Christopher C. Cambria, age 59, joined Mercury in 2016 as Senior Vice President, General Counsel and Secretary and was appointed Executive Vice President, General Counsel, and Secretary in 2017. Prior to joining Mercury, he was Vice President, General Counsel, and Secretary of Aerojet Rocketdyne Holdings, Inc. from 2012 to 2016 and Vice President, General Counsel from 2011 to 2012. He was with L-3 Communications Holdings, Inc. from 1997 through 2009 serving as Senior Vice President and Senior Counsel, Mergers and Acquisitions from 2006 to 2009, Senior Vice President, Secretary and General Counsel from 2001 to 2006, and Vice President, General Counsel and Secretary from 1997 to 2001. Prior to L-3, Mr. Cambria was an Associate with Fried, Frank, Harris, Shriver & Jacobson and Cravath, Swaine & Moore.
Gerald M. Haines II, age 54, joined Mercury in 2010 as Senior Vice President of Corporate Development and in 2014 was appointed Executive Vice President, CFO and Treasurer. Prior to Mercury, from 2008 to 2010 he served as Executive Vice President at Verenium Corporation, a publicly traded company engaged in the development and commercialization of biofuels and specialty enzymes, where he oversaw various corporate development, corporate finance, and joint venturing activities. Previously, Mr. Haines served as Executive Vice President of Strategic Affairs of Enterasys Networks, Inc., a publicly traded network communications company, Senior Vice President of Cabletron Systems, Inc., the predecessor of Enterasys Networks, and Vice President of Applied Extrusion Technologies, a large manufacturer of plastic films and packaging. He began his career at J.P. Morgan. Mr. Haines holds a bachelor's degree in Business Administration, magna cum laude, from Boston University, and a law degree from Cornell Law School.
Charles A. Speicher, age 58, joined Mercury in 2010 as Vice President, Controller, and Chief Accounting Officer. Prior to joining Mercury, Mr. Speicher held various positions at Virtusa Corporation, a publicly-traded global IT services company, including Vice President of Global Accounting Operations and Corporate Controller from 2001 to 2009. Mr. Speicher was Corporate Controller at Cerulean Technologies Inc., a private software product company, from 1996 to 2000 prior to its sale to Aether Systems Inc. where he served as Division Controller of Aether Mobile Government from 2000 to 2001. Prior to joining Cerulean Technology, Mr. Speicher held positions with Wyman-Gordon Company, Wang Laboratories and Arthur Andersen & Company, LLP. Mr. Speicher is a CPA licensed in Massachusetts.
Didier M.C. Thibaud, age 56, joined Mercury in 1995, and has served as our Executive Vice President, Chief Operating Officer since January 2016. He served as the President of our Mercury Commercial Electronics business unit from 2012 to 2016 and the President of our Advanced Computing Solutions business unit from 2007 to 2012. Prior to that, he was Senior Vice
President, Defense & Commercial Businesses from 2005 to 2007 and Vice President and General Manager, Imaging and Visualization Solutions Group, from 2000 to 2005 and served in various capacities in sales and marketing from 1995 to 2000.
COMPENSATION DISCUSSION AND ANALYSIS
EXECUTIVE SUMMARY
Executive Summary
Fiscal 2017 Business Review
Fiscal 2017 was another outstanding yearThis Compensation Discussion and Analysis describes our executive compensation program for Mercury Systems. Forour 2022 fiscal year. This section details the full fiscal year total revenue was a record $409 million,compensation framework applied by the Human Capital and grew 51% year-over-year. Net income for fiscal 2017 was $24.9 million, or $0.58 per share. Adjusted EBITDA was also a record at $93.9 million, up 64% year-over-year, and at 23% of revenue was well within our new target financial model of 22-26%. From a valuation perspective, our market capitalization increased 103% year-over-year to over $2 billion. Our enterprise value, post the retirementCompensation Committee of our term loan, ended at $1.98 billion, which represents an increase of 118% versus the end of last fiscal year. Absent the revenue associated with the acquisitions of the Microsemi carve-out business, CES and Delta Microwave, organic revenues for fiscal year 2017 increased $24.2 million, or approximately 10%, after excluding the same elements from the prior fiscal year. In addition, we retired our term loan and amended our existing revolving credit facility, increasing it to a $400 million, 5-year credit facility to support our ongoing growth through organic investment and future acquisitions.
We completed the acquisitions of CES in November 2016, Delta Microwave in April 2017, and Richland Technologies in July 2017, as well as numerous integration activities related to our acquisition in the prior fiscal year of the Microsemi carve-out business, the largest acquisition in our history. During fiscal 2017, we successfully moved operations to our new Andover, Massachusetts headquarters without loss of productivity, continued the build out of a world-class manufacturing facility in Phoenix, Arizona, delivered important new innovations and capabilities leading to a substantial design win pipeline, improved our quality systems and strengthened the team, all while improving employee engagement.
Executive Bonus Program
In July 2016, the Compensation Committee established our fiscal 2017 executive bonus program in conjunction with
our fiscal 2017 strategic operating plan approved by the Board of Directors. For our fiscal 2017 executive bonus program, 100% ofDirectors (the "Committee") in determining the total value was based on our achieving corporate financial performance objectives. Our fiscal 2017 executive bonus plan was split into two halves, with specific financial performance targets addressing the first halfpay levels and the second half of the fiscal year. We used two semi-annual performance periods with two different performance targets in orderprograms available to align our cash incentive program with our strategic operating plan ("SOP") review and midyear SOP update. We determined the potential total size of the annual cash incentive bonuses at the beginning of the fiscal year as well as set the first half financial performance target, and then set the second half and full year performance target in connection with our midyear SOP update. Potential over-achievement awards were based on exceeding the sum of the two half-year corporate financial performance objectives. Our executive officers earned payouts at 87.5% of the first half and 100% of the second half target corporate financial performance bonuses for fiscal 2017, with the full year performance catch-up feature resulting in the executives earning the remaining 12.5% that was not originally achieved under the first half results. No over-achievement awards were earned for fiscal 2017.
Executive Equity Awards
We introduced new performance-based elements for our executive equity program for fiscal 2017. Each fiscal 2017 annual restricted stock award for our named executive officers was 50% performance-based vesting and 50% time-based vesting. Forfor whom compensation is disclosed in the time-based vesting halfcompensation tables included in the Tabular Executive Compensation Disclosure section of the fiscal 2017 annual awards, one-third veststhis proxy statement beginning on each of the first three anniversaries of the grant date. In fiscal 2017, we transitioned to the use of longer term relative performance metricspage 56. Our named executive officers for our performance restricted stock awards as we believe that our relative financial performance compared with a group of peer companies with similar attributes is an important factor in the creation of long term value for the Company and its shareholders. For the performance-based vesting half of the2022 fiscal 2017 annual awards, the award vests based on relative performance to our peer group for the three-year period ending June 30, 2019. For fiscal 2017, we used two new relative performance metrics for the performance-based awards: (i) a ratio of adjusted EBITDA to revenue, percentile ranked relative to our peer group (75% weighting); and (ii) revenue growth percentage, percentile ranked relative to our peer group (25% weighting). The target value for the fiscal 2017 annual restricted stock awards was the median of a market composite, with upside potential if we outperformed our peer group on the relative performance metrics discussed above. Historically (prior to fiscal 2017), we relied on short term, absolute performance metrics based on our internal performance targets to determine vesting of our performance equity awards with no upside potential if we exceeded our performance targets.year are:
For fiscal 2017, we also granted a special acquisition integration incentive restricted stock award for our Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer. This acquisition integration grant related specifically to our $300 million acquisition of the embedded security, radio frequency and microwave, and custom
microelectronics businesses of the Power and Microelectronics Group of Microsemi Corporation (the "Carve-Out Business") and is designed to create incentives for the rapid and successful integration of that business leading to accelerated revenue growth. The specific objective was to achieve profitable pro forma revenue growth, within the first year, that was in excess of the average historical growth and profitability rates of companies in the primary market sector (defense) in which we operate, and in excess of the historical pro forma combined growth rate of our business with the acquired business. This integration incentive award was a 100% performance-based restricted stock award with fiscal 2017 as the performance period and was earned based on a total pro forma annual revenue growth rate objective, subject to minimum revenue and adjusted EBITDA thresholds. The growth rate objective used a pro forma combined revenue starting point of $353 million for calculating revenue growth such that growth was measured as if we had acquired the Carve-Out Business at the beginning of fiscal 2016 rather than using our GAAP revenue for fiscal 2016 of $270 million (which GAAP revenue only included two months of revenue from the Carve-Out Business in fiscal 2016). Vesting for this integration incentive award only began for pro forma revenue growth in excess of 6.5% measured from the $353 million revenue starting point, with a growth rate at or above 10% vesting 100% of the award. A 10% revenue growth rate is well above the revenue growth rate for companies operating in the defense market. Achievement of this growth rate also means that we were successful in substantially increasing the growth rate of the acquired business. These goals specifically related to the integration of the largest acquisition in our history, with a focus on driving revenue growth without sacrificing profitability as well as aligning with our Carve-Out Business post-acquisition operating model. Our Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer each earned 100% of the acquisition integration award based on our fiscal 2017 revenue growth performance.
Compensation Philosophy and Objectives | | | | | | | | |
Name | | Position |
Mark Aslett | | President and Chief Executive Officer |
Michael D. Ruppert | | Executive Vice President, Chief Financial Officer and Treasurer |
Thomas Huber | | Executive Vice President and Chief Transformation Officer |
James M. Stevison | | Executive Vice President and Chief Growth Officer |
Charles R. Wells, IV | | Executive Vice President and President of Microelectronics Division |
Our executive compensation philosophy is to provide our executives with competitive pay opportunities with actual pay heavily influenced by the attainment of corporate financial performance objectives. Our compensation philosophy is intended to meet the following objectives:
offer compensation opportunities that attract highly qualified executives, reward exceptional initiative and achievement, and retain the leadership and skills necessary to build long-term shareholder value; and
achieve our short-term and long-term strategic goals and values by aligning compensation with business objectives.
To accomplish these objectives, our executive compensation programs are designed to maintainattract and retain critical executive talent, to motivate behaviors that align with stockholders' interests and to link payouts with our performance. As described below:
•For fiscal 2022, target pay for our CEO individually, and for all of our named executive officers collectively, falls within a significant portioncompetitive range of 85% to 115% of peer median target pay levels.
•Our pay mix strongly supports the Company's pay-for-performance culture. For fiscal 2022, 87% of the Chief Executive Officer's target pay was in the form of variable pay that is subject to future performance.
•We delivered solid financial performance for fiscal 2022 despite a challenging business environment, resulting in our total shareholder return for fiscal 2022 approximating the 85th percentile of our peers.
•Payouts under our annual- and long-term compensation programs reflected our absolute and relative performance for periods ending in fiscal 2022. Our performance for fiscal 2022 was below our annual incentive plan targets, resulting in payouts at 89.59% of executives' target bonuses. Our overall three-year performance exceeded the 70th percentile of peer company achievements, resulting in performance stock award payouts at 199.9% of target.
•In February 2022, as part of a broad equity retention plan that covered our executives and over 100 additional leaders at our company, we accelerated the grant of long-term incentive awards that would have otherwise been made in August 2022 and granted additional special awards on a one-time basis to promote continuity of leadership, strategy and execution in connection with the reorganization of our operating structure against a backdrop of emerging industry and labor market challenges. These awards are a key element in our ongoing efforts to build on Mercury's strong foundation and drive the next phase of value creation at greater scale. The awards are intended to ensure that leaders across our organization remain focused on advancing our strategy, while at the same time supporting the retention of our key leaders at a critical junction in our transformation. Half of the long-term incentives granted to the named executive officers under this plan were in the form of performance stock awards, which are contingent upon future performance to have any realized value.
•For fiscal 2023, no additional long-term incentives have been, or are expected to be, granted to our named executive officers. In addition, the Committee determined to make no changes to the base salaries and target bonuses of our named executive officers. The Committee also adopted a new annual incentive plan design for fiscal 2023 that emphasizes an executive’sexpanded set of performance measures that we believe to be further aligned with the creation of long-term shareholder value: adjusted EBITDA (weighted 50%), revenue (25%) and adjusted free cash flow (25%). The Committee intends to perform a similar review of our long-term incentive plan design for fiscal 2024, and to then review annual grants of long-term incentives for named executive officers during fiscal 2024 consistent with past practice.
Company Background
Mercury is a technology company that delivers commercial innovation to rapidly transform the global aerospace and defense industry. Our end-to-end processing platform enables a broad range of aerospace and defense programs, optimized for mission success in some of the most challenging and demanding environments. Processing technologies that comprise our platform
include signal solutions, display, software applications, networking, storage and secure processing. As a leading manufacturer of essential components, products, modules and subsystems, we sell to defense prime contractors, the U.S. government and original equipment manufacturers (OEM) commercial aerospace companies. Our products and solutions are deployed in more than 300 programs with over 25 different defense prime contractors and commercial aviation customers.
2022 Operating Environment and Performance Achievements
Operating Environment. For fiscal year 2022, we continued to encounter a challenging business environment. Our performance was primarily influenced by the following factors:
•U.S. Government spending for our products and services was adversely affected by an extended continuing resolution, which, while in effect, limited government funding to prior-year levels and delayed awards in respect of new government programs.
•Supply chain volatility — led by long lead times for high-end semiconductors and delayed supplier deliveries or "decommitments" — adversely affected the timing of our revenues and cash management.
•We experienced considerable price inflation in our costs for materials, which adversely affected our business.
•The challenging labor market led to unprecedented attrition and competition for top talent.
Performance Achievements. Despite the challenging industry, labor and economic environment, Mercury delivered solid financial performance for fiscal 2022, highlighted by the following items:
•Our fiscal 2022 revenues increased by 6.9% to $988.2 million, compared to $924.0 million for fiscal 2021. Our fiscal 2022 results included organic revenue of $870.4 million, a decrease of 5% from fiscal 2021.
•Our bookings increased by 21% from $881.2 million in fiscal 2021 to $1,063.1 million in fiscal 2022. Our book-to-bill ratio increased from 0.95x in fiscal 2021 to 1.08x in fiscal 2022.
•Our net income for fiscal 2022 was $11.3 million, compared to $62.0 million for fiscal 2021. Our adjusted EBITDA for fiscal 2022 was $200.5 million, remaining relatively flat compared to $201.9 million for fiscal 2021. The adjusted EBITDA results discussed in this paragraph are subject to the adjustments set forth in "Appendix B: Reconciliation of Non-GAAP Measures to GAAP Measures."
•We completed the acquisitions of Avalex and Atlanta Micro, which expanded our content and capabilities in both open mission systems and trusted microelectronics.
•Our total shareholder return ("TSR") for fiscal 2022 approximated the 85th percentile of the peer group used to measure our relative performance under long-term incentives awarded in fiscal 2022.
Compensation Philosophy, 2022 Target Pay and 2022 Incentive Plan Payouts
Compensation Philosophy. Our compensation at risk tiedphilosophy is designed to promote a pay-for-performance culture. We consider market median compensation levels as our reference point in making executive pay decisions, subject to adjustments based on experience, performance, the other individual factors as described in "– Use of Market Data and Competitive Compensation Positioning" beginning on page 45 and as otherwise appropriate. The majority of each executive's target pay is in the form of incentive compensation that is subject to future performance to have any realized value. See the information in "– Mix of Pay" on page 45.
2022 Target Pay. The table below details each named executive officer's annual base salary, target annual incentive opportunity ("target bonus") and grant date target value of annual long-term incentive awards (collectively, "target pay") established by the Committee (and in the case of our Chief Executive Officer, ratified by our Board) for fiscal 2022.
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| Salary | | Target Bonus as % of Salary | | Annual Long-Term Incentive Awards (1) | | Target Pay |
Mark Aslett | 800,060 | | | 150% | | 4,300,000 | | | 6,300,150 | |
Michael D. Ruppert | 446,351 | | | 110% | | 1,430,000 | | | 2,367,337 | |
Thomas Huber | 425,000 | | | 100% | | 830,000 | | | 1,680,000 | |
James M. Stevison | 425,000 | | | 100% | | 796,000 | | | 1,646,000 | |
Charles R. Wells, IV | 415,000 | | | 100% | | 830,000 | | | 1,660,000 | |
(1) The table above is intended to reflect each executive's ordinary compensation for fiscal 2022, and accordingly excludes the value of special long-term incentive ("LTI") awards granted to the named executive officers in February 2022 under an equity retention plan approved by our Board of Directors. In addition, the table excludes the value of "new-hire" awards granted to Messrs. Huber, Stevison and Wells in connection with their commencement of employment during fiscal 2022 because these awards were intended, in part, to restore compensation forfeited with a prior employer as an incentive to join our company. In lieu of these new-hire awards, the table includes the value established by the Committee for each such executive in fiscal 2022 as the basis for future annual LTI awards. For a further discussion of the special awards discussed in this paragraph, see "— Equity Retention Plan Awards" beginning on page 51 and "— Offer Letters with Named Executive Officers" beginning on page 51.
For fiscal 2022, target pay for our CEO individually, and for all of our named executive officers collectively, falls within a competitive range of 85% to 115% of peer median target pay levels. For a further discussion, see "– Use of Market Data and Competitive Compensation Positioning" beginning on page 45.
2022 Incentive Plan Payouts. Payouts under our annual incentive plan and our long-term incentive plan performance awards are subject to the achievement of pre-established targets.
With respect to our annual incentive plan, our financial performance achievements for fiscal 2022 were above threshold requirements but below our plan targets, which are based on adjusted EBITDA. Accordingly, aggregate plan payouts to our named executive officers for fiscal 2022 represented 89.59% of their respective target bonuses. For a further discussion, see "– Elements of 2022 Target Pay – Annual Incentives" beginning on page 48.
For our long-term performance awards whose performance periods end with fiscal 2022, our performance relative to our peers approximated the 57th percentile for adjusted EBITDA margin and long-term financial performance.the 86th percentile for revenue growth, resulting in performance stock award payouts at 199.9% of target. For a further discussion, see "– Payout of Performance Stock Awards for the 2020-2022 Award Cycle" on page 52.
Our objective isSpecial LTI Awards Granted Under Equity Retention Plan
On February 7, 2022, our Board of Directors approved an equity retention plan (the "ERP") for our executives and over 100 additional leaders whose continuing efforts were determined to implement strategies for delivering compensation that are well structured, are competitivebe critical to our success, including our named executive officers. The Board approved the ERP to promote continuity of leadership, strategy and execution in connection with the technologyreorganization of our operating structure. The ERP is a key element in our ongoing efforts to build on Mercury's strong foundation and defense industries, apply pay-for-performance principles,drive the next phase of value creation at greater scale. The ERP is intended to ensure that leaders across our organization remain focused on advancing our strategy, while at the same time supporting the retention of our key leaders at a critical junction in our transformation.
Under the ERP, all participants, including our named executive officers, were granted their annual equity awards for fiscal 2023 on February 15, 2022, in lieu of the grants that they would have otherwise received in August 2022. Additional one-time awards were granted under the ERP to support retention and further motivate achievement of our long-term, strategic goals in light of the macroeconomic conditions underlying the adoption of the ERP. The value of these additional retention grants varies among different ERP participants, and ranges from 1x to 2x of each participant's annual long-term incentive compensation. For a further discussion, see "— Equity Retention Plan Awards" beginning on page 51.
