
I. | “Disinterested Director” means any member of the Board of Directors of the corporation (the “Board”) who is unaffiliated with any Interested Shareholder and was a member of the Board prior to the time that any Interested Shareholder became an Interested Shareholder, and any successor of a Disinterested Director who is unaffiliated with any Interested Shareholder and is recommended to succeed a Disinterested Director by a majority of Disinterested Directors then on the Board. |
L3HARRIS 2020 PROXY STATEMENT | B-2.1 |
L3HARRIS TECHNOLOGIES, INC. 1025 WEST NASA BOULEVARD MELBOURNE, FL | YOUR VOTE IS IMPORTANT. PLEASE VOTE TODAY. VOTE BY INTERNET - www.proxyvote.com Use the Internet to submit your proxy/voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time on ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS If you would like to reduce the costs incurred by VOTE BY PHONE - 1-800-690-6903 Use any touch-tone telephone to submit your proxy/voting instructions up until 11:59 P.M. Eastern Time on NOTE:Your Internet or phone voting instructions authorize the named proxies and/or provide the Plan Trustee with instructions to vote these shares in the same manner as if you marked, signed, dated and returned your proxy/voting instruction card. VOTE BY MAIL (ONLY IF NOT VOTING BY INTERNET OR PHONE) Mark, sign and date your proxy/voting instruction card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. |
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | |
E92970-Z76547-P35585 | |
DETACH AND RETURN THIS PORTION ONLY |
The Board of Directors recommends a vote “FOR” each nominee listed in Proposal 1; “FOR” Proposals 2 through 6; and “AGAINST” Proposal | |||||||||||||||||||||||||||||
Nominees: | |||||||||||||||||||||||||||||
For | Against | ||||||||||||||||||||||||||||
1a. | Sallie B. Bailey | ☐ | ☐ | ☐ | For | Against | Abstain | ||||||||||||||||||||||
1b. | William M. Brown | ☐ | ☐ | ☐ | 2. | Approval, in an Advisory Vote, of the Compensation of Named Executive Officers as Disclosed in the Proxy Statement | ☐ | ☐ | ☐ | ||||||||||||||||||||
1c. | Peter W. Chiarelli | ☐ | ☐ | ☐ | 3. | Ratification of Appointment of Ernst & Young LLP as Independent Registered Public Accounting Firm for Fiscal Year 2020 | ☐ | ☐ | ☐ | ||||||||||||||||||||
1d. | Thomas A. Corcoran | ☐ | ☐ | ☐ | 4. | Approval of an Amendment to Our Restated Certificate of Incorporation to Eliminate the Supermajority Voting and “Fair Price” Requirements for Business Combinations Involving Interested Shareholders | ☐ | ☐ | ☐ | ||||||||||||||||||||
1e. | Thomas A. Dattilo | ☐ | ☐ | ☐ | 5. | Approval of an Amendment to Our Restated Certificate of Incorporation to Eliminate the “Anti-Greenmail” Provision | ☐ | ☐ | ☐ | ||||||||||||||||||||
1f. | Roger B. Fradin | ☐ | ☐ | ☐ | 6. | Approval of an Amendment to Our Restated Certificate of Incorporation to Eliminate the Cumulative Voting Provision that Applies When We Have a 40% Shareholder | ☐ | ☐ | ☐ | ||||||||||||||||||||
1g. | Lewis Hay III | ☐ | ☐ | ☐ | 7. | Shareholder Proposal to Permit the Ability of Shareholders to Act by Written Consent | ☐ | ☐ | ☐ | ||||||||||||||||||||
1h. | Lewis Kramer | ☐ | ☐ | ☐ | NOTE: If this proxy/voting instruction card is properly executed, then the undersigned’s shares will be voted in the manner instructed therein, or if no instruction is provided, then either as the Board of Directors recommends or, if the undersigned is a participant in the L3Harris Stock Fund through any retirement plan sponsored by L3Harris, as may otherwise be provided in the plan. The named proxies also are authorized, in their discretion, to consider and act upon such other business as may properly come before the 2020 Annual Meeting or any adjournments or postponements thereof. | ||||||||||||||||||||||||
1i. | Christopher E. Kubasik | ☐ | ☐ | ☐ | |||||||||||||||||||||||||
1j. | Rita S. Lane | ☐ | ☐ | ☐ | |||||||||||||||||||||||||
1k. | Robert B. Millard | ☐ | ☐ | ☐ | |||||||||||||||||||||||||
1i. | Lloyd W. Newton | ☐ | ☐ | ☐ | For address changes and/or comments, please check this box and write them on the back where indicated. | ☐ | |||||||||||||||||||||||
Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, trustee, guardian or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. | |||||||||||||||||||||||||||||
Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date | ||||||||||||||||||||||||||
E92971-Z76547-P35585 |
L3HARRIS TECHNOLOGIES, INC. April 24, 2020, 7:30 AM Mountain Time This proxy is solicited on behalf of the Board of Directors of L3Harris Technologies, Inc. (“L3Harris”) and the Trustees of various retirement plans sponsored by L3Harris. | ||||||||
You are receiving this proxy/voting instruction card because you are a registered shareholder and/or a participant in the | ||||||||
If the undersigned is a registered shareholder, the undersigned hereby appoints WILLIAM M. BROWN, 7. | ||||||||
If the undersigned is a participant in the | ||||||||
Address Changes/Comments: | ||||||||
(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.) | ||||||||
Continued and to be marked, signed and dated on reverse side | ||||||||