Consistent with annual our long-term incentive award mix, half of the long-term incentives granted to the named executive officers were in the form of performance stock awards, which are appropriately alignedcontingent upon future performance to have any realized value, and half were granted in the form of restricted stock awards. No additional long-term incentive awards will be issued to the named executive officers in fiscal 2023.
2023 Target Pay
For fiscal 2023, the Committee determined to make no changes to the base salaries and target bonuses of our named executive officers, nor did it grant them any long-term incentives beyond those previously granted for fiscal 2023 as part of the ERP. To further align our annual incentive program with our financial goals,long-term growth strategy, the Committee adopted a new annual incentive plan design for fiscal 2023 that emphasizes an expanded set of performance measures tied to the creation of long-term shareholder value: adjusted EBITDA (weighted 50%), revenue (25%) and are alignedadjusted free cash flow (25%). The Committee intends to perform a similar review of our long-term incentive plan design for fiscal 2024, and to then review annual grants of long-term incentives for named executive officers during fiscal 2024 consistent with past practice.
SHAREHOLDER ENGAGEMENT AND 2021 ADVISORY VOTE ON EXECUTIVE COMPENSATION ("SAY-ON-PAY")
As part of our shareholders’ objectives.ongoing Board-led shareholder engagement program, we requested and/or had dialogues with a cross section of shareholders representing approximately 74% of our outstanding shares since our 2021 annual shareholders meeting. Our regular discussions with shareholders, proxy advisory firms and other stakeholders enable our Board to consider a broad range of viewpoints in boardroom discussions, including with respect to executive compensation. In particular, our new annual incentive plan design for fiscal 2023 incorporates feedback provided by shareholders over the past year, and has been well received by shareholders in our ongoing engagement discussions.
At our 2021 annual shareholders meeting, approximately 98.5% of the votes cast on our Say-On-Pay proposal were voted in favor of the compensation paid to our named executive officers for fiscal 2021. We benchmark base compensation around the 50th percentile compared to peer companies and the Radford Global Technology Survey.
How We Determine Executive Compensation
The Compensation Committee has responsibility forbelieve that this strong level of shareholder support demonstrates, among other things, that our executive compensation philosophy, designs and determinations are well aligned with shareholder interests. The Committee considers the overall designoutcome of Say-On-Pay votes and other shareholder input in making decisions regarding the executive compensation program.
SOUND PAY PRACTICES
The Committee believes that Mercury's executive compensation program reinforces our pay-for-performance culture and includes corporate governance practices that are considered by investors to reflect market "best practices." The table below highlights key features of our executive compensation programs. program.
| | | | | |
Executive Compensation Program Features |
Executive Compensation Program Includes |
•Emphasis on long-term, performance-based compensation and meaningful stock ownership guidelines to align executive and shareholder interests •Transparent, formulaic incentive plans designed to promote short- and long-term business success •Clawback policy that applies to all incentive compensation, including stock-based awards •Limited perquisites consistent with competitive practices •Double trigger provisions for accelerated equity vesting and cash severance payable in connection with a change in control •Periodic compensation risk assessments to ensure program does not encourage excessive risk-taking |
Executive Compensation Program Does not Include or Prohibits |
•Excise tax gross-ups on severance/change in control payments •Repricing of stock options or other stock-based awards without shareholder approval •Excessive severance or change in control provisions •Hedging or pledging of company stock by executives, employees and non-employee directors |
PROGRAM OVERVIEW
The table below outlines the principal elements of our executive compensation program. Detailed descriptions of each element of compensation and discussion of how the Committee determined compensation levels for fiscal 2022 can be found in the section "— Elements of Fiscal 2022 Target Pay" beginning of page 47.
| | | | | | | | | | | | | | | | | |
Compensation Program Design |
Compensation Plan | Annual Pay Element | Performance Period | Performance Measures | Payout Range (vs. Target) | Fiscal 2022 Highlights |
— | Base Salary | — | — | — | — |
Annual Incentive Plan | Cash Bonus | Semi-Annual | Adjusted EBITDA | 0% to 150% | •Maximum bonus opportunity reduced to 100% of target to reflect increased volatility of potential performance results in light of the challenging industry, labor and economic environment |
Long-Term Incentive Plan | Restricted Stock Awards (50%) | Three Years with Annual Vesting | — | — | •Equity retention plan awards granted in February 2022 to mitigate challenging industry and labor market environment |
Performance Stock Awards (50%) | Three Years | Relative EBITDA Margin (50%) | 0% to 300% |
Relative Revenue Growth (50%) |
DETERMINING EXECUTIVE COMPENSATION
Role of the Compensation Committee
Our executive compensation program is administered by the Committee. The Committee is primarily responsible for setting executivethe review and approval of compensation which in the casefor all of our CEO,executive officers. Compensation for our Chief Executive Officer is further subject to ratification by a majority of the independent directors on the Board. Information aboutFor a further discussion of the Compensation Committee, including its composition, responsibilities, and processes, can be found earlier in this proxy statement under “Corporate Governance—Committee's key areas of responsibility, see "Corporate Governance — What committees has the Board established? –— Human Capital and Compensation Committee.”Committee" beginning on page 19.
Role of Management and the Chief Executive Officer
Our human resources, finance and legal departments assist the Committee in the design and development of competitive compensation programs by providing data and analyses to the Committee and Mercer, the Committee's independent compensation consultant, in order to ensure that our programs and incentives align with and support our business strategy. Management also recommends incentive plan metrics, performance targets and other plan objectives to be achieved, based on expected Company performance and subject to Committee approval.
In connection with setting compensation for fiscal 2022, the Chief Executive Officer reviewed the performance of the other executive officers of the Company and submitted recommendations to the Committee for proposed base salary adjustments, target bonuses and grant date target values for annual long-term incentive awards. The Chief Executive Officer had no role in determining his own compensation. Except as described above, no other executive officer participated in the setting of his or her own compensation or the compensation of any other executive officer.
Role of the Compensation Consultant
The Committee has the sole authority to select, retain, terminate and approve the fees payable to outside consultants to provide it with advice on various aspects of executive compensation design and delivery. The Committee has retained Mercer to advise the Committee on executive and non-employee director compensation generally. In the course of our executive officers is reviewed and approved byconducting its activities for the Compensation Committee (with ratificationduring fiscal 2022, representatives of Mercer attended meetings of the CEO’s compensation by a majorityCommittee and presented findings and recommendations to the Committee for discussion. Representatives of the independent directors on the Board).Mercer also met with management to obtain and validate data and review materials. The Compensation Committee analyzes all elements of compensation separately and in the aggregate. Committee's expenditures for Mercer were $451,839 for fiscal 2022.
In addition to evaluating our executives’ contribution and performance in light of corporate financial performance objectives, we also base our compensation decisions on market considerations. The Compensationits work for the Committee, benchmarks our cash and equity incentive compensation against programs available to employees in comparable roles at peer group companies and the Radford Global Technology Survey.
The Compensation Committee has engaged the services of Radford, an Aon Consulting company, as an independent compensation consultant. Radford assists the Compensation Committee in, among other things, applying our compensation philosophy for our executive officers and non-employee directors, analyzing current compensation conditions in the
marketplace generally and among our peers specifically, and assessing the competitiveness and appropriateness of compensation levels for our executive officers. Representatives of Radford periodically attend meetings of the Compensation Committee, both with and without members of management present, and interact with members of our human resources department with respect to its assessment of the compensation for our executive officers. In addition, RadfordMercer may assist management in analyzing the compensation of our non-executive employees. For fiscal 2017, Radford’semployees or by providing other services included providing compensation survey datathat are unrelated to the work performed by Mercer for non-employee directors, executives, and non-executive employees. The Compensation Committee's expenditures for Radford were $76,428 for fiscal 2017. For fiscal 2017, ourthe Committee. Our human resources department expended $24,795 for Radford market surveys for non-executive employees and selected job match to market requests. For non-executive employees, management also uses a second compensation consultantincurred $139,674 in fiscal 2022 with Mercer to provide marketthe services of a chief medical advisor for COVID-related planning, due diligence services for M&A pursuits and support on long-term incentive valuations.
In April of 2022, the Committee evaluated whether any work performed by Mercer raised any conflict of interest and determined that it did not.
MIX OF PAY
The Committee believes that Mercury's pay mix strongly supports the Company's pay-for-performance culture. For fiscal 2022, 87% of the Chief Executive Officer's target pay was in the form of variable pay that subject to future performance. Base salary is the only element of target pay that does not fluctuate based on future performance. As illustrated below, the mix of incentive compensation data.for our named executive officers is balanced to avoid the risk of emphasizing short-term gains at the expense of long-term performance. The emphasis on long-term incentives demonstrates our strong commitment to the alignment of management and shareholder interests over time.
* For a further discussion of the amounts underlying our named executive officers' target pay for fiscal year 2022, see "Executive Summary — Compensation Philosophy, 2022 Target Pay and 2022 Incentive Plan Payouts — 2022 Target Pay" beginning on page 41.
USE OF MARKET DATA AND COMPETITIVE COMPENSATION POSITIONING
Compensation Peer Groups
The Committee believes that Mercury's success is dependent upon its ability to continue to attract and retain high-performing executives. To ensure the comparability of our executive compensation practices and pay levels, the Committee has historically monitored executive pay at selected technology, aerospace and defense, and other industrial companies ("peers") with whom Mercury competes for business, executive talent or investor capital. The Committee evaluates each peer on an annual basis to determine its continued suitability from a pay benchmarking perspective. The selection criteria examined include:
•Operational Fit: companies in the same or similar industries with a comparable business model, mix and client base.
•Financial Scope: companies of similar size as measured by annual corporate revenues. In connection with itsthe benchmarking efforts,of target pay in fiscal 2022, the Compensation Committee uses data includedCompany approved the use of two compensation peer groups differentiated by financial scope.
◦The "Primary Peer Group" consists of peers that generally fall within a range of one-half to two times the size of Mercury (targeted at approximately $1 billion in annual revenues).
◦The "Reference Peer Group" consists of peers that generally fall within a range of one-half to two times of a target value that is double the Radford Global Technology Survey and also specificsize of Mercury (targeted at approximately $2 billion in annual revenues).
The primary peer group data.is used as the principal group of peer companies used to benchmark executive pay levels and practices, and to assess Mercury's relative performance achievements under long-term incentive awards. The Compensation Committee annually reviews the companies included in ourreference peer group is used as a supplemental reference in considering appropriate pay levels in light of Mercury's strong historical rate of growth and adds or removes companies as necessarythe need for Mercury to ensure that attract top talent suitable for Mercury's next stage of growth. As noted in "— Competitive Market Positioning" on page 47, the peer group comparisons are meaningful.
Datafiscal 2022 target pay of our Chief Executive Officer individually, and of all of our named executive officers collectively, fell within a competitive range of median with respect to both peer groups.
The table below shows the composition of our primary peer group listed below and the Radford Global Technology Surveythat was consideredestablished by the Compensation Committee in determiningJanuary 2021 for use in benchmarking target pay levels at the base compensation, bonus targets,end of fiscal 2021 and the equity awardsin connection with making target pay decisions for fiscal 2017. Target total direct compensation for executive officers in fiscal 2017 approximated the composite median.
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ADTRAN, Inc. | | Ducommun Incorporated | | Netgear Inc. |
AeroVironment, Inc. | | Gigamon, Inc. | | NetScout Systems, Inc. |
Analogic Corporation | | Novanta Inc. (fka GSIPrimary Peer Group Inc.) | | Progress Software Corporationfor Fiscal 2022 |
Astronics Corporation | FLIR Systems, Inc. | InfineraMKS Instruments, Inc. |
Belden Inc. | HEICO Corporation | | Qualys,NETGEAR, Inc. |
Brooks Automation, Inc. | II-VI Incorporated | InvenSense, Inc. | | Ruckus Wireless, Inc. |
CalAmp Corp. | | iRobot Corporation | | Shore Tel,NetScout Systems, Inc. |
Cognex Corporation | Infinera Corporation | Ixia | | Sonus Networks,Novanta Inc. |
Comtech Telecommunications Corp. | iRobot Corporation | OSI Systems, Inc. |
Diodes Incorporated | Kratos Defense & Security Solutions, Inc. | | Sparton Corp.Ribbon Communications Inc. |
Cray,Ducommun Incorporated | Methode Electronics, Inc. | Rogers Corporation | |
As compared to the primary peer group used to benchmark target pay for fiscal 2021, the Committee replaced three companies in the group (removing ADTRAN, Inc., CTS Corp., and M/A-COM Technology Solutions Holdings, Inc., and adding Belden Inc., FLIR Systems, Inc., and HEICO Corporation) to reflect the increased target size of the group (consistent with Mercury's expected revenues for fiscal 2022) from $750 million to $1 billion.
The table below shows the composition of our reference peer group that was established by the Committee in January 2021 for use as a supplemental reference in considering appropriate pay levels at the end of fiscal 2021, and in connection with making target pay decisions for fiscal 2022.
| | | | | | | | |
Reference Peer Group for Fiscal 2022 |
Belden Inc. | Infinera Corporation | Vicor Corp.OSI Systems, Inc. |
Digi InternationalCurtis-Wright Corporation | Keysight Technologies, Inc. | Rogers Corporation |
Diodes Incorporated | Maxar Technologies Inc. | Teledyne Technologies Incorporated |
FLIR Systems, Inc. | Methode Electronics, Inc. | Teradyne, Inc. |
HEICO Corporation | MKS Instruments, Inc. | TTM Technologies, Inc. |
Hexcel Corporation | Moog Inc. | Viasat, Inc. |
II-VI Incorporated | NetScout Systems, Inc. | |
As compared to the reference peer group used to benchmark target pay for fiscal 2021, the Committee replaced four companies from the group (removing Astronics Corporation, AVX Corporation, Cognex Corporation and Kratos Defense & Security Solutions, Inc., and adding Keysight Technologies, Inc., Maxar Technologies Inc., TTM Technologies, Inc. and Viasat, Inc.) to reflect the increased target size of the group (consistent with an amount that is double Mercury's expected revenues for fiscal 2022) from $1.5 billion to $2 billion, and the acquisition of AVX Corporation by Kyocera Corp. in March 2020.
The CompensationCommittee subsequently met in January 2022 to consider whether any changes should be made to the above compensation peer groups in connection with benchmarking target pay levels at the end of fiscal 2022, and in connection with making target pay decisions for fiscal 2023. At that time, the Committee determined to remove Brooks Automation from the primary peer group and FLIR Systems from both peer groups because they had completed recent mergers and dispositions activities that rendered them no longer suitable for these groups.
Use of Market Data
In reviewing competitive compensation levels for fiscal 2022, the Committee considered compensation peer group data for all named executive officers other than Messrs. Huber and Stevison. The Committee did not utilize compensation peer group data for Messrs. Huber and Stevison (who served during fiscal 2022 as our Chief Transformation Officer and our Chief Growth Officer, respectively) due to the limited number of benchmarking matches for their positions within the compensation peer groups. Instead, the Committee used this same peer group andsurvey data from the Radford Global Technology Survey (the "Survey Data") for this purpose. For Mr. Wells (who served as President of our Microelectronics division in determiningfiscal 2022), the baseCommittee considered competitive compensation bonus targets,levels based on the average of the compensation peer group data and the equity awardsSurvey Data because it believed that including a broader survey group more accurately reflects the labor market for division presidents and ensures a meaningful sample size given the revenues of the division led by Mr. Wells. The Survey Data utilized for Messrs. Huber, Stevison and Wells was size adjusted by Mercer to reflect the annual revenues of the Company and of our Microelectronics division, as applicable, and for the benchmarking conducted in June 2022, was aged to approximate that time.
Competitive Market Positioning
The Committee's practice is to make pay decisions regarding the elements of compensation that compose each named executive officer's target pay (base salary, target bonus and grant date target value of long-term incentives) in July of each fiscal 2018, with the philosophyyear, in light of targeting base compensation around the 50th percentile and with total compensation in line with our financial performance, which may be higher than the 50th percentile.
In selecting our peer group, the Compensation Committee focused on company size (as indicated by revenue, number of employees, and market capitalization) and on creating a balanced and blended mix of companies in the defense and technology sectors. The Compensation Committee included technology companies in our peer group given our business model and financial profile is more aligned with technology companies than defense companies. If the Compensation Committee had chosen purely defense companies for our peer group, our performance versus the peer group could conceivably bebenchmarking data reviewed at the high end of the range.
In particular,prior fiscal year. As part of its decision-making process, the Compensation Committee reviewedcompares each named executive officer's target pay for the following elements of compensationfiscal year against the benchmarking data:
base salary;
target bonus;
total target cash compensation (i.e.,market median; however, the Committee does not use market data in isolation in determining pay. Instead, competitive market data serves as one of many considerations used by the Committee in determining base salary plusadjustments and target bonus);pay opportunities for both annual and long-term incentives. The primary factors considered by the Committee in making its annual pay determinations is shown below.
target long-term incentive compensation, which consists of equity awards; and
target total direct compensation (i.e., target cash plus target long-term incentive compensation). | | | | | | | | |
Target Pay Determinants |
•Positioning to competitive market median | •Long-term financial and individual performance | •Role and responsibilities relative to benchmark |
•Competitive mix of fixed and variable pay | •Tenure and experience in role | •Internal pay equity |
•Competitive mix of cash and equity | •Expected future contributions and market conditions | •Prior year’s compensation levels |
Each such elementBased on the most recent benchmarking conducted by the Committee in June 2022, the fiscal 2022 target pay of compensation was compared to peer group data at the 25th, 50th, 75th ,our Chief Executive Officer individually, and 90th percentiles. The peer group used for fiscal 2017 consisted of a blendall of public technology and defense companies with revenues generally
between $200 million and $1 billion, with a median revenue of $480 million. By way of comparison, our revenue for fiscal 2017 was $409 million.
The Radford Global Technology Survey data and peer group data, as applicable, were reviewed together to form a final market data point. All forms of compensation were then evaluated relative to the market.
The Compensation Committee evaluated the benchmarking data in connection with its determination of compensation levels for fiscal 2017. The data from this benchmarking indicated that each of base salary, target bonus as a percentage of base salary, total target cash compensation, target long-term incentive compensation, and total target direct compensation for our named executive officers was generally positioned at thecollectively, fell within a competitive range of 85% to 115% of market 50th percentile.
Our Elements of Total Compensation
Our total compensation program consists of fixed elements, suchmedian, including as base salary and benefits, and variable performance-based elements, such as annual and long-term incentives. Our fixed compensation elements are designed to provide a stable source of income and financial security to our executives. For fiscal 2017, our variable performance-based elements were designed to reward corporate financial performance compared to business goals for cash bonuses and growth and profitability relative to ourseparately derived using primary peer group for annual performance-based equity awards.
We compensate our executives principally through base salary, performance-based cash bonuses,data and time and performance-based equity awards. The objective of this approach is to remain competitive with other companies in the same market for executive talent, while ensuring that our executives are given the appropriate incentives to deliver strong short- and long-term financial results. The Compensation Committee has chosen to put a substantial portion of each executive’s total compensation at risk, contingent upon the achievement of our annual strategic operating plan profitability for performance-based cash bonuses and growth and profitability relative to ourreference peer group data. For a further discussion of the amounts underlying our named executive officers' target pay for annual performance-based equity awards.fiscal year 2022, see "Executive Summary — Compensation Philosophy, 2022 Target Pay and 2022 Incentive Plan Payouts — 2022 Target Pay" beginning on page 41.
Base salaries, target bonuses, and equity awards for our executive officers (other than the CEO) are set by the Compensation Committee following its review and approval of recommendations from the CEO. For the CEO, these elements of compensation are set by the Compensation Committee, and are subject to ratification by a majority of independent directors on the Board.ELEMENTS OF FISCAL 2022 TARGET PAY
Base Salary
WhenBase salary serves as the Compensationfoundation of an executive's compensation and is an important component in our ability to attract and retain executive talent. On an individual basis, the Committee annually considers executive base salaries, it takes into account each executive’sexecutive's role and level of responsibility. Individual compensationresponsibilities, experience, tenure, business results and individual performance, competitive market pay levels, may vary relative to the market based on individual performance and otherinternal pay equity considerations including the initial compensation levels required to attract qualified new hires and the compensation levels required to retain highly qualified executives.in making base salary adjustments.
For fiscal 2017,2022, the Committee approved (and in the case of Mr. Aslett, the Board ratified) base salary increases of 9.0% and 7.0% for Messrs. Aslett and Ruppert, respectively, primarily to maintain their positioning relative to market median levels. These base salary increases became effective October 1, 2016, we increasedas of the beginning of the second quarter of fiscal 2022.
The Committee approved new base salaries for our named executive officersMessrs. Huber, Stevison and Wells in connection with the commencement of their employment in fiscal 2022. For a further discussion, see "— Offer Letters with Named Executive Officers" beginning on page 51.
| | | | | | | | | | | |
| Fiscal 2022 Base Salary* | Fiscal 2021 Base Salary* | Percent Change |
Mark Aslett | 800,060 | | 734,000 | | 9.0 | % |
Michael D. Ruppert | 446,351 | | 417,150 | | 7.0 | % |
Thomas Huber | 425,000 | | N/A | N/A |
James M. Stevison | 425,000 | | N/A | N/A |
Charles R. Wells, IV | 415,000 | | N/A | N/A |
*Reflects annualized base salary rates in effect as follows:
|
| | | |
Named Executive Officer and Title | Fiscal 2017 Salary (effective October 1, 2016) |
Mark Aslett, President and Chief Executive Officer | $ | 560,000 |
|
Gerald M. Haines II, EVP, Chief Financial Officer, and Treasurer | 345,000 |
|
Didier M.C. Thibaud, EVP, Chief Operating Officer | 375,000 |
|
Charles A. Speicher, VP, Controller, Chief Accounting Officer, and Assistant Treasurer | 250,000 |
|
These increases were consistent with market conditions and the change in our financial profile from our recent acquisition of the Carve-Out Business and organic growth.
Mr. Cambria joined us in August 2016 as Senior Vice President, General Counsel, and Secretary with a base salary of $345,000.
A portion of Mr. Thibaud’s salary is paid in Euros. The salary column in the Summary Compensation Table reflects the conversion of each monthly payment from Euros into U.S. Dollars (USD) based on the average conversion rate between Euros and USD for such month.
For fiscal 2018, effective October 1, 2017, the Compensation Committee increased the base salaries for our named executive officers as follows:
|
| | | |
Named Executive Officer and Title | Fiscal 2018 Salary (effective October 1, 2017) |
Mark Aslett, President and Chief Executive Officer | $ | 600,000 |
|
Christopher C. Cambria, EVP, General Counsel, and Secretary | 355,400 |
|
Gerald M. Haines II, EVP, Chief Financial Officer, and Treasurer | 355,400 |
|
Didier M.C. Thibaud, EVP, Chief Operating Officer | 395,000 |
|
Charles A. Speicher, VP, Controller, Chief Accounting Officer, and Assistant Treasurer | 257,500 |
|
These increases were consistent with market conditions and the growth in the sizebeginning of the Company during fiscal 2017 from acquisitions and organic growth.
Executive Bonus Program for Fiscal 2017
In fiscal 2017, the Compensation Committee targeted total cash compensation (i.e., base salary plus cash bonus opportunity) around the 50th percentile of a composite index of data from our peer group and the Radford Global Technology Survey. Our executive bonus program is a variable performance-based element of our overall compensation program. This bonus program provides the potential for additional cash compensation for our executive officers based on achieving the corporate financial performance goals contained in the annual strategic operating plan that is approved by our Board of Directors in the first monthsecond quarter of the fiscal year. Participantsyears indicated or, in the program are senior executives who have a strategic functioncase of Messrs. Huber, Stevison and are recommended by the CEO to the Compensation Committee for participation in the program. In general,Wells, as of their respective dates of hire.
Annual Incentives
The annual incentive plan ("AIP") provides our executives with the highest level and amount of responsibility have the highest percentage of their total target compensation at risk. This program consists of two elements: (1) target bonuses; and (2) potential over-achievement awards. Each executive officer’s target bonus is determinedopportunity to earn annual cash incentive awards based on position, responsibilities,their respective target bonuses and totalon company performance relative to pre-established goals.
| | |
Key Features of the Annual Incentive Plan |
•Performance criteria defined at the beginning of each semi-annual performance period |
•Performance compared to pre-established goals for adjusted EBITDA that are aligned with our strategic operating plan |
•Payouts can range from 0% to 150% of target bonus based on performance |
•The Committee retains discretion to adjust payouts, including in the event that calculated results under the plan do not appropriately reflect our overall performance for the year |
Target Bonuses for Fiscal 2022
AIP target cash compensation, and may be subject to change from year to year. For fiscal 2017,bonuses are established at the beginning of each executive officer’s target bonus was determined based on the percentage of actual adjusted EBITDA (defined below) to revenue reaching 23% for the fiscal year with each executive's potential over-achievement award determined based on the percentage of actual adjusted EBITDA to revenue exceeding 23% for the fiscal year.
Adjusted EBITDA is a non-GAAP measure and all references to actual adjusted EBITDA in this Compensation Discussion and Analysis refer to such non-GAAP measure. As used in our fiscal 2017 executive bonus plan, adjusted EBITDA includes net income (loss) (prior to the impact, if any, of a payout of any potential over-achievement award) and is adjusted for the following: interest income and expense; income taxes; depreciation; amortization of acquired intangible assets; restructuring and other charges; impairment of long-lived assets; acquisition and financing costs; fair value adjustments from purchase accounting; litigation and settlement expenses and stock-based compensation expense. All references to revenue are to revenue as calculated in accordance with GAAP.
A reconciliation between adjusted EBITDA and the most directly comparable GAAP financial measure is included as Appendix A to this proxy statement.
The following table indicates for fiscal 2017: (1) the target bonus for each named executive officer as a percentage of histheir base salary; and (2) the percentage ofsalary. For fiscal 2022, the target bonus tied to corporate financialfor each of Messrs. Aslett and Ruppert, as a percentage for their respective base salaries, was held constant at fiscal 2021 levels. The Committee approved new target bonus percentages for Messrs. Huber, Stevison and Wells in connection with the commencement of their employment in fiscal 2022. For a further discussion, see "— Offer Letters with Named Executive Officers" beginning on page 51.
| | | | | | | | | | | |
| Fiscal 2022 Base Salary* | Fiscal 2022 Target Bonus (%) | Fiscal 2022 Target Bonus ($) |
Mark Aslett | 800,060 | | 150 | % | 1,200,090 | |
Michael D. Ruppert | 446,351 | | 110 | % | 490,986 | |
Thomas Huber | 425,000 | | 100 | % | 425,000 | |
James M. Stevison | 425,000 | | 100 | % | 425,000 | |
Charles R. Wells, IV | 415,000 | | 100 | % | 415,000 | |
*Reflects annualized base salary rates in effect as of the beginning of the second quarter of the fiscal years indicated or, in the case of Messrs. Huber, Stevison and Wells, as of their respective dates of hire.
Performance Goals and Payout Ranges for Fiscal 2022
The Committee typically establishes threshold and target performance objectives.
|
| | | | | |
Named Executive Officer and Title | Target Bonus as a Percentage of Base Salary | | Portion Related to Corporate Financial Performance Objectives |
Mark Aslett, President and Chief Executive Officer | 100 | % | | 100 | % |
Christopher C. Cambria, EVP, General Counsel, and Secretary | 60 |
| | 100 |
|
Gerald M. Haines II, EVP, Chief Financial Officer, and Treasurer | 60 |
| | 100 |
|
Didier M.C. Thibaud, EVP, Chief Operating Officer | 75 |
| | 100 |
|
Charles A. Speicher, VP, Controller, Chief Accounting Officer, and Assistant Treasurer | 40 |
| | 100 |
|
Corporate Financialgoals for adjusted EBITDA under the AIP at the beginning of the first half ("H1") and second half ("H2") of each fiscal year. Performance Objectives
As part ofgoals for H1 are set in July based on our fiscal 2017annual strategic operating plan forecast (the "SOP"). At the Compensationsame meeting, the Committee establishes payout weightings for H1 and H2 performance based on the allocation, under our SOP, of the expected adjusted EBITDA results for the fiscal year between the H1 and H2 performance periods.
Performance goals for H2 are set in January based on a mid-year update to the SOP. At the same meeting, the Committee establishes "over-achievement" performance goals for the full fiscal year that allow executives to receive supplemental payouts in the event that actual adjusted EBITDA for the fiscal year exceeds the combined targets for H1 and H2 performance. These
supplemental payouts are designed so that collectively with the H1 and H2 goals, each executive's payout opportunity for the fiscal year ranges from 0% to 150% of their target bonus.
For fiscal 2022, the Committee met in July 2021 and January 2022 and established threshold and target performance goals based on adjusted EBITDA forecasts under our SOP for H1 and H2 accordingly. In connection with approving the H2 performance goals, the Committee determined that each executive's aggregate payout opportunities under the AIP for 2022 should be limited to a maximum of 100% of their target bonus in light of the increased potential for volatility in light of the challenging industry, labor and economic environment. Accordingly, the Committee did not establish any "over-achievement" performance goals for the 2022 fiscal year.
The table below sets forth the specific performance goals and payout opportunities established by the Committee under the AIP for H1 and H2 of fiscal 2022, including the relative weightings of H1 and H2 in determining each executive's total bonus opportunities for the full fiscal year.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | First Half of Fiscal 2022 (38% of Fiscal 2022 Bonus Opportunity) | | Second Half of Fiscal 2022 (62% of Fiscal 2022 Bonus Opportunity) |
Performance Goal | | Adjusted EBITDA Performance Result (in millions) | | H1 Payout Percentage* | | Adjusted EBITDA Performance Requirement (in millions) | | H2 Payout Percentage* |
Target | | At or above 85.5 | | 100 | % | | At or above 136.5 | | 100 | % |
Threshold | | 51.3 | | 60 | % | | 81.9 | | 60 | % |
Below Threshold | | Below 51.3 | | — | % | | Below 81.9 | | — | % |
*Payout percentages for performance results between Threshold and Target are calculated using linear interpolation.
Actual Results and AIP Payouts for Fiscal 2022
For purposes of calculating actual financial portionresults under the AIP, the Committee excludes the effects of pre-established categories of items that it believes are not reflective of operating performance. These categories are identical to the adjustments that we use for the external reporting of our executive bonus planadjusted EBITDA results in our periodic earnings releases. For a further discussion of these adjustments, see "Appendix B: Reconciliation of Non-GAAP Measures to GAAP Measures."
In addition to these adjustments, the Committee's practice is to adjust AIP results to exclude the impact of acquisitions that were not included in the SOP forecast used to establish the performance requirements for the applicable performance period. In the first half of fiscal 2017 at2022, Mercury completed the July 2016 meetingacquisitions of Avalex and Atlanta Micro. These acquisitions, which contributed $1.6 million in the Boardaggregate to our H1 adjusted EBITDA results, were not included in our SOP forecast used to set our H1 AIP performance goals. Accordingly, the Committee excluded these results from our H1 performance under the AIP. The expected impact of Directors. The Compensationthese acquisitions was included in our mid-year SOP update used to set our H2 AIP performance goals, and accordingly, the Committee setincluded the financial portionactual contributions of these acquisitions in calculating our executive bonus plan forH2 performance results under the second half and full yearAIP.
After giving effect to these adjustments, our adjusted EBITDA performance under the AIP for fiscal 2017 at the January 2017 meeting of the Board of Directors as part of our mid-year strategic operating plan review. Payouts2022 was $74.9 million for corporate financial performanceH1 and $124.1 million for fiscal 2017 were based on objectives for the fiscal year broken into the first half of the year and the second half of the year, with a catch-up feature for unearned first half cash incentives based on our full year performance, and were subject to the following payout formulas:
Fiscal 2017 First Half Payout Formula
(July 1, 2016 - December 31, 2016)
|
| | | |
Adjusted EBITDA/ Revenue Target (for first half of fiscal year) | Percentage to be Paid for Bonus | | Threshold, Target, and Maximum |
Less than 21% | —% | | Below Threshold |
21% | 50% | | Threshold |
Greater than 21% but less than 23% | Proportionate % between 50% and 100% | | — |
23% | 100% | | Target |
Greater than 23% | 100% | | Maximum |
Fiscal 2017 Second Half and Full Year Payout Formula
(January 1, 2017 - June 30, 2017)
|
| | | |
Adjusted EBITDA/ Revenue Target (for second half of fiscal year) | Percentage to be Paid for Bonus | | Threshold, Target, and Maximum |
Less than 21% | —% | | Below Threshold |
21% | 50% | | Threshold |
Greater than 21% but less than 23% | Proportionate % between 50% and 100% | | — |
23% | 100% | | Target |
Greater than 23% | 100% | | Maximum; above 23% credited toward any unearned H1 bonus |
The Compensation Committee reserves the right to vary from year to year the percentages of the target corporate bonus earned upon achievement of the threshold, target, and maximum adjusted EBITDA objectives along with the annual performance objectives.
Fiscal 2017 actual adjusted EBITDA/ revenue was 22.3% for the first half of the fiscal year and 23.6% for the second half of the fiscal year. Our executive officers earned payouts at 87.5% of their first half and 100% of their second half target corporate financial performance bonuses for fiscal 2017, with the full year performance catch-up feature resulting in the executives earning the remaining 12.5% that was not originally achieved under the first half results as the second half performance exceeded the target for the period.
Over-Achievement Awards
Each executive officer’s potential over-achievement award for fiscal 2017 was based on the executive’s share of any over-achievement award pool. The percentage of the over-achievement award pool granted to an executive is the same percentage as the individual executive’s participation in the executive bonus program relative to the total size of the executive bonus program for the fiscal year. The size of any over-achievement award pool is determined based on the amount by which the percentage of actual adjusted EBITDA to revenue exceeded 23% for the full fiscal year. The potential over-achievement award pool for fiscal 2017 was 25% of the amount, if any, by which the percentage of actual adjusted EBITDA to revenue exceeded 23%. In this way, the over-achievement pool is self-funded through additional profitability as a percentage of revenue.
There was no over-achievement award pool for fiscal 2017 as the percentage of actual adjusted EBITDA to revenue for fiscal 2017 was 23.0%. The table below is a summary of the thresholds, targets, and maximums for the fiscal 2017 executive bonus plan, includingH2. Accordingly, the payout percentages earned by our executives under the AIP for each element of the plan.
|
| | | | |
Fiscal 2017 Executive Bonus Plan Performance |
July 1, 2016 - December 31, 2016 (H1) | January 1, 2017 - June 30, 2017 (H2) | Full Fiscal 2017 Over-Achievement Pool |
Adjusted EBITDA/ Revenue | Adjusted EBITDA/ Revenue | Adjusted EBITDA/ Revenue |
Threshold | Target | Threshold | Target | Above Target - Maximum |
Company Financial Performance (Adjusted EBITDA % of Revenue) |
21% | 23% | 21% | 23% | 23% - 24% |
% Payout of Bonus |
50% | 100% | 50% | 100% | Up to 100% |
87.5% H1 Actual Payout | 100% H2 Actual Payout + 12.5% H1 Catch Up for Achieving Full-Year Results | 0% FY17 Actual |
H1 (Paid in January 2017) | H2 (Paid in August 2017) | Unearned |
Executive Bonus Program2022 were 87.41% for Fiscal 2018
In establishing the executive bonus programH1, 90.92% for H2 and 89.59% for fiscal
2018, the Compensation Committee reviewed our multi-year performance and noted that our annual financial goals have been very aggressive relative to the financial performance of our peer group, with achievement of our strategic operating plan consistently positioning us in the top quartile. In order to provide incentives for continued top quartile performance going forward, the Committee increased the potential cash bonus payout for fiscal 2018, thereby putting an even larger percentage of an executive's overall potential compensation at risk basedyear 2022 on
performance. For fiscal 2018, the target bonus as a
percentage of base salary for the Chief Executive Officer under the executive bonus program is 150%; for the Executive Vice President, Chief Operating Officer is 110%; for each of the Executive Vice President, General Counsel and the Executive Vice President, Chief Financial Officer is 90%; and for the Vice President, Controller, and Chief Accounting Officer is 50%. For fiscal 2018, the performance targets are based on the amount of our actual adjusted EBITDA measured in dollars compared to budgeted adjusted EBITDAweighted average basis, as set forth in
our strategic operating planfurther detail below. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | AIP Payouts for H1 | AIP Payouts for H2 | AIP Payouts for FY22 |
Name | Target Bonus | Weighting | Payout Percentage | Payout* | Weighting | Payout Percentage | Payout* | Weighted Payout Percentage | Payout |
Mark Aslett | 1,200,090 | | 38.00 | % | 87.41 | % | 398,619 | | 62.00 | % | 90.92 | % | 676,496 | | 89.59 | % | 1,075,115 | |
Michael D. Ruppert | 490,986 | | 38.00 | % | 87.41 | % | 163,085 | | 62.00 | % | 90.92 | % | 276,770 | | 89.59 | % | 439,855 | |
Thomas Huber | 425,000 | | 38.00 | % | 87.41 | % | 141,167 | | 62.00 | % | 90.92 | % | 239,574 | | 89.59 | % | 380,741 | |
James M. Stevison | 425,000 | | 38.00 | % | 87.41 | % | 141,167 | | 62.00 | % | 90.92 | % | 239,574 | | 89.59 | % | 380,741 | |
Charles R. Wells, IV | 415,000 | | 38.00 | % | 87.41 | % | 137,846 | | 62.00 | % | 90.92 | % | 233,937 | | 89.59 | % | 371,783 | |
* Individual payouts for fiscal 2018, with targets again relatingH1 and H2 performance were delivered to the firstnamed executive officers on February 17, 2022 and second halvesAugust 18, 2022, respectively.
Long-Term Incentives
Long-term incentives are intended to align the interests of the fiscal year.
Equity Compensation
We believe that compensation in the form of Mercury stock should benamed executive officers with shareholders by linking a significantmeaningful portion of our executive officers’ total compensation in orderpay to align with shareholder interests. Equity compensation creates a unique link between the creation of shareholder value and an executive’s long-term wealth accumulation opportunity. Our 2005 Stock Incentive Plan allows for several typescreation over a multi-year period. Long-term incentives are also provided to drive the performance of equity instruments, including stock options, stock appreciation rights, restricted stock, and deferred stock awards. The Compensation Committee determines which instruments to use on a grant-by-grant basis. When approving equity awards for an executive officer, the Compensation Committee considers the executive’s current contribution to Mercury, the anticipated contribution to meeting our long-term strategic performance goals, and industry practices and
norms. Long-term incentives granted in prior years, existing levels of stock ownership by executive officers, and aggregate grants to all executive officers are also taken into consideration. The Compensation Committee also considers the other elements of incentive compensation available to the executive officers and the performance metrics associated with those incentives, with a view toward providing an appropriately diverse set of different performance criteria and objectives to incent different aspects and time periods of performance and avoid multiple forms of reward for the same achievement.
In considering the executive’s current contribution to Mercury, the Compensation Committee reviews the executive’s role within Mercury, the contribution that the executive is currently making to Mercury, the results achieved by the executive, and input from the CEO with respect to executive officers other than the CEO. In general, executives with higher levels and amounts of responsibility receive larger equity awards. As a result, the CEO, COO, CFO, and General Counsel tend to have larger equity awards than our other executives.
In terms of the executive’s anticipated contribution to meeting long-term strategic performance goals, the Compensation Committee reviews the potential role of the executive in achieving the long-term strategic goals set forth in our strategic operating plan, again with input from the CEO with respect to executives other than the CEO. The Compensation Committee considers the incentive and retention value that equity awards may provide.
Finally, the Compensation Committee reviews proposed equity awards to executives against benchmarking and peer group data. The Compensation Committee believes that equity awards create an incentive in addition to the executive bonus program in order to attractbusiness strategy, engage and retain seniorour key executives who would contribute toand facilitate ownership of our future success. As a result,common stock. For fiscal 2022, the Compensation Committee intends for equity awards to executives as part of their long-term incentive compensation to generally be in line with industry practices and norms, both in terms of the type of equity award (e.g., restricted stock versus stock options) and the amount of the award.
The Compensation Committee has adopted an equity compensation awards policy that describes how equity awards are granted. Awards are granted by the Compensation Committee, subject to the following:
any award granted to the CEO is subject to ratification by a majority of the independent directors on the Board; and
the Compensation Committee may delegate to the CEO the authority to grant awards to other employees (other than our executive officers or other persons deemed to be “covered employees” within the meaning of Section 162(m) of the Code), subject to guidelines that are included in any such delegation.
The equity compensation awards policy provides pre-established monthly grant dates for new hires, as well as quarterly grant dates. New-hire grants are made with an effective date of the 15th of each month following the date of hire, or if not a business day, the next succeeding business day. Quarterly grants are made with an effective date of the 15th of February, May, August, or November, or if not a business day, then the next succeeding business day. Awards are made on these pre-established dates regardless of whether the Compensation Committee, the Board, or the CEO is then in possession of material, non-public information. This policy is not intended to timeapproved the grant of equity awards in coordination with such information.
Under our equity compensation awards policy, the Compensation Committee may also grant equity awards having an effective date other than a pre-established new-hire or quarterly grant date if the Committee determines in good faith that such award is advisable and in the best interests of Mercury and so long as the Committee believes, in good faith, that neither the members of the Committee nor the grantee is then in possession of material, non-public information concerning Mercury. Grants are made by the Compensation Committee only at a meeting of the Committee, which must occur on or prior to (but not after) the grant date applicable to such awards. Grants to the CEO are ratified by the independent directors only at a meeting of the Board, which must occur on or prior to (but not after) the grant date applicable to such award. Grants made by the CEO pursuant to delegated authority are evidenced by a grant document that must be signed and dated by the CEO on or prior to (but not after) the grant date applicable to such awards.
Fiscal 2017 Equity Awards
The fiscal 2017 annual restricted stock awards grantedlong-term incentives to our named executive officers approximatedin the 50th percentileform of a market composite consistingrestricted stock awards ("RSAs") and performance stock awards ("PSAs").
Restricted Stock Awards
RSAs are awarded to named executive officers under our long-term incentive program to facilitate executive ownership of company stock, to align the interests of our executives with those of our shareholders and to support retention. RSAs vest in equal annual increments over a three-year period, and the ultimate value of these awards to recipients is dependent on our stock price at the time of vesting.
Performance Stock Awards
PSAs are awarded to named executive officers under our long-term incentive program primarily to motivate multi-year financial achievements that are aligned with shareholder value creation. The performance requirements of the PSAs awarded by the Committee for fiscal 2022 are substantially identical to those awarded by the Committee for fiscal 2021. The requirements are equally weighted between goals for revenue growth and Adjusted EBITDA Margin performance, for the three-year fiscal period ending with fiscal 2024, relative to the achievements over this period of our primary peer group and compensation survey data fromfor fiscal 2022. For the Radford Global Technology Surveylist of public high technology companies with annual revenue levels generally between $200 million and $1 billion with a median revenue of $480 million with median performance relative tothat comprise our primary peer group yielding vesting that approximates median pay basedfor fiscal 2022, see "Use of Market Data and Competitive Compensation Positioning — Compensation Peer Groups" beginning on such market composite.page 45. The revenuenumber of shares ultimately earned under the PSAs will range forfrom 0% to 300% of the peer group was widened by virtue of our double-digit organic growth rate in recent years, coupled with our further growth via acquisitions, with the goal of less frequent changes to the peer group over time as the Company grows. The peer group was also enlarged to mitigate the risk of shrinkage as peer group companies are acquired or merged and cease to be publicly-traded companies.
The target number of shares awarded at the time of grant, based on our actual performance achievements over the three-year performance period, as further described in the table below.
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PSA Performance Goal | | Performance Achievement Relative to Peer Group | | Payout Percentage* |
Maximum | | At or above 90th percentile | | 300 | % |
| | 75th percentile | | 200 | % |
Target | | 50th percentile | | 100 | % |
Threshold | | At or below 25th percentile | | — | % |
*Payout percentages for achievements between Threshold and Maximum are calculated using linear interpolation.
For PSA awards granted in fiscal 2022, "Adjusted EBITDA Margin" means adjusted EBITDA divided by revenue. Adjusted EBITDA is a non-GAAP measure that excludes the effects of pre-established categories of items that the Committee believes are not reflective of operating performance. These categories are identical to the adjustments that we use for the executive grant effectiveexternal reporting of our adjusted EBITDA results in our periodic earnings releases, other than adjustments for stock-based and other non-cash compensation expense. For a further discussion of these adjustments, see "Appendix B: Reconciliation of Non-GAAP Measures to GAAP Measures."
While the Committee has elected to use adjusted EBITDA as a factor in determining performance under both our annual incentive awards and our PSAs, the performance requirements under these awards are designed so that resulting payouts reflect different and important aspects of August 15, 2016company performance that are not duplicative. Payouts under the annual incentive plan are based on performance for eacha single fiscal year, while payouts under the PSAs require sustained performance achievements, relative to the primary peer group, over a three-year fiscal period. The Committee believes it is appropriate to separately reward annual and long-term adjusted EBITDA performance achievements because of the importance of earnings in creating long-term shareholder value.
Annual Long-Term Incentive Awards Granted in Fiscal 2022
The Committee typically approves long-term incentive awards for named executive officer was determined by dividingofficers on an annual basis in July of each fiscal year, to be granted in mid-August. For fiscal 2022, the dollar value fixed for such executive grant byCommittee approved (and in the case of Mr. Aslett, the Board ratified) the following grants of long-term incentive awards to Messrs. Aslett and Ruppert, which were granted on August 16, 2021.
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| Grant Date Target Value of Long-Term Incentives for Fiscal Year 2022 |
| Restricted Stock Awards* ($) | Performance Stock Awards* ($) | Total ($) |
Mark Aslett | 2,150,000 | | 2,150,000 | | 4,300,000 | |
Michael D. Ruppert | 715,000 | | 715,000 | | 1,430,000 | |
* Grant date target values were converted into the number of shares underlying each award based on the average closing price of ourMercury's common stock during the 30 calendar days prior to August 15, 2016. the grant date.
The grant dateCommittee subsequently approved "new hire" long-term incentive awards for Messrs. Huber, Stevison and Wells in connection with their commencement of employment during fiscal 2022, and the fiscal 2017 equityBoard later approved special long-term incentive awards was August 15, 2016.
Each fiscal 2017 annual restricted stock award for ourthe named executive officers has 50% performance-based vestingunder an equity retention plan encompassing over 100 leaders whose continuing efforts are critical to our success. For a further discussion of these awards, see "— Offer Letters with Named Executive Officers" beginning on page 51 and 50% time-based vesting. For"— Equity Retention Plan Awards" beginning on page 51.
OFFER LETTERS WITH NAMED EXECUTIVE OFFICERS
During fiscal 2022, the time-based vesting halfCommittee approved the execution of the fiscal 2017 annual awards, one-third vests onoffer letters with each of the first three anniversaries of the grant date. For the performance-based vesting half of the fiscal 2017 annual awards, the award vests based on relative performance to our peer groupMessrs. Huber, Stevison and Wells that provided for the three-year period ending June 30, 2019. For the fiscal 2017 annual performance-based awards, we used two new relative performance metrics: (i) a ratiofollowing initial terms of adjusted EBITDA to revenue, percentile ranked relative totheir employment as our peer group (75% weighting);Chief Transformation Officer, our Chief Growth Officer and (ii) revenue growth percentage, percentile ranked relative to our peer group (25% weighting). These metrics were chosen to incent strong relative long-term growth in revenue and profitability. The target value for the fiscal 2017 annual restricted stock awards is the median of a market composite consistingPresident of our named peer group and compensation survey data from the Radford Global Technology Survey of public high technology companies, with the performance half ofMicroelectronics division, respectively:
•initial base salaries at the annual award having upside potential (subject to a cap) if we outperform, and downside potential if we underperform, our peer grouprates set forth in "— Elements of 2022 Target Pay — Base Salary" beginning on the relative performance metrics discussed above. If we do not achieve at least the 25th percentile for a given performance metric, no vesting will occur for the performance-based shares tied to that metric. The maximum combined value of the time and performance-based elements of the grant is capped at two times the median value used to determine the target grant size.page 47;
For fiscal 2017, we also granted an acquisition integration incentive restricted stock award for our Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer. During the fourth quarter of fiscal 2016, we closed our $300 million acquisition of the embedded security, radio frequency and microwave, and custom microelectronics businesses of the Power and Microelectronics Group of Microsemi Corporation (the "Carve-Out Business"), the largest acquisition•participation in our history. This acquisition integration grant related specifically to our acquisitionannual incentive plan for fiscal 2022 with a target bonus of the Carve-Out Business and is designed to create incentives for the rapid and successful integration100% of that business leading to accelerated revenue growth. The specific objective was to achieve profitable pro forma revenue growth, within the first year, that was in excess of the average historical growth and profitability rates of companies their annualized base salary;
•in the primary market sector (defense)case of Messrs. Huber and Stevison, individual sign-on bonuses of $300,000, which were paid to these executives in two installments during fiscal 2022 and are subject to repayment in full in the event of resignation or termination for cause on or prior to December 31, 2022; and
•the following grants of long-term incentive awards, which we operate,were intended in part to restore compensation forfeited with a prior employer, to motivate multi-year financial achievements that are aligned with shareholder value creation and also in excess of the historical pro forma combined growth rateto further align each executive's interests with those of our business withshareholders.
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| Grant Date Target Value of "New Hire" Awards for Fiscal Year 2022 |
| Restricted Stock Awards* ($) | Performance Stock Awards* ($) | Total ($) |
Thomas Huber | 1,500,000 | | 500,000 | | 2,000,000 | |
James M. Stevison | 800,000 | | 800,000 | | 1,600,000 | |
Charles R. Wells, IV | 800,000 | | 800,000 | | 1,600,000 | |
* Grant date target values were converted into the acquired business. This integration incentive award was a 100% performance-based restricted stock award with fiscal 2017 as the performance period and was earned based on a total pro forma annual revenue growth rate objective, subject to minimum revenue and adjusted EBITDA thresholds. The growth rate objective used a pro forma combined revenue starting point of $353 million for calculating revenue growth such that growth was measured as if we had acquired the Carve-Out Business at the beginning of fiscal 2016 rather than using our GAAP revenue for fiscal 2016 of $270 million (which GAAP revenue only included two months of revenue from the Carve-Out Business in fiscal 2016). Vesting for this integration incentive award only began for pro forma revenue growth in excess of 6.5% measured from the $353 million revenue starting point, with a growth rate at or above 10% resulting in 100% vesting of the award. A 10% revenue growth rate is well above the revenue growth rate for companies operating in the defense market. Achievement of this growth rate also means that we were successful in substantially increasing the growth rate of the acquired business. These goals specifically related to the integration of the largest acquisition in our history, with a focus on driving revenue growth without sacrificing profitability as well as aligning with our Carve-Out Business post-acquisition operating model.
Our fiscal 2017 total executive compensation program utilized a diverse set of performance elements to drive different performance objectives over multiple time frames. Our fiscal 2017 executive cash bonus plan used adjusted EBITDA as a percentage of revenue to drive profitability for fiscal 2017 in line with our strategic operating plan for the year. Our fiscal 2017 annual performance equity grant used a mix of the ratio of adjusted EBITDA to revenue, percentile ranked relative to our peer group (75% weighting), and revenue growth percentage, percentile ranked relative to our peer group (25% weighting), as performance measures to drive revenue growth and profitability over a three-year period. This is different from the absolute profitability measure used for our fiscal 2017 annual executive cash bonus plan, which cash plan was aligned with our fiscal 2017 strategic operating plan. Our fiscal 2017 annual performance equity grant was aligned with relative performance compared with our peer group, an important factor in the creation of long term value for the Company and its shareholders. Our fiscal 2017 acquisition integration incentive award used a revenue growth rate performance measure to drive revenue growth for fiscal 2017 to above the historical weighted average combined revenue growth rates for Mercury and the Carve-Out Business while also being subject to minimum revenue and profitability thresholds. If achieved, these metrics would provide growth in excess of not only the historical weighted average combined growth rates of the business, but also well in excess of the average historical growth and profitability rates of companies in the primary market sector (defense) in which the Company operates.
Fiscal 2017 Restricted Stock Awards
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Named Executive Officer and Title | Annual Performance-Based Restricted Shares (# of shares) (1) | | Annual Time-Based Restricted Shares (# of shares) | | Integration Incentive Performance-Based Restricted Shares (# of shares) (2)
| | Total (# of shares) |
Mark Aslett, President and Chief Executive Officer | 40,119 | | 40,119 | | 80,238 | | 160,476 |
Christopher C. Cambria, EVP, General Counsel, and Secretary (3) | 37,500 | | 37,500 | | - | | 75,000 |
Gerald M. Haines II, EVP, Chief Financial Officer, and Treasurer | 14,042 | | 14,042 | | 28,023 | | 56,167 |
Didier M.C. Thibaud, EVP, Chief Operating Officer
| 19,057 | | 19,057 | | 38,113 | | 76,227 |
Charles A. Speicher, VP, Controller, Chief Accounting Officer, and Assistant Treasurer | 4,815 | | 4,815 | | - | | 9,630 |
(1) The number of annual performance-based restricted shares in the table above reflects the probable number (calculated as of the grant date) of shares that the executive is expected to earn for the three-year performance period ending June 30, 2019. The maximum potential number of shares (assuming the highest level of performance achievement) that could be earned is: Mr. Aslett – 120,357 shares; Mr. Cambria – 37,500; Mr. Haines – 42,126; Mr. Thibaud – 57,171 shares; and Mr. Speicher – 14,445 shares.
(2) The number of integration incentive performance-based restricted shares in the table above reflects both the probable and maximum number (calculated as of the grant date) of shares that the executive is expected to earn for the one-year performance period ended June 30, 2017. The actual shares earned could be zero or a fraction of these amounts; however, the executive cannot earn more than the amounts reflected above for the integration incentive award.
(3) Mr. Cambria joined the Company in August 2016 and his equityunderlying each award reflects a new hire award.
These equity grants were made based on the Compensation Committee’s assessment of both competitive annual grant levels and its determination of retention needs reflected by the pre-existing unvested long-term incentive awards previously granted to the executives.
Vesting of Prior Period Performance-Based Restricted Stock Awards
Fiscal 2015 Performance-Based Restricted Stock Awards
Vesting for the final 1/3rd of the performance-based restricted shares granted in fiscal 2015 was subject to the following vesting formula:
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| | |
Fiscal 2015-2017 Performance
(Adjusted EBITDA/ Revenue)
| Vesting % | Threshold/Cap |
Less than 12% | 0% | Below Threshold |
Equal to 12% | 66.67% | Threshold |
Between 12% and 18% | Straight line interpolation between 66.67% and 100% | |
Equal to 18% | 100% | Target and Cap |
Greater than 18% | 100% | Capped at 100% |
The ratio of adjusted EBITDA to revenue for the three-year period ended June 30, 2017 was 21%, thus exceeding 18% and yielding 100% vesting of the 1/3rd of the performance-based restricted stock award that was subject to vest or forfeit on August 15, 2017.
Fiscal 2016 Performance-Based Restricted Stock Awards
Vesting for the initial 2/3rds of the performance-based restricted shares granted in fiscal 2016 was subject to the following vesting formula:
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| | |
Fiscal 2016-2017 Performance
(Adjusted EBITDA/ Revenue)
| Vesting % | Threshold/Cap |
Less than 12% | 0% | Below Threshold |
Equal to 12% | 66.67% | Threshold |
Between 12% and 18% | Straight line interpolation between 66.67% and 100% | |
Equal to 18% | 100% | Target and Cap |
Greater than 18% | 100% | Capped at 100% |
The ratio of adjusted EBITDA to revenue for the two-year period ended June 30, 2017 was 22%, thus exceeding 18% and yielding 100% vesting of the 2/3rds of the performance-based restricted stock award that was subject to vest or forfeit on August 15, 2017.
Fiscal 2017 Acquisition Incentive Performance-Based Restricted Stock Awards
Vesting for the acquisition integration incentive performance-based restricted stock award granted in fiscal 2017 was subject to the following vesting formula:
|
| | |
Fiscal 2017 Performance
Pro Forma Revenue Growth (1)
| Vesting % (2) | Threshold/Cap |
Less than or equal to 6.5% | 0% | Below Threshold |
Between 6.5% and 10% | Straight line interpolation between 0% and 100% | |
Equal to 10% | 100% | Cap |
Greater than 10% | 100% | Capped at 100% |
| |
(1) | Revenue growth is measured using $353.0 million as the starting point revenue. |
| |
(2) | Vesting is subject to achieving a revenue threshold of $376 million and an adjusted EBITDA threshold of $86.5 million. |
The Company satisfied the revenue and adjusted EBITDA thresholds for the award and revenue growth was 16% compared to the $353.0 million measurement point for fiscal 2017, thus exceeding 10% and yielding 100% vesting of the acquisition incentive performance-based restricted stock award that was subject to vest or forfeit on August 15, 2017. The growth rate objective used a pro forma combined revenue starting point of $353 million for calculating revenue growth such that growth was measured as if we had acquired the Carve-Out Business at the beginning of fiscal 2016 rather than using our GAAP revenue for fiscal 2016 of $270 million (which GAAP revenue only included two months of revenue from the Carve-Out Business in fiscal 2016). As our revenue growth for fiscal 2017 was 10% before inclusion of the revenue contributions of CES and Delta Microwave acquisitions, both of which occurred in fiscal 2017, we would have achieved the revenue growth target with or without the revenue contributions from those acquisitions.
Fiscal 2017 Performance-Based Restricted Stock Awards
For the fiscal 2017 annual performance-based restricted stock awards, the performance period is the three-year period ending June 30, 2019. Accordingly, none of these awards was eligible to vest for the period ending June 30, 2017.
Fiscal 2018 Equity Awards
The fiscal 2018 annual restricted stock awards granted to our named executive officers approximate the 50th percentile of a market composite for executives in the same roles. The market composite consists of our named peer group and compensation survey data from the Radford Global Technology Survey of public high technology companies with annual revenue levels generally between $200 million and $1 billion with a median revenue of $480 million. Our revenue was $409 million in fiscal 2017.
Since these awards occurred during fiscal 2018, they are not reflected in the Outstanding Equity Awards at Fiscal Year-End Table for fiscal 2017 included in this proxy statement. The target number of shares awarded for the executive grant effective as of August 15, 2017 for each named executive officer was determined by dividing the dollar value fixed for such executive grant by the average closing price of ourMercury's common stock during the 30 calendar days prior to August 15, 2017. the grant date.
The grant dateterms of the RSAs and PSAs granted to Messrs. Huber, Stevison and Wells pursuant to their offer letters are substantially identical to the terms of the annual awards granted to Messrs. Aslett and Ruppert on August 16, 2021 as part of their fiscal 2017 equity2022 compensation. For a further discussion of the terms of these awards, see "— Elements of 2022 Target Pay — Long-Term Incentives" beginning on page 50.
EQUITY RETENTION PLAN AWARDS
At the start of fiscal 2022, we adopted a plan to reorganize Mercury's operating structure in order to manage the considerable growth we had achieved in recent years and to facilitate scaling our organization for future opportunities. In connection with this plan, we hired three new executives to lead in our new structure: Mr. Huber as our Chief Transformation Officer, Mr. Stevison as our Chief Growth Officer and Mr. Wells as President of our Microelectronics Division.
During this same period, substantial industry and labor market challenges began to emerge. The uncertainty associated with these trends was August 15, 2017.exacerbated by public shareholder activity. These conditions led to increased attrition within our enterprise, including with respect to one of the members of our executive leadership team, our Chief Human Resources Officer.
Following a detailed review of these circumstances, the Board determined that continuity of leadership, strategy and execution was in the best interests of our shareholders. Accordingly, on February 7, 2022, our Board approved an Equity Retention
Each fiscal 2018 annual restricted stock award forPlan (the "ERP") encompassing our Chief Executive Officer, our executive leadership team and over 100 additional leaders whose continuing efforts were deemed critical to our success. The Board approved the ERP as a key element in our ongoing efforts to build on Mercury's strong foundation and drive the next phase of value creation at greater scale. The ERP was intended to ensure that leaders across our organization remain focused on advancing our strategy, while at the same time supporting the retention of our key leaders at a critical junction in our transformation.
Our Board approved the ERP at the recommendation of the Committee after consultation with its independent compensation consultant and careful consideration of a range of incentive options. Under the ERP, all participants, including our named executive officers, is 50% performance-based vestingwere granted their annual equity awards for fiscal 2023 on February 15, 2022, approximately six months earlier than our typical annual equity cycle. Additional one-time awards were granted under the ERP to retain and 50% time-based vesting. Forfurther incentivize achievement of our long-term strategic goals. The value of these additional retention grants varied among different ERP participants and ranged from 1x to 2x of each participant's annual long-term incentive compensation. In determining the time-based vestingvalue of the retention awards to be granted, the Committee considered broader market data for prior grants of similar awards by other public companies and share usage and dilution in respect of these awards. The value of each participant's individual retention grants reflects the significance of the participants' responsibilities, potential future contributions to the company's long-term success, their strategic importance to Mercury and their attractiveness to competitors.
Consistent with our long-term incentive program structure, half of the long-term incentives for the named executive officers under the ERP were granted in the form of performance stock awards that are contingent upon future performance to have any realized value, and half were granted in the form of restricted stock awards. The performance stock awards vest on the third anniversary following the date of grant, while the restricted stock awards vest in equal annual increments over the three-year period following the date of grant. No additional long-term incentive awards will be issued to the named executive officers in fiscal 2018 annual awards, one-third vests on each2023.
Following the announcement and execution of the first three anniversariesERP, attrition among our key leaders has been significantly less than the population not receiving the award, and we have retained all members of our executive leadership team who participated in the ERP through the date of this proxy statement.
The table below sets forth, for each named executive officer, the portion of the grant date. For the performance-based vesting halfdate target value of the awards granted on February 15, 2022 that represent: (1) the accelerated grant of the executive's annual equity awards for fiscal 2018 annual2023 and (2) the additional retention awards granted to the executive.
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| Annual LTI Awards for Fiscal Year 2023 | | One-Time Retention Awards |
| Performance Stock Awards* ($) | Restricted Stock Awards* ($) | Total ($) | | Performance Stock Awards* ($) | Restricted Stock Awards* ($) | Total ($) |
Mark Aslett | 2,150,000 | | 2,150,000 | | 4,300,000 | | | 4,150,000 | | 4,150,000 | | 8,300,000 | |
Michael D. Ruppert | 715,000 | | 715,000 | | 1,430,000 | | | 1,215,000 | | 1,215,000 | | 2,430,000 | |
Thomas Huber | 415,000 | | 415,000 | | 830,000 | | | 415,000 | | 415,000 | | 830,000 | |
James M. Stevison | 398,000 | | 398,000 | | 796,000 | | | 398,000 | | 398,000 | | 796,000 | |
Charles R. Wells, IV | 415,000 | | 415,000 | | 830,000 | | | 415,000 | | 415,000 | | 830,000 | |
* Grant date target values were converted into the number of shares underlying each award vests based on relativethe average closing price of Mercury's common stock during the 30 calendar days prior to the grant date
The terms of all performance to our peer group for the three-year period ending June 30, 2020. For the fiscal 2018 annual performance-basedstock awards we are using two relative performance metrics: (i) a ratio of adjusted EBITDA to revenue, percentile ranked relative to our peer group (75% weighting); and (ii) revenue growth percentage, percentile ranked relative to our peer group (25% weighting). These metrics were chosen to incent strong relative long-term growth in revenue and profitability. The target value for the fiscal 2018 annual restricted stock awards isgranted under the median of a market composite consisting of ourERP to the named peer group and compensation survey data fromexecutive offers are substantially identical to the Radford Global Technology Survey of public high technology companies, with the performance halfterms of the annual award having upside potential (subjectawards granted to executives generally on August 16, 2021 as part of their fiscal 2022 compensation, including performance periods and goals, and appropriate shareholder protections that limit termination-related vesting to death, disability and termination in connection with a cap) if we outperform, and downside potential if we underperform, our peer group on the relative performance metrics discussed above. The maximum combined value of the time and performance-based elements of the grant is capped at two times the median value used to determine the target grant size.
change in control. For fiscal 2018, we also granted an acquisition integration incentive restricted stock award for our Chief Executive Officer, Chief Operating Officer, and Chief Financial Officer. In fiscal 2017 we continued our aggressive program of corporate acquisitions, closing the acquisitions of CES in November 2016, Delta Microwave in April 2017, and Richland Technologies in July 2017, and are focused on the integration of all threea further discussion of these newly acquired businesses along withawards generally, see "— Elements of Fiscal 2022 Target Pay — Long-Term Incentives" beginning on page 50. For a further discussion concerning the continuing integration activities relatedeffect of a change in control or termination of employment on these awards, see "Tabular Executive Compensation Disclosure — Potential Payments Upon Change in Control or Termination of Employment" beginning on page 62.
PAYOUT OF PERFORMANCE STOCK AWARDS FOR THE 2020-2022 AWARD CYCLE
In August 2022, the Committee reviewed and certified the results for the performance stock awards granted to our acquisitionnamed executive officers in fiscal 2016 of the Carve-Out Business. The integration incentive award is a 100% performance-based restricted stock award with fiscal 2018 as the performance period and is earned based on a total pro forma revenue growth rate, subject to minimum revenue and2020. Payouts under these awards were contingent upon our adjusted EBITDA thresholds. This performance-based award is designed to drive the rapid and successful integration of our recently acquired CES, Delta Microwave, and Richland Technologies businesses, as well as the continued integration of the Carve-Out Business, and accelerate revenue growth to rates above the historical weighted average pro forma combined revenue growth rates for Mercury and the acquired businesses, subject to minimum levels of revenue and profitability. The growth rate objective uses a pro forma revenue starting point for calculating revenue growth such that growth is measured as if we had acquired CES, Delta Microwave, and Richland Technologies at the beginning of fiscal 2017.
Our fiscal 2018 total executive compensation program utilizes a diverse set of performance elements to drive different performance objectives over multiple time frames. Our fiscal 2018 executive cash bonus plan uses adjusted EBITDA, expressed as a dollar amount, to drive profitability for fiscal 2018 in line with our strategic operating plan for the year. Our fiscal 2018 annual performance equity grant uses a mix of the ratio of adjusted EBITDA to revenue, percentile ranked relative to our peer group (75% weighting),Margin and revenue growth percentage, percentile ranked relative to our peer group (25% weighting), as performance measures to drive revenue growth and profitabilityachievements over a three-year period. This is different from the absolute profitability measure used for our fiscal 2018 annual executive bonus plan, which cash plan is aligned with our fiscal 2018 strategic operating plan. Our fiscal 2018 annual performance equity grant is aligned with relative performance compared with our peer group, an important factor in the creation of long term value for the Company and its shareholders. Our fiscal 2018 acquisition integration incentive award uses a pro forma revenue growth rate performance measure to drive revenue growth for fiscal 2018 to above the historical weighted average combined revenue growth rates for Mercury and recently acquired businesses while also being subject to minimum revenue and profitability thresholds. If achieved, these metrics would provide growth in excess of not only the historical weighted average pro forma combined growth rates of the business, but also well in excess of the average historical growth and profitability rates of companies in the primary market sector (defense) in which the Company operates.
Fiscal 2018 Restricted Stock Awards
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Named Executive Officer and Title | Annual Performance-Based Restricted Shares (# of shares) (1) | | Annual Time-Based Restricted Shares (# of shares) | | Integration Incentive Performance-Based Restricted Shares (# of shares) (2)
| | Total (# of shares) |
Mark Aslett, President and Chief Executive Officer | 21,323 | | 21,323 | | 42,646 | | 85,292 |
Christopher C. Cambria, EVP, General Counsel, and Secretary | 7,651 | | 7,651 | | - | | 15,302 |
Gerald M. Haines II, EVP, Chief Financial Officer, and Treasurer | 7,651 | | 7,651 | | 15,302 | | 30,604 |
Didier M.C. Thibaud, EVP, Chief Operating Officer
| 10,129 | | 10,130 | | 20,259 | | 40,518 |
Charles A. Speicher, VP, Controller, Chief Accounting Officer, and Assistant Treasurer | 2,588 | | 2,588 | | - | | 5,176 |
(1) The number of annual performance-based restricted shares in the table above reflects the probable number (calculated as of the grant date) of shares that the executive is expected to earn for the three-year performance period ending June 30, 2020. The maximum potentialwith fiscal 2022. Our performance relative to our peers approximated the 57th percentile for adjusted EBITDA margin and the 86th percentile for revenue growth, resulting in overall performance stock award payouts of 199.9% of the target number of shares (assuming the highest level of performance achievement) that could be earned is: Mr. Aslett – 63,969 shares; Mr. Cambria – 22,953 shares; Mr. Haines – 22,953 shares; Mr. Thibaud – 30,387 shares; and Mr. Speicher – 7,764 shares.
(2) The number of integration incentive performance-based restricted sharesoriginally awarded to each executive in the table above reflects both the probable and maximum number (calculated as of the grant date) of shares that the executive is expected to earn for the one-year performance period ending June 30, 2018. The actual shares earned could be zero or a fraction of these amounts; however, the executive cannot earn more than the amounts reflected above for the integration incentive award.
These equity grants were made based on the Compensation Committee’s assessment of both competitive annual grant levels and its determination of retention needs reflected by the pre-existing unvested long-term incentive awards previously grantedfiscal 2020, subject to the executives.executive's continued employment through August 15, 2022.
Employee Benefits
We offer employee benefit programs that are intended
SUMMARY OF COMPENSATION ACTIONS FOR FISCAL 2023
For fiscal 2023, the Committee determined to provide financial protectionmake no changes to the base salaries and security for our employees and to reward them for the total commitment we expect from them in service to Mercury. Alltarget bonuses of any of our named executive officers. In addition, the Committee did not grant any long-term incentives to our named executive officers are eligible to participatebeyond those previously granted for fiscal 2023 in these programs on the same basisFebruary 2022 as our other employees. These benefits include the following: (1) medical, dental, and vision insurance, with employees sharing a percentagepart of the cost that mayequity retention plan. Finally, the Committee adopted a new annual incentive plan for fiscal 2023 under which performance-based payouts would be tied to our weighted achievements for the following financial measures: adjusted from yearEBITDA (50%), revenue (25%) and adjusted free cash flow (25%). The Committee intends to year; (2) company-paid group lifeperform a similar review of our long-term incentive plan design for fiscal 2024, and accident insuranceto then review annual grants of one times base salary (up to $350,000); (3) employee-paid supplemental group life and accident insurance up to five times base salary (overall combined basic company-paid insurance plus supplemental insurance is $1,350,000); (4) short- and long-term disability insurance; (5) a qualified 401(k) retirement savings planincentives for named executive officers during fiscal 2024 consistent with a 50% company match up to 6% of base pay as contributed by the individual to the 401(k) plan (subject to IRS limits on contributions); and (6) an employee stock purchase plan, which entitles participants to purchasepast practice.
EXECUTIVE PERQUISITES
We provide our common stock at a 15% discount.
Perquisites and Personal Benefits
For fiscal 2017, we provided ournamed executive officers with uplimited personal perquisites consistent with competitive practices. For fiscal 2022, these perquisites were limited to $2,000 annuallyproviding Messrs. Aslett and Ruppert with a $12,000 annual allowance for personal tax and financial planning services. For fiscal 2018, we changed the personal and financial planning perquisite to a $4,000 annual allowance which is consistent with current market pay practice.planning.
Employment and Severance AgreementsEMPLOYMENT, SEVERANCE AND CHANGE IN CONTROL ARRANGEMENTS
We have entered into an employment agreement with Mr. Aslett, and a severance agreementagreements with each of our other executive officers, as described below. The Compensation Committee consulted with Radford regarding the market parameters of similar compensation arrangements for executive officerswhich provide specified benefits in connection with entering intocertain terminations of employment. Our severance benefits are designed to be market competitive and do not include tax gross-ups. Consistent with market practice, these agreements. For more details, please refer to “Agreements with Named Executive Officers.”
Change in Control Severance Agreements
We recognize that Mercury, as a publicly-traded company, may become the target of a proposal which could result in a change in control, and that such possibility and the uncertainty and questions which such a proposal may raise among management could cause our executive officers to leave or could distract them in the performance of their duties, to the detriment of Mercury and our shareholders. Our named executive officers have agreements intended to reinforce and encourage the continued attention of our executives to their assigned duties without distraction and to ensure the continued availability to Mercury of each of our executivesarrangements provide enhanced benefits in the event of a proposedtermination in connection with a change in control, transaction. We believewhich are designed to ensure that these objectivesour executives entertain proposals that are in the best interests of Mercury andour shareholders even when it may not be in their own personal best interest, thereby aligning the interests of the executives with those of our shareholders. Provisions of these agreements relating to termination and change in control are summarized under “For a further description, see "Tabular Executive Compensation Disclosure — Potential Payments to Named Executive Officers uponUpon Change in Control or Termination of Employment Following a Change in Control.”Employment" beginning on page 62.
Tax ConsiderationsSTOCK OWNERSHIP GUIDELINES
We generally structure incentive compensation arrangements with a view towards qualifying them as performance-based compensation exempt from the deduction limitations under Section 162(m), but we view the availability of a tax deduction as only one relevant consideration in determining executive compensation. Further, the Compensation Committee believes that its primary responsibility is to provide a compensation program that attracts, retains and rewards the executive talent necessary for Mercury's success. Accordingly, the Compensation Committee may authorize compensation in excess of $1 million that is not exempt from the deduction limitations under Section 162(m).
Does Mercury haveOur stock ownership guidelines and holding requirements for itsreflect the Committee's belief that executives should accumulate a meaningful level of ownership in company stock to align their interests with those of our shareholders. The Chief Executive Officer?
The CEOOfficer's ownership guideline is expectedequivalent in value to own or control, directly or indirectly, shares of Mercury common stock with a value of at least five times the CEO’shis base salary. The CEOownership guidelines for other executives who report directly to our Chief Executive Officer, including the other named executive officers, is expectedequivalent in value to meet thisthree times base salary. The Committee reviews progress toward guideline within five years of first becoming CEO, or within five years of April 22, 2014, whichever is later, and is expectedachievement annually. Each executive subject to retain such investment in the Company as long as he or she is the CEO. Prior to meeting the five times holding requirement per this guideline, after applicable tax withholding on the vesting of an equity award, the CEOstock ownership guidelines is required to retain 50% of net shares (after payment of fees, taxes and exercise prices, if applicable) acquired upon the net, after tax awardvesting of stock awards or the exercise of stock options until he or shethe guideline multiple of base salary is met. For purposes of the guidelines, stock ownership includes shares of company stock held outright, share equivalents held in benefit plans and unvested RSAs and PSAs (assuming performance at target in the case of PSAs). As of July 1, 2022, all of our named executive officers were in compliance with the stock ownership guideline. Exceptions to thisour stock ownership guideline may be approved from time to time by the Board as it deems necessary to address individual circumstances.policy.
Does Mercury have a clawback policy?COMPENSATION CLAWBACK POLICY
Yes. We have adopted aUnder our clawback policy, applicable to our executive officers. This policy is posted on our website at www.mrcy.com on the “Investor Relations” page under “Corporate Governance.” Pursuant to our policy, the Board of Directors shall,will, in all appropriate circumstances, require reimbursement of any annual incentive payment or long-term incentive payment to an executive officer where: (1) if:
•the payment was predicated upon achieving certainthe achievement of financial results that were subsequently the subject of a substantial restatement of Companyour publicly filed financial statements filed with the SEC; (2) statements;
•the Board determines that the executive engaged in intentional misconduct that caused or substantially caused the need for the substantial restatement; and (3)
•a lowersmaller payment would have been made to the executive based upon the restated financial results.results
ANTI-HEDGING AND ANTI-PLEDGING POLICIES
Does MercuryOur policies prohibit the hedging or pledging of company stock by all executives, employees and non-employee directors.
COMPENSATION RISK ASSESSMENT
The Committee periodically reviews and discusses with management, management's assessment of whether risks arising from Mercury's compensation policies and practices for all employees, including executive officers, are reasonably likely to have a
material adverse effect on the company. As part of the most recent assessment, the following were determined on a collective basis for Mercury and its subsidiaries:
•Our compensation programs consist of both fixed and variable components, as well as short sale and hedging policy?
Yes. Pursuantlong-term performance measures. Fixed compensation is in the form of base salary, which provides a steady income stream to our insider trading policy, no executive officer or director may at any time sell any securities of Mercury that are not owned by such person at the timeemployees regardless of the sale. Also, no suchperformance of our business or stock price. Variable compensation (in the form of annual and long-term incentives) fluctuates based upon our performance against short- and long-term objectives or our stock price. This balanced mix of compensation is designed to motivate our employees, including our executive officerofficers, to produce superior short- and long-term corporate performance without taking unnecessary or director may buyexcessive risks.
•Our incentive compensation designs emphasize company profit as a key performance measure. We believe that our focus on profit encourages a comprehensive approach to our overall performance and emphasizes consistent behavior across the organization.
•Payouts under our annual incentive plan and our PSAs are subject to maximum limits as a percentage of target awards. We believe this mitigates excessive risk taking by limiting potential windfalls for dramatically exceeding performance expectations.
•We prohibit all of our employees from engaging in short sales or sellpledges of company stock, or buying or selling puts, calls, or other derivative securities related to company stock. These restrictions are intended to minimize the likelihood that our employees will become subject to personal incentives that are contrary to the long-term interests of Mercury at any time, exceptand our shareholders.
•Our stock ownership guidelines policy is intended to align our executives' long-term interests with those of our shareholders and to encourage a long-term focus in managing the Company
TAX CONSIDERATIONS
The Tax Cuts and Jobs Act enacted on December 22, 2017 modified Internal Revenue Code ("IRC") Section 162(m) and, among other things, limits the federal tax deduction for annual individual compensation to $1 million for named executive officers beginning with the prior approval2018 tax year. Previously, compensation in excess of $1 million could be deducted if it was performance based. The Tax Cuts and Jobs Act includes a transition relief rule in which these changes do not apply to compensation payable pursuant to a written binding contract in effect on November 2, 2017 and that is not materially modified after that date. To the extent it is applicable to our existing arrangements, the Committee may avail itself of this rule. The Committee considers the impact of tax laws when developing and implementing its executive compensation programs; however, the Committee expects to provide compensation that is not tax deductible when it believes that the value in doing so outweighs the value of the Chief Financial Officerlost tax deduction.
EQUITY GRANT TIMING
We do not time the grant of equity awards to precede the release of non-public information. Grants of annual long-term incentive awards to executives and employees are typically made on or about the 15th day of each August. Grants of other equity awards (in connection with new hires, promotions and recognition awards), if any, are typically made on or about the 15th day of each month. Under the terms of the Company's long-term equity incentive plans, the exercise price of stock options awarded under such plans is equal to the fair market value of the underlying company stock on the date of grant. The Committee does not grant discounted stock options, and our long-term equity incentive plans do not permit stock option repricing without shareholder approval.
REPORT OF THE HUMAN CAPITAL AND COMPENSATION COMMITTEE
The Human Capital and Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis included in this proxy statement, and based on such review and discussion, the caseCommittee recommended to Mercury's Board that the Compensation Discussion and Analysis be included in this proxy statement and be incorporated by reference into Mercury's annual report on Form 10-K for the fiscal year ended July 1, 2022.
During fiscal 2022, Mary Louise Krakauer (Chair), Orlando P. Carvalho and Michael A. Daniels served as members of directors, the AuditCommittee. Vincent Vitto served as a member of the Committee until October 27, 2021. Debora A. Plunkett has served as a member of the Committee since October 27, 2021, and each of Lisa S. Disbrow and Howard L. Lance has served as a member of the Committee since June 24, 2022. Barry R. Nearhos served as a member of the Committee until June 24, 2022.
By the Human Capital and Compensation Committee
of the Board of Directors. In addition, no such executive officer or director may holdDirectors of Mercury securities in a brokerage margin account.Systems, Inc.
Mary Louise Krakauer, Chair
Orlando P. Carvalho
Michael A. Daniels
Lisa S. Disbrow
Howard L. Lance
Debora A. Plunkett
How were the executive officers compensated for fiscal 2015, 2016, and 2017?
TABULAR EXECUTIVE COMPENSATION DISCLOSURE
Summary Compensation Table
The following table sets forth allprovides summary information concerning compensation paid or accrued by us to or on behalf of our President and Chief Executive Officer,Officer; our Executive Vice President, Chief Financial Officer and Treasurer; and each of our three other three most highly compensated executive officers whoserving at our 2022 fiscal year end. These officers are collectively referred to as the “namedour "named executive officers,” for the last three fiscal years.
Summary Compensation Tableofficers."
| | | | | | | | | | | | | | | | | | | | | | | |
Name and Principal Position | Fiscal Year | Salary | Bonus(1) | Stock Awards(2)(3) | Non-Equity Incentive Plan Compensation(4) | All Other Compensation(5) | Total |
Mark Aslett President and Chief Executive Officer | 2022 | $ | 782,275 | | $ | — | | $ | 16,981,781 | | $ | 1,075,115 | | $ | 20,700 | | $ | 18,859,871 | |
2021 | 722,692 | | — | | 3,732,297 | | 473,430 | | 20,700 | | 4,949,119 | |
2020 | 672,077 | | — | | 3,819,504 | | 1,032,187 | | 20,550 | | 5,544,318 | |
Michael D. Ruppert EVP, Chief Financial Officer and Treasurer | 2022 | 438,489 | | — | | 5,297,522 | | 439,855 | | 21,150 | | 6,197,016 | |
2021 | 413,879 | | — | | 1,144,542 | | 197,312 | | 20,700 | | 1,776,433 | |
2020 | 399,696 | | — | | 1,255,026 | | 443,005 | | 20,550 | | 2,118,277 | |
Thomas Huber(6) EVP and Chief Transformation Officer | 2022 | 333,461 | | 300,000 | | 3,807,386 | | 380,741 | | 9,139 | | 4,830,727 | |
| | | | | | |
| | | | | | |
James M. Stevison(6) EVP and Chief Growth Officer | 2022 | 302,404 | | 300,000 | | 3,572,049 | | 380,741 | | 11,152 | | 4,566,346 | |
| | | | | | |
| | | | | | |
Charles R. Wells, IV(6) EVP and President of Microelectronics Division | 2022 | 263,365 | | — | | 3,600,657 | | 371,783 | | 9,498 | | 4,245,303 | |
| | | | | | |
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|
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Name and Principal Position | Fiscal Year | Salary | Bonus | Stock Awards (1) | Option Awards | Non-Equity Incentive Plan Compensation (2) | Change in Pension Value and Non-Qualified Deferred Compensation Earnings (3) | All Other Compensation (4) | Total |
Mark Aslett President and Chief Executive Officer | 2017 | $ | 550,923 | | — | | $ | 3,790,443 | | — | | $ | 560,000 | | $ | — | | $ | 9,950 | | $ | 4,911,316 | |
2016 | 546,133 | | — | | 1,431,581 | | — | | 519,890 | | — | | 9,950 | | 2,507,554 | |
2015 | 510,962 | | — | | 1,083,950 | | — | | 503,847 | | — | | 10,100 | | 2,108,859 | |
Christopher C. Cambria (5) EVP, General Counsel, and Secretary | 2017 | 311,827 | | — | | 1,771,500 | | — | | 189,419 | | — | | 7,439 | | 2,280,185 | |
| | | | | | | | |
Gerald M. Haines II (6) EVP, Chief Financial Officer, and Treasurer | 2017 | 340,046 | | — | | 1,326,665 | | — | | 207,000 | | — | | 8,333 | | 1,882,044 | |
2016 | 338,595 | | — | | 429,471 | | — | | 196,156 | | — | | 8,162 | | 972,384 | |
2015 | 316,796 | | — | | 788,550 | | — | | 186,766 | | — | | 8,878 | | 1,300,990 | |
Charles A. Speicher VP, Controller, Chief Accounting Officer, and Assistant Treasurer | 2017 | 244,104 | | — | | 227,461 | | — | | 100,000 | | — | | 8,512 | | 580,077 | |
2016 | 234,842 | | — | | 214,736 | | — | | 91,058 | | — | | 10,145 | | 550,781 | |
2015 | 219,750 | | — | | 114,100 | | — | | 87,292 | | — | | 10,344 | | 431,486 | |
Didier M.C. Thibaud (7) EVP, Chief Operating Officer | 2017 | 387,717 | | — | | 1,800,482 | | — | | 281,250 | | 435 | | 14,735 | | 2,484,619 | |
2016 | 338,989 | | — | | 429,471 | | — | | 256,725 | | — | | 10,020 | | 1,035,205 | |
2015 | 324,198 | | — | | 456,400 | | — | | 185,568 | | — | | 7,800 | | 973,966 | |
(1)Represents sign-on bonuses that are subject to repayment in full in the event of resignation or termination for cause on or prior to December 31, 2022. For a further discussion, see "Compensation Discussion and Analysis — Offer Letters with Named Executive Offers" beginning on page 51. |
| | | | | | | | | | | | |
Name | 401(k) Plan Matching Contribution(a) | | Perquisites and Other Personal Benefits(b) | | | Total All Other Compensation |
Mark Aslett | $ | 7,950 |
| | $ | 2,000 |
| | | $ | 9,950 |
|
Christopher C. Cambria | 7,439 |
| | — |
| | | 7,439 |
|
Gerald M. Haines II | 8,333 |
| | — |
| | | 8,333 |
|
Charles A. Speicher | 8,512 |
| | — |
| | | 8,512 |
|
Didier M.C. Thibaud | 13,732 |
| | 1,003 |
| | | 14,735 |
|
| |
(a) | The amounts in this column represent our matching contributions allocated to each of the named executive officers who participate in our 401(k) retirement savings plan (subject to IRS limits on contributions to the 401(k) plan). All such matching contributions vest based upon the same vesting schedule used for all other employees. |
| |
(b) | The amounts in this column include payments we made to or on behalf of the named executive officers for personal tax and financial planning. |
| |
(5) | Mr. Cambria joined the Company in August 2016. His non-equity incentive plan compensation is pro-rated for the portion of fiscal 2017 that he worked for the Company and his equity award reflects a new hire award. |
| |
(6) | Mr. Haines was appointed to the position of Executive Vice President, Chief Financial Officer, and Treasurer in September 2014 (fiscal 2015). The equity grant to Mr. Haines in fiscal 2015 reflects both his annual grant and his appointment as Executive Vice President, Chief Financial Officer, and Treasurer. |
| |
(7) | A portion of Mr. Thibaud’s salary in fiscal years 2015, 2016, and 2017 was paid in Euros. The salary column reflects the conversion of each monthly payment from Euros into U.S. Dollars (USD) based on the average conversion rate between Euros and USD for such month. The amounts in the “Non-Equity Incentive Plan Compensation” column were paid in USD. |
Grants of Plan-Based Awards
The following table reflects: (i)provides information regarding:(1) annual incentive plan awards and (2) PSAs and RSAs under the grant date fair value of equityMercury Systems, Inc. Amended and Restated 2018 Stock Incentive Plan. Plan-based awards granted to the named executive officers underin fiscal year 2022 were approved by the 2005 Plan during fiscal 2017;Human Capital and (ii) the possible cash amounts that could have been earned under each element (i.e., corporate financial performance and over-achievement awards)Compensation Committee of our Board of Directors (the "Committee"), or by the independent members of our Board of Directors (in the case of all awards granted to our Chief Executive Officer, and awards granted to our other named executive bonus programofficers on February 15, 2022), on the dates below.
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Name | | | | | | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards | | Estimated Future Payouts Under Equity Incentive Plan Awards | | All Other Stock Awards: Number of Shares of Stock or Units (#) | | Grant Date Fair Value of Stock and Option Awards ($) |
| Approval Date | | Grant Type | | Grant Date | | Threshold ($) | | Target ($) | | Maximum ($) | | Threshold (#) | | Target (#) | | Maximum (#) | |
Mark Aslett | | 7/28/21 | | H1 AIP(1) | | | | 273,621 | | | 456,034 | | | 456,034 | | | | | | | | | | | |
| 1/26/22 | | H2 AIP(1) | | | | 446,433 | | | 744,056 | | | 744,056 | | | | | | | | | | | |
| | 7/27/21 | | FY22 PSA(2)(3) | | 8/16/21 | | | | | | | | — | | | 34,993 | | | 104,979 | | | | | 1,815,437 | |
| | 7/27/21 | | FY22 RSA(2)(4) | | 8/16/21 | | | | | | | | | | | | | | 34,993 | | | 1,815,437 | |
| | 2/7/22 | | FY23 PSA(3)(5) | | 2/15/22 | | | | | | | | — | | | 39,091 | | | 117,273 | | | | | 2,485,249 | |
| | 2/7/22 | | FY23 RSA(4)(5) | | 2/15/22 | | | | | | | | | | | | | | 39,091 | | | 2,071,028 | |
| | 2/7/22 | | Retention PSA(3)(6) | | 2/15/22 | | | | | | | | — | | | 75,454 | | | 226,362 | | | | | 4,797,064 | |
| | 2/7/22 | | Retention RSA(4)(6) | | 2/15/22 | | | | | | | | | | | | | | 75,454 | | | 3,997,566 | |
Michael D. Ruppert | | 7/27/21 | | H1 AIP(1) | | | | 111,945 | | | 186,575 | | | 186,575 | | | | | | | | | | | |
| 1/25/22 | | H2 AIP(1) | | | | 182,647 | | | 304,411 | | | 304,411 | | | | | | | | | | | |
| 7/27/21 | | FY22 PSA(2)(3) | | 8/16/21 | | | | | | | | — | | | 11,637 | | | 34,911 | | | | | 603,728 | |
| | 7/27/21 | | FY22 RSA(2)(4) | | 8/16/21 | | | | | | | | | | | | | | 11,637 | | | 603,728 | |
| | 2/7/22 | | FY23 PSA(3)(5) | | 2/15/22 | | | | | | | | — | | | 13,000 | | | 39,000 | | | | | 826,488 | |
| | 2/7/22 | | FY23 RSA(4)(5) | | 2/15/22 | | | | | | | | | | | | | | 13,000 | | | 688,740 | |
| | 2/7/22 | | Retention PSA(3)(6) | | 2/15/22 | | | | | | | | — | | | 22,091 | | | 66,273 | | | | | 1,404,457 | |
| | 2/7/22 | | Retention RSA(4)(6) | | 2/15/22 | | | | | | | | | | | | | | 22,091 | | | 1,170,381 | |
Thomas Huber | | 8/17/21 | | H1 AIP(1) | | | | 96,900 | | | 161,500 | | | 161,500 | | | | | | | | | | | |
| 1/25/22 | | H2 AIP(1) | | | | 158,100 | | | 263,500 | | | 263,500 | | | | | | | | | | | |
| | 10/26/21 | | New Hire PSA(3)(7) | | 11/15/21 | | | | | | | | — | | | 9,261 | | | 28,863 | | | | | 650,630 | |
| | 8/17/21 | | New Hire RSA(4)(7) | | 9/15/21 | | | | | | | | | | | | | | 30,236 | | | 1,397,810 | |
| | 2/7/22 | | FY23 PSA(3)(5) | | 2/15/22 | | | | | | | | — | | | 7,546 | | | 22,638 | | | | | 479,744 | |
| | 2/7/22 | | FY23 RSA(4)(5) | | 2/15/22 | | | | | | | | | | | | | | 7,546 | | | 399,787 | |
| | 2/7/22 | | Retention PSA(3)(6) | | 2/15/22 | | | | | | | | — | | | 7,545 | | | 22,635 | | | | | 479,681 | |
| | 2/7/22 | | Retention RSA(4)(6) | | 2/15/22 | | | | | | | | | | | | | | 7,545 | | | 399,734 | |
James M. Stevison | | 7/27/21 | | H1 AIP(1) | | | | 96,900 | | | 161,500 | | | 161,500 | | | | | | | | | | | |
| 1/25/22 | | H2 AIP(1) | | | | 158,100 | | | 263,500 | | | 263,500 | | | | | | | | | | | |
| 10/26/21 | | New Hire PSA(3)(7) | | 11/15/21 | | | | | | | | — | | | 15,393 | | | 46,179 | | | | | 1,040,967 | |
| | 9/27/21 | | New Hire RSA(4)(7) | | 10/15/21 | | | | | | | | | | | | | | 16,853 | | | 844,167 | |
| | 2/7/22 | | FY23 PSA(3)(5) | | 2/15/22 | | | | | | | | — | | | 7,237 | | | 21,711 | | | | | 460,100 | |
| | 2/7/22 | | FY23 RSA(4)(5) | | 2/15/22 | | | | | | | | | | | | | | 7,237 | | | 383,416 | |
| | 2/7/22 | | Retention PSA(3)(6) | | 2/15/22 | | | | | | | | — | | | 7,236 | | | 21,708 | | | | | 460,036 | |
| | 2/7/22 | | Retention RSA(4)(6) | | 2/15/22 | | | | | | | | | | | | | | 7,236 | | | 383,363 | |
Charles R. Wells, IV | | 8/17/21 | | H1 AIP(1) | | | | 94,620 | | | 157,700 | | | 157,700 | | | | | | | | | | | |
| 1/25/22 | | H2 AIP(1) | | | | 154,380 | | | 257,300 | | | 257,300 | | | | | | | | | | | |
| 10/26/21 | | New Hire PSA(3)(7) | | 11/15/21 | | | | | | | | — | | | 15,393 | | | 46,179 | | | | | 1,040,967 | |
| | 9/27/21 | | New Hire RSA(4)(7) | | 11/15/21 | | | | | | | | | | | | | | 15,393 | | | 800,744 | |
| | 2/7/22 | | FY23 PSA(3)(5) | | 2/15/22 | | | | | | | | — | | | 7,546 | | | 22,638 | | | | | 479,744 | |
| | 2/7/22 | | FY23 RSA(4)(5) | | 2/15/22 | | | | | | | | | | | | | | 7,546 | | | 399,787 | |
| | 2/7/22 | | Retention PSA(3)(6) | | 2/15/22 | | | | | | | | — | | | 7,545 | | | 22,635 | | | | | 479,681 | |
| | 2/7/22 | | Retention RSA(4)(6) | | 2/15/22 | | | | | | | | | | | | | | 7,545 | | | 399,734 | |
(1) Represents the Threshold, Target and Maximum cash payout opportunities for the first half or second half of fiscal 2017. The actual payouts for fiscal 20172022, as applicable, under our annual incentive plan. For a further discussion of the payout opportunities, see "Compensation Discussion and Analysis – Elements of 2022 Target Pay – Annual Incentives" beginning on page 48.
(2) Represents awards granted to the named executive bonus program are reflectedofficers as part of their target pay for fiscal 2022.
(3) PSAs vest on the third anniversary following their grant date. The final number of shares of our common stock earned in respect of each award will vary based upon Mercury's EBITDA Margin and revenue growth achievements, relative to Mercury's peers, over the three-year fiscal performance period ending with fiscal year 2024. The amounts disclosed in the column titled “Non-EquityEstimated Future Payouts Under Equity Incentive Plan Compensation”Awards columns represent the number of shares of our common stock that would be earned assuming achievement of the specific Threshold, Target or Maximum levels of performance established by the Committee in respect of each award. The amounts disclosed in the Summary Compensation Table.Grant Date Fair Value of Stock and Option Awards column represent the grant date fair value of each award assuming that the probable outcome of the performance conditions in respect of the award is achieved, as calculated in accordance with in accordance with FASB ASC Topic 718. See "Compensation Discussion and Analysis – Elements of Fiscal 2022 Target Pay – Long-Term Incentives – Performance Stock Awards" beginning on page 50 for a further discussion of the PSAs. See "– Potential Payments Upon Change in Control or Termination of Employment" beginning on page 62 for a discussion concerning the effect of a change in control or termination of employment on outstanding PSAs.
Grants(4) RSAs vest in equal annual increments over the three-year period after their grant date. The amount disclosed in the Grant Date Fair Value of Plan-Based Awards—Fiscal 2017
|
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Name | | | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | | Estimated Possible Payouts Under Equity Incentive Plan Awards | | All Other Stock Awards: Number of Shares of Stock or Units (#) | | All Other Option Awards: Number of Securities Underlying Options (#) | | Exercise or Base Price of Option Awards ($/sh) | | Grant Date Fair Value of Stock and Option Awards(1) |
Grant Date | Threshold ($) | | Target ($) | | Maximum ($) | | Threshold (#) | | Target (#) | | Maximum (#) | |
Mark Aslett | | | | | | | | | | | | | | | | | | | | | |
Restricted Stock (2) | 8/15/16 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 40,119 |
| | — |
| | — |
| | $ | 947,611 |
|
Performance Stock (2) | 8/15/16 |
| | — |
| | — |
| | — |
| | — |
| | 40,119 |
| | 120,357 |
| | — |
| | — |
| | — |
| | 947,611 |
|
Acquisition Incentive Performance Stock (3) | 8/15/16 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 80,238 |
| | | | | | | | 1,895,222 |
|
Corporate Financial Performance Bonus | (5) |
| | 280,000 |
| | 560,000 |
| | 560,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Over-Achievement Award | (6) |
| | — |
| | — |
| | 560,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Christopher C. Cambria | | | | | | | | | | | | | | | | | | | | | |
Restricted Stock (2) | 8/15/16 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 37,500 |
| | — |
| | — |
| | 885,750 |
|
Performance Stock (4) | 8/15/16 |
| | — |
| | — |
| | — |
| | — |
| | 37,500 |
| | 37,500 |
| | — |
| | — |
| | — |
| | 885,750 |
|
Corporate Financial Performance Bonus | (5 | ) | | 94,875 |
| | 189,750 |
| | 189,750 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Over-Achievement Award | (6 | ) | | — |
| | — |
| | 189,750 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Gerald M. Haines II | | | | | | | | | | | | | | | | | | | | | |
Restricted Stock (2) | 8/15/16 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 14,042 |
| | — |
| | — |
| | 331,672 |
|
Performance Stock (2) | 8/15/16 |
| | — |
| | — |
| | — |
| | — |
| | 14,042 |
| | 42,126 |
| | — |
| | — |
| | — |
| | 331,672 |
|
Acquisition Incentive Performance Stock (3) | 8/15/16 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 28,083 |
| | — |
| | — |
| | — |
| | 663,320 |
|
Corporate Financial Performance Bonus | (5) |
| | 103,500 |
| | 207,000 |
| | 207,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Over-Achievement Award | (6) |
| | — |
| | — |
| | 207,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Charles A. Speicher | | | | | | | | | | | | | | | | | | | | | |
Restricted Stock (2) | 8/15/16 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 4,815 |
| | — |
| | | | 113,730 |
|
Performance Stock (2) | 8/15/16 |
| | — |
| | — |
| | — |
| | — |
| | 4,815 |
| | 14,445 |
| | — |
| | — |
| | — |
| | 113,730 |
|
Corporate Financial Performance Bonus | (5) |
| | 50,000 |
| | 100,000 |
| | 100,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Over-Achievement Award | (6) |
| | — |
| | — |
| | 100,000 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Didier M.C. Thibaud(7) | | | | | | | | | | | | | | | | | | | | | |
Restricted Stock (2) | 8/15/16 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 19,057 |
| | — |
| | — |
| | 450,126 |
|
Performance Stock (2) | 8/15/16 |
| | — |
| | — |
| | — |
| | — |
| | 19,057 |
| | 57,171 |
| | — |
| | — |
| | — |
| | 450,126 |
|
Acquisition Incentive Performance Stock (3) | 8/15/16 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 38,113 |
| | — |
| | — |
| | — |
| | 900,229 |
|
Corporate Financial Performance Bonus | (5) |
| | 140,625 |
| | 281,250 |
| | 281,250 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Over-Achievement Award | (6) |
| | — |
| | — |
| | 281,250 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
(1) The amounts shown in thisStock and Option Awards column have beenrepresents the grant date fair value of each award, as calculated in accordance with FASB ASC Topic 718.
(2) These time-based restricted stock awards and performance restricted stock awards were granted under the 2005 Plan with an August 15, 2016 grant date. The time-based restricted share awards vest in three equal installments on each of the first three anniversaries of the grant date (August 15, 2016), contingent in each case on the executive remaining an employee as of each such date. The fiscal 2017 annual performance-based restricted stock awards vest based on relative performance to our peer group for the three-year period ending June 30, 2019. The vesting formula for the fiscal 2017 annual performance-based restricted stock awards is as set forth in the tables below but with the following performance periods and weightings: (i) For a ratio of adjusted EBITDA to revenue for the three-year period ending June 30, 2019, percentile ranked relative to our peer group (75% weighting); and (ii) revenue growth percentage for the three-year period ending June 30, 2019, percentile ranked relative to our peer group (25% weighting). As with the time-based awards, vesting for the performance awards is contingent in each case on the executive remaining an employee as of each vesting date.
Vesting Formulas for the Fiscal 2017 Annual Performance-Based Restricted Share Awards |
| | |
Fiscal 2017-2019
Company Adjusted EBITDA/ Revenue Percentile Compared to Peer Group Adjusted EBITDA/ Revenue Percentile (a)
| Vesting % | Threshold/Cap |
Less than 25th percentile
| 0% | Below Threshold |
Between 25th percentile and 75th percentile
| Straight line interpolation between 0% and 200% | Threshold |
Between 75th percentile and 90th percentile
| Straight line interpolation between 200% and 300% | |
Equal to 90th percentile
| 300% | Cap |
Greater than 90th percentile
| 300% | Capped at 300% |
(a) The term “adjusted EBITDA” for the each of the peer group companies shall mean “Adjusted EBITDA” as reported by Bloomberg for the applicable company. The term “adjusted EBITDA” for Mercury shall mean the non-GAAP measure defined as income (loss) from continuing operations before interest income and expense, income tax expense (benefit), depreciation, amortization of intangible assets, restructuring and other charges, impairment of long-lived assets, acquisition and financing costs, fair value adjustments from purchase accounting, and litigation and settlement expenses. Adjusted EBITDA for Mercury for purposes of this equity award shall be calculated without adjusting for stock based compensation expense.
|
| | |
Fiscal 2017-2019
Company Revenue Growth Percentile Compared to Peer Group
| Vesting % | Threshold/Cap |
Less than 25th percentile
| 0% | Below Threshold |
Between 25th percentile and 75th percentile
| Straight line interpolation between 0% and 200% | Threshold |
Between 75th percentile and 90th percentile
| Straight line interpolation between 200% and 300% | |
Equal to 90th percentile
| 300% | Cap |
Greater than 90th percentile
| 300% | Capped at 300% |
The grant date fair value of the restricted stock award has been calculated by multiplying the number of shares granted by the closing pricefurther discussion of our common stock as reported on the NASDAQ Global Select Market on the dateRSAs, see "Compensation Discussion and Analysis – Elements of grant.
(3) The fiscal 2017 acquisition incentive performance-based restricted stock awards vest based on revenue growth for fiscal 2017. Revenue growth is measured using $353.0 million as the starting point revenue. Vesting is subject to achieving a revenue threshold of $376 million and an adjusted EBITDA threshold of $86.5 million. As with the time-based awards, vesting for the performance awards is contingent in each case on the executive remaining an employee as of each vesting date.
Vesting Formula for Acquisition Integration Incentive PerformanceFiscal 2022 Target Pay – Long-Term Incentives – Restricted Stock AwardsAwards" on page 50. For a discussion concerning the effect of a change in control or termination of employment on outstanding RSAs, see "– Potential Payments Upon Change in Control or Termination of Employment" beginning on page 62.
|
| | |
Fiscal 2017 Performance
Pro Forma Revenue Growth (1)
| Vesting % (2) | Threshold/Cap |
Less than or equal to 6.5% | 0% | Below Threshold |
Between 6.5% and 10% | Straight line interpolation between 0% and 100% | |
Equal to 10% | 100% | Cap |
Greater than 10% | 100% | Capped at 100% |
The grant date fair value of the restricted stock award has been calculated by multiplying the number of shares(5) Represents awards granted by the closing price of our common stock as reported on the NASDAQ Global Select Market on the date of grant.
| |
(4) | Mr. Cambria joined the Company in August 2016 and his equity grant reflects a new hire grant. The fiscal 2017 new hire performance-based restricted stock awards vest based on relative performance to our peer group for the three-year period ending June 30, 2019. The vesting formula |
for the fiscal 2017 new hire performance-based restricted stock awards is as set forth in the tables below but with the following performance periods and weightings: (i) a ratio of adjusted EBITDA to revenue for the three-year period ending June 30, 2019, percentile ranked relative to our peer group (75% weighting); and (ii) revenue growth percentage for the three-year period ending June 30, 2019, percentile ranked relative to our peer group (25% weighting). As with the time-based awards, vesting for the performance awards is contingent in each case on the executive remaining an employee as of each vesting date.
Vesting Formulas for the Fiscal 2017 New Hire Performance-Based Restricted Share Awards |
| | |
Fiscal 2017-2019
Company Adjusted EBITDA/ Revenue Percentile Compared to Peer Group Adjusted EBITDA/ Revenue Percentile (a)
| Vesting % | Threshold/Cap |
Less than 25th percentile
| 0% | Below Threshold |
Equal to 25th percentile
| 100% | Threshold; Cap |
Greater than 25th percentile
| 100% | Cappped at 100% |
(a) The term “adjusted EBITDA” for the each of the peer group companies shall mean “Adjusted EBITDA” as reported by Bloomberg for the applicable company. The term “adjusted EBITDA” for Mercury shall mean the non-GAAP measure defined as income (loss) from continuing operations before interest income and expense, income tax expense (benefit), depreciation, amortization of intangible assets, restructuring and other charges, impairment of long-lived assets, acquisition and financing costs, fair value adjustments from purchase accounting, and litigation and settlement expenses. Adjusted EBITDA for Mercury for purposes of this equity award shall be calculated without adjusting for stock based compensation expense.
|
| | |
Fiscal 2017-2019
Company Revenue Growth Percentile Compared to Peer Group
| Vesting % | Threshold/Cap |
Less than 25th percentile
| 0% | Below Threshold |
Equal to 25th percentile
| 100% | Threshold; Cap |
Greater than 25th percentile
| 100% | Cappped at 100% |
The grant date fair value of the restricted stock award has been calculated by multiplying the number of shares granted by the closing price of our common stock as reported on the NASDAQ Global Select Market on the date of grant.
| |
(5) | The amounts shown in these rows reflect the possible cash amounts that could have been earned under the corporate financial performance portion of our executive bonus program for fiscal 2017 upon achievement of the threshold, target, and maximum performance objectives for that program. Payouts for corporate financial performance for fiscal 2017 were subject to the payout formula included in the Compensation Discussion & Analysis. The actual payouts for fiscal 2017 are reflected in the column titled “Non-Equity Incentive Plan Compensation” in the Summary Compensation Table. |
| |
(6) | The amounts shown in these rows reflect the maximum cash amounts that could have been earned under the over-achievement portion of our executive bonus program for fiscal 2017. There are no minimum or target payouts under the over-achievement portion of our bonus program, only a cap. There was no over-achievement award pool for fiscal 2017 as the percentage of actual adjusted EBITDA to revenue for fiscal 2017 was 23.0%, and only performance in excess of 23% would fund the over-achievement award pool. |
| |
(7) | Mr. Thibaud’s threshold, target, and maximum performance targets under our executive bonus program for fiscal 2017 were based on a notional annual base salary of $375,000, and payments, if any, would have been made in USD. As explained in note 7 to the Summary Compensation Table, a portion of Mr. Thibaud’s salary is paid in Euros, and the amount of base salary reported in that table reflects fluctuations in the conversion rate between Euros and USD. These fluctuations are not taken into consideration in determining Mr. Thibaud’s target bonus or bonus payments. |
Discussion of Summary Compensation and Grants of Plan-Based Awards Tables
Our executive compensation policies and practices, pursuant to which the compensation set forth in the Summary Compensation Table and the Grants of Plan-Based Awards Table was paid or awarded, are described above under “Compensation Discussion and Analysis.”
Our total compensation program consists of fixed elements, such as base salary and benefits, and variable performance-based elements, such as annual incentives and performance-based restricted shares. The Summary Compensation Table sets forth the base salary for each named executive officer, the value of any stock or option awards, payouts under our executive bonus program (in the “Non-Equity Incentive Plan Compensation” column), and all other compensation payable to the named executive officer.officers on February 15, 2022 as part of the accelerated grant of their annual equity awards for fiscal 2023 under the equity retention plan. For a further discussion of the equity retention plan, see "Compensation Discussion and Analysis – Equity Retention Plan Awards" beginning on page 51.
The potential payouts(6) Represents one-time retention awards granted to the named executive officers on February 15, 2022 under our executive bonus program are set forththe equity retention plan. For a further discussion of the equity retention plan, see "Compensation Discussion and Analysis – Equity Retention Plan Awards" beginning on page 51.
(7) Represents awards granted in connection with the Grants of Plan-Based Awards Table. The corporate financial performance portion and the over-achievement portion of our executive bonus program are shown as separate line items as the threshold, target, and maximum amounts differ. The threshold targets for the corporate financial performance portionhiring of the executive, bonus program for fiscal 2017 were met, and corporate financial performance bonuses were paid under the termsincluding (a) to restore compensation forfeited with a prior employer as a result of the program. There was no over-achievement award pool for fiscal 2017 asexecutive's commencement of employment with Mercury and (b) to further align the percentageexecutive's interests with those of actual adjusted EBITDA to revenue for fiscal 2017 was 23.0%, and only performance in excess of 23% would fund the over-achievement award pool.our shareholders.
Outstanding Equity Awards at 20172022 Fiscal Year-End
The following table showsprovides information on all outstanding stock optionswith respect to holdings of unvested RSAs and unvested restricted stock awardsPSAs held by the named executive officers at July 1, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Stock Awards |
Name | | Grant Date | | Number of Shares or Units of Stock That Have Not Vested(1) (#) | | Market Value of Shares or Units of Stock That Have Not Vested(2) ($) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested(3) (#) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(2) ($) |
Mark Aslett | | 2/15/22 | | 114,545 | | | $ | 7,330,880 | | | 343,635 | | | $ | 21,992,640 | |
| | 8/16/21 | 0 | 34,993 | | | 2,239,552 | | 34,993 | | 104,979 | | | 6,718,656 | |
| | 8/17/20 | | 15,978 | | | 1,022,592 | | | 71,904 | | | 4,601,856 | |
| | 8/15/19 | | 7,684 | | | 491,776 | | | 69,159 | | | 4,426,176 | |
Michael D. Ruppert | | 2/15/22 | | 35,091 | | | 2,245,824 | | 35,091 | | 105,273 | | | 6,737,472 | |
| | 8/16/21 | | 11,637 | | | 744,768 | | | 34,911 | | | 2,234,304 | |
| | 8/17/20 | | 4,900 | | | 313,600 | | | 22,050 | | | 1,411,200 | |
| | 8/15/19 | | 2,525 | | | 161,600 | | | 22,725 | | | 1,454,400 | |
Thomas Huber | | 2/15/22 | | 15,091 | | | 965,824 | | | 45,273 | | | 2,897,472 | |
| | 11/15/21 | | — | | | — | | | 28,863 | | | 1,847,232 | |
| | 9/15/21 | | 30,236 | | | 1,935,104 | | | — | | | — | |
James M. Stevison | | 2/15/22 | | 14,473 | | | 926,272 | | | 43,419 | | | 2,778,816 | |
| | 11/15/21 | | — | | | — | | | 46,179 | | | 2,955,456 | |
| | 10/15/21 | | 16,853 | | | 1,078,592 | | | — | | | — | |
Charles R. Wells, IV | | 2/15/22 | | 15,091 | | | 965,824 | | | 45,273 | | | 2,897,472 | |
| | 11/15/21 | | 15,393 | | | 985,152 | | | 46,179 | | | 2,955,456 | |
(1)Represents RSAs, which vest in equal annual increments over the endthree-year period following the grant date. For a discussion concerning the effect of the last fiscal year. a change in control or termination of employment on outstanding RSAs, see "– Potential Payments Upon Change in Control or Termination of Employment" beginning on page 62.
(2)The table also shows the market value of unvested restricted stock awards at the end of the last fiscal year. This represents the number of unvested restricted shares at fiscal year-end, multiplied by the $42.09 closing price of our common stock on the NASDAQ Global Select Market on June 30, 2017, the last trading day of fiscal 2017.
Outstanding Equity Awards at Fiscal Year-End 2017
|
| | | | | | | | | | | | | | | | | | | | |
| | Option Awards(1) | | Stock Awards |
Name | | Number of Securities Underlying Unexercised Options (#) Exercisable | | Number of Securities Underlying Unexercised Options (#) Unexercisable | | | Option Exercise Price($) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested (#) | | Market Value of Shares or Units of Stock That Have Not Vested ($) |
Mark Aslett | | — |
| | — |
| | | — |
| | — |
| | 30,671 | (2) | 1,290,942 |
|
| | — |
| | — |
| | | — |
| | — |
| | 15,833 | (3) | 666,411 |
|
| | — |
| | — |
| | | — |
| | — |
| | 15,833 | (4) | 666,411 |
|
| | — |
| | — |
| | | — |
| | — |
| | 30,298 | (5) | 1,275,243 |
|
| | — |
| | — |
| | | — |
| | — |
| | 45,447 | (6) | 1,912,864 |
|
| | — |
| | — |
| | | — |
| | — |
| | 40,119 | (8) | 1,688,609 |
|
| | — |
| | — |
| | | — |
| | — |
| | 40,119 | (9) | 1,688,609 |
|
| | — |
| | — |
| | | — |
| | — |
| | 80,238 | (10) | 3,377,217 |
|
Christopher C. Cambria | | — |
| | — |
| | | — |
| | — |
| | 37,500 | (8) | 1,578,375 |
|
| | — |
| | — |
| | | — |
| | — |
| | 37,500 | (11) | 1,578,375 |
|
Gerald M. Haines II | | — |
| | — |
| | | — |
| | — |
| | 11,041 | (2) | 464,716 |
|
| | — |
| | — |
| | | — |
| | — |
| | 5,833 | (3) | 245,511 |
|
| | — |
| | — |
| | | — |
| | — |
| | 5,833 | (4) | 245,511 |
|
| | — |
| | — |
| | | — |
| | — |
| | 5,833 | (7) | 245,511 |
|
| | — |
| | — |
| | | — |
| | — |
| | 5,833 | (4) | 245,511 |
|
| | — |
| | — |
| | | — |
| | — |
| | 9,089 | (5) | 382,556 |
|
| | — |
| | — |
| | | — |
| | — |
| | 13,634 | (6) | 573,855 |
|
| | — |
| | — |
| | | — |
| | — |
| | 14,042 | (8) | 591,028 |
|
| | — |
| | — |
| | | — |
| | — |
| | 14,042 | (9) | 591,028 |
|
| | — |
| | — |
| | | — |
| | — |
| | 28,083 | (10) | 1,182,013 |
|
Charles A. Speicher | | — |
| | — |
| | | — |
| | — |
| | 3,680 | (2) | 154,891 |
|
| | — |
| | — |
| | | — |
| | — |
| | 1,666 | (3) | 70,122 |
|
| | — |
| | — |
| | | — |
| | — |
| | 1,666 | (4) | 70,122 |
|
| | — |
| | — |
| | | — |
| | — |
| | 4,544 | (5) | 191,257 |
|
| | — |
| | — |
| | | — |
| | — |
| | 6,817 | (6) | 286,928 |
|
| | — |
| | — |
| | | — |
| | — |
| | 4,815 | (8) | 202,663 |
|
| | — |
| | — |
| | | — |
| | — |
| | 4,815 | (9) | 202,663 |
|
Didier M.C. Thibaud | | — |
| | — |
| | | — |
| | — |
| | 18,402 | (2) | 774,540 |
|
| | — |
| | — |
| | | — |
| | — |
| | 6,666 | (3) | 280,572 |
|
| | — |
| | — |
| | | — |
| | — |
| | 6,666 | (4) | 280,572 |
|
| | — |
| | — |
| | | — |
| | — |
| | 9,089 | (5) | 382,556 |
|
| | — |
| | — |
| | | — |
| | — |
| | 13,634 | (6) | 573,855 |
|
| | — |
| | — |
| | | | — |
| | — |
| | 19,057 | (8) | 802,109 |
|
| | — |
| | — |
| | | | — |
| | — |
| | 19,057 | (9) | 802,109 |
|
| | — |
| | — |
| | | | — |
| | — |
| | 38,113 | (10) | 1,604,176 |
|
| |
(1) | Securities underlying stock options are shares of our common stock. |
| |
(2) | These restricted share awards vest in four equal installments on each of the first four anniversaries of the grant date (August 15, 2013), contingent in each case on the executive remaining an employee as of each such date. |
| |
(3) | These restricted share awards vest in three equal installments on each of the first three anniversaries of the grant date (August 15, 2014), contingent in each case on the executive remaining an employee as of each such date. |
| |
(4) | For these performance restricted stock awards, the performance metric provides for no vesting unless the Company achieves at least two-thirds of its targeted operating objective of at least 18% adjusted EBITDA to revenue and full vesting if 18% or more is achieved. There is no upside component to the performance restricted stock awards. The vesting formula for the fiscal 2015 performance-based restricted share award is as set forth in the table below but with the following performance periods and weightings: (i) up to one-third of the awards vest based on achieving financial goals for the one-year period ending June 30, 2015, (ii) up to one-third of the awards vest based on achieving financial goals for the two-year period ending June 30, 2016, and (iii) up to one-third of the awards vest based on achieving financial goals for the three-year period ending June 30, 2017. As with the time-based awards, vesting for the performance awards is contingent in each case on the executive remaining an employee as of each vesting date. The performance restricted stock award granted to Mr. Haines upon his appointment as Chief Financial Officer in September 2014 uses the same performance objectives as the fiscal 2015 annual performance-based restricted stock awards. |
Vesting Formula for the Fiscal 2015 Performance-Based Restricted Share Awards
|
| | | |
Ratio of Adjusted EBITDA/ Revenue for Performance Period | Vesting % | | Threshold, Target,
and Maximum
|
Less than 12% | —% | | Below Threshold |
Equal to 12% | 66.67% | | Threshold |
Between 12% and 18% | Straight line interpolation between 66.67% and 100% | | |
18% or more | 100% | | Target (Capped) |
| |
(5) | These restricted share awards vest in three equal installments on each of the first three anniversaries of the grant date (August 17, 2015), contingent in each case on the executive remaining an employee as of each such date. |
| |
(6) | For these performance restricted stock awards, the performance metric provides for no vesting unless the Company achieves at least two-thirds of its targeted operating objective of at least 18% adjusted EBITDA to revenue and full vesting if 18% or more is achieved. There is no upside component to the performance restricted stock awards. The vesting formula for the fiscal 2016 performance-based restricted share award is as set forth in the table below but with the following performance periods and weightings: (i) up to two-thirds of the awards vest based on achieving financial goals for the two-year period ending June 30, 2017, and (ii) up to one-third of the awards vest based on achieving financial goals for the three-year period ending June 30, 2018. As with the time-based awards, vesting for the performance awards is contingent in each case on the executive remaining an employee as of each vesting date. |
Vesting Formula for the Fiscal 2016 Performance-Based Restricted Share Awards
|
| | | |
Ratio of Adjusted EBITDA/ Revenue for Performance Period | Vesting % | | Threshold, Target,
and Maximum
|
Less than 12% | —% | | Below Threshold |
Equal to 12% | 66.67% | | Threshold |
Between 12% and 18% | Straight line interpolation between 66.67% and 100% | | |
18% or more | 100% | | Target (Capped) |
| |
(7) | These restricted share awards vest in three equal installments on each of the first three anniversaries of the grant date (September 3, 2014), contingent in each case on the executive remaining an employee as of each such date. |
| |
(8) | These restricted share awards vest in three equal installments on each of the first three anniversaries of the grant date (August 15, 2016), contingent in each case on the executive remaining an employee as of each such date. |
| |
(9) | The fiscal 2017 annual performance-based restricted stock awards vest based on relative performance to our peer group for the three-year period ending June 30, 2019. The vesting formula for the fiscal 2017 annual performance-based restricted stock awards is as set forth in the tables below but with the following performance periods and weightings: (i) a ratio of adjusted EBITDA to revenue for the three-year period ending June 30, 2019, percentile ranked relative to our peer group (75% weighting); and (ii) revenue growth percentage for the three-year period ending June 30, 2019, percentile ranked relative to our peer group (25% weighting). As with the time-based awards, vesting for the performance awards is contingent in each case on the executive remaining an employee as of each vesting date. |
Vesting Formulas for the Fiscal 2017 Annual Performance-Based Restricted Share Awards |
| | |
Fiscal 2017-2019
Company Adjusted EBITDA/ Revenue Percentile Compared to Peer Group Adjusted EBITDA/ Revenue Percentile (a)
| Vesting % | Threshold/Cap |
Less than 25th percentile
| 0% | Below Threshold |
Between 25th percentile and 75th percentile
| Straight line interpolation between 0% and 200% | Threshold |
Between 75th percentile and 90th percentile
| Straight line interpolation between 200% and 300% | |
Equal to 90th percentile
| 300% | Cap |
Greater than 90th percentile
| 300% | Capped at 300% |
(a) The term “adjusted EBITDA” for the each of the peer group companies shall mean “Adjusted EBITDA” as reported by Bloomberg for the applicable company. The term “adjusted EBITDA” for Mercury shall mean the non-GAAP measure defined as income (loss) from continuing operations before interest income and expense, income tax expense (benefit), depreciation, amortization of intangible assets, restructuring and other charges, impairment of long-lived assets, acquisition and financing costs, fair value adjustments from purchase accounting, and litigation and settlement expenses. Adjusted EBITDA for Mercury for purposes of this equity award shall be calculated without adjusting for stock based compensation expense.
|
| | |
Fiscal 2017-2019
Company Revenue Growth Percentile Compared to Peer Group
| Vesting % | Threshold/Cap |
Less than 25th percentile
| 0% | Below Threshold |
Between 25th percentile and 75th percentile
| Straight line interpolation between 0% and 200% | Threshold |
Between 75th percentile and 90th percentile
| Straight line interpolation between 200% and 300% | |
Equal to 90th percentile
| 300% | Cap |
Greater than 90th percentile
| 300% | Capped at 300% |
| |
(10) | The fiscal 2017 acquisition incentive performance-based restricted stock awards vest based on revenue growth for fiscal 2017. Revenue growth is measured using $353.0 million as the starting point revenue. Vesting is subject to achieving a revenue threshold of $376 million and an adjusted EBITDA threshold of $86.5 million. As with the time-based awards, vesting for the performance awards is contingent in each case on the executive remaining an employee as of each vesting date. |
Vesting Formula for Acquisition Integration Incentive Performance Restricted Stock Awards
|
| | |
Fiscal 2017 Performance
Pro Forma Revenue Growth (1)
| Vesting % (2) | Threshold/Cap |
Less than or equal to 6.5% | 0% | Below Threshold |
Between 6.5% and 10% | Straight line interpolation between 0% and 100% | |
Equal to 10% | 100% | Cap |
Greater than 10% | 100% | Capped at 100% |
| |
(11) | Mr. Cambria joined the Company in August 2016 and his equity grant reflects a new hire grant. The fiscal 2017 new hire performance-based restricted stock awards vest based on relative performance to our peer group for the three-year period ending June 30, 2019. The vesting formula for the fiscal 2017 new hire performance-based restricted stock awards is as set forth in the tables below but with the following performance periods and weightings: (i) a ratio of adjusted EBITDA to revenue for the three-year period ending June 30, 2019, percentile ranked relative to our peer group (75% weighting); and (ii) revenue growth percentage for the three-year period ending June 30, 2019, percentile ranked relative to our peer group (25% weighting). As with the time-based awards, vesting for the performance awards is contingent in each case on the executive remaining an employee as of each vesting date. |
Vesting Formulas for the Fiscal 2017 New Hire Performance-Based Restricted Share Awards
|
| | |
Fiscal 2017-2019
Company Adjusted EBITDA/ Revenue Percentile Compared to Peer Group Adjusted EBITDA/ Revenue Percentile (a)
| Vesting % | Threshold/Cap |
Less than 25th percentile
| 0% | Below Threshold |
Equal to 25th percentile
| 100% | Threshold; Cap |
Greater than 25th percentile
| 100% | Cappped at 100% |
(a) The term “adjusted EBITDA” for the each of the peer group companies shall mean “Adjusted EBITDA” as reported by Bloomberg for the applicable company. The term “adjusted EBITDA” for Mercury shall mean the non-GAAP measure defined as income (loss) from continuing operations before interest income and expense, income tax expense (benefit), depreciation, amortization of intangible assets, restructuring and other charges, impairment of long-lived assets, acquisition and financing costs, fair value adjustments from purchase accounting, and litigation and settlement expenses. Adjusted EBITDA for Mercury for purposes of this equity award shall be calculated without adjusting for stock based compensation expense.
|
| | |
Fiscal 2017-2019
Company Revenue Growth Percentile Compared to Peer Group
| Vesting % | Threshold/Cap |
Less than 25th percentile
| 0% | Below Threshold |
Equal to 25th percentile
| 100% | Threshold; Cap |
Greater than 25th percentile
| 100% | Cappped at 100% |
Options Exercised and Stock Vested
The following table shows stock option exercises by the named executive officers during the last fiscal year, including the aggregate value realized upon exercise. This represents the excess of the fair market value, at the time of exercise, of the common stock acquired at exercise over the exercise price of the options. In addition, the table shows the number of shares of restricted stock held by the named executive officers that vested during the last fiscal year, including the aggregate value realized upon vesting. This represents, as of each vesting date, the number of shares vesting on such date, multiplied by the closing price of our common stock on July 1, 2022 of $64.00, multiplied by the NASDAQ Global Select Marketnumber of shares reported for the award.
(3)Reflects the number of shares of our common stock issuable under PSAs assuming achievement of the Maximum level of performance for these units because our performance through the end of fiscal 2022 exceeded the Target level of performance for these units. For a further discussion of our PSAs, see "Compensation Discussion and Analysis – Elements of Fiscal 2022 Target Pay – Long-Term Incentives – Performance Stock Awards" beginning on such date.
Option Exercises and Stock Vested—Fiscal 2017
page 50. For a discussion concerning the effect of a change in control or termination of employment on outstanding PSAs, see "– Potential Payments Upon Change in Control or Termination of Employment" beginning on page 62.
|
| | | | | | | | | | | | | |
| Option Awards | | Stock Awards |
Name | Number of Shares Acquired on Exercise (#) | | Value Realized on Exercise ($) | | Number of Shares Acquired on Vesting (#) | | Value Realized on Vesting ($) |
Mark Aslett | — |
| | $ | — |
| | 164,111 |
| | $ | 3,869,182 |
|
Christopher C. Cambria | — |
| | — |
| | — |
| | — |
|
Gerald M. Haines II | — |
| | — |
| | 59,700 |
| | 1,399,345 |
|
Charles A. Speicher | — |
| | — |
| | 14,795 |
| | 348,390 |
|
Didier M.C. Thibaud | 30,000 |
| | 820,000 |
| | 77,881 |
| | 1,837,413 |
|
Pension BenefitsStock Vested
The following table showsprovides information regarding the actuarial present valuevesting of the pension benefit forRSAs and PSAs held by our named executive officers during fiscal 2022. No stock options were held by any of the named executive officers asduring fiscal 2022.
| | | | | | | | | | | | | | |
| | Stock Awards |
Name | | Number of Shares Acquired on Vesting(1) (#) | | Value Realized on Vesting(2) ($) |
Mark Aslett | | 88,191 | | | $ | 4,675,201 | |
Michael D. Ruppert | | 28,834 | | | 1,528,792 | |
Thomas Huber | | — | | | — | |
James M. Stevison | | — | | | — | |
Charles R. Wells, IV | | — | | | — | |
(1) The following table provides additional information regarding the number of June 30, 2017, the measurement date used for financial statement reporting purposes with respect to our audited financial statements for fiscal 2017. The retirement indemnities pension plan covers eligible French national employees as required by French law. During fiscal 2017, Mr. Thibaud was the only named executive officer to participate in the plan.shares acquired upon vesting.
Pension Benefits—Fiscal 2017
|
| | | | | | | | | | | | |
Name | Plan Name | | Number of Years Credited Service | | Present Value of Accumulated Benefit(1) | | Payments During Fiscal 2017 |
Didier M.C. Thibaud | Retirement Indemnities Pension Plan | | 19.9 |
| | $ | 63,468 |
| | $ | — |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
(1)Name | The actuarial present value | Award Type | | Grant Date | | Vesting Date | | Number of Mr. Thibaud’s pension benefit as of June 30, 2017, is calculated in Euros. The dollar amount set forth above reflects the exchange rate at June 30, 2017. The actuarial present value assumes a 1.3% discount rate and an age of retirement of 63 years.Shares Acquired on Vesting (#) |
Mark Aslett | | Restricted Stock Award | | 8/15/18 | | 8/15/21 | | 8,531 | |
| | Restricted Stock Award | | 8/15/19 | | 8/15/21 | | 7,685 | |
| | Restricted Stock Award | | 8/17/20 | | 8/17/21 | | 7,990 | |
| | Performance Stock Award | | 8/15/18 | | 8/15/21 | | 63,985 | |
Michael D. Ruppert | | Restricted Stock Award | | 8/15/18 | | 8/15/21 | | 2,807 | |
| | Restricted Stock Award | | 8/15/19 | | 8/15/21 | | 2,525 | |
| | Restricted Stock Award | | 8/17/20 | | 8/17/21 | | 2,450 | |
| | Performance Stock Award | | 8/15/18 | | 8/15/21 | | 21,052 | |
(2) Value realized upon vesting is based on the fair market value of the shares at the time of vesting and includes the value of payments in lieu of fractional shares.
Potential Payments upon Termination of Employment or Change in Control
Potential Payments to Mr. Aslett upon
or Termination of Employment
In connection with his appointment as President and Chief Executive Officer in 2007, weSeverance Arrangements; Effect of Termination of Employment upon Long-Term Incentive Awards
We have entered into an employment agreementseverance agreements with Mr. Aslett, a descriptioneach of which can be found under the heading “Agreements with Named Executive Officers” below. Mr. Aslett’s employment agreement provides for termination and severanceour named executive officers that provide certain benefits in the caseevent of a termination of Mr. Aslett’s employment by us without “cause” or by Mr. Aslett for “good reason.”
“Cause” is defined in the employment agreement to include: (1) conduct constituting a material act of willful misconduct in connection with the performance of Mr. Aslett’s duties, including, without limitation, misappropriation of funds or property of Mercury; (2) conviction of, or plea of “guilty” or “no contest” to, any felony or any conduct by Mr. Aslett that would reasonably be expected to result in material injury to Mercury if he were retained in his position; (3) continued, willful, and deliberate non-performance by Mr. Aslett of his duties under the agreement which continues for 30 days following notice; (4) breach by Mr. Aslett of certain non-competition and non-disclosure covenants; (5) a violation by Mr. Aslett of Mercury’s employment policies which continues following written notice; or (6) willful failure to cooperate with a bona fide internal investigation or an investigation by regulatory or law enforcement authorities, or the willful destruction or failure to preserve documents or other materials known to be relevant to such investigation or the willful inducement of others to fail to cooperate or to produce documents or other materials in connection with such investigation. For purposes of clauses (1), (3), and (6), no act, or failure to act, on Mr. Aslett’s part will be deemed “willful” unless done, or omitted to be done, by him without reasonable belief that his act or failure to act, was in the best interest of Mercury.
“Good Reason” is defined in the employment agreement to include: (1) a material diminution in Mr. Aslett’s responsibilities, authority, or duties; (2) a material diminution in Mr. Aslett’s base salary, except for across-the-board salary reductions based on our financial performance similarly affecting all or substantially all senior management employees of Mercury; (3) a material change in the geographic location at which Mr. Aslett provides services to Mercury; or (4) the material breach of the agreement by us. To terminate his employment for “good reason,” Mr. Aslett must follow a specified process described in the employment agreement.
Upon the termination of Mr. Aslett’s employment by us without “cause” or by him for “good reason,” Mr. Aslett will be entitled to receive an amount equal to the sum of his base salary and target bonus under our annual executive bonus program, payable over a 12-month period. In addition, Mr. Aslett is entitled to continue to participate in our group health, dental, and vision program for 24 months.
The following chart illustrates the benefits that would have been received by Mr. Aslett under his employment agreement had his employment been terminated by us without “cause” or voluntarily terminated by him with “good reason.” These amounts are estimates only and do not necessarily reflect the actual amounts that would be payable to Mr. Aslett upon the occurrence of such events, which amounts would only be known at the time that Mr. Aslett became entitled to such benefits.
|
| | | | | | | | | | | | | |
| Cash Severance (1) | | Health Benefits (2) | | Total |
Involuntary Termination Without Cause or Voluntary Termination for Good Reason | $ | 1,120,000 | | | $ | 35,035 | | | $ | 1,155,035 |
|
| |
(1) | This amount represents the aggregate amount of Mr. Aslett’s annual base salary and target bonus under our executive bonus program for fiscal 2017. |
| |
(2) | The value of health, dental, and vision insurance benefits is based on the type of coverage we carried for Mr. Aslett as of June 30, 2017, and the costs associated with such coverage on that date. |
Potential Payments to Messrs. Cambria, Haines, Speicher, and Thibaud upon Termination of Employment
Effective in August 2018, we agreed to provide certain severance benefits to to each of our non-CEO named executive officers, a description of which agreement can be found under the heading “Agreements with Named Executive Officers” below. Such agreement provides for termination and severance benefits in the case of a termination of the executive's employment by us without “cause”cause or by the executive for “goodgood reason.” These benefits are enhanced in the event the termination occurs either:
•within 18 months (or within 24 months, in the case of our Chief Executive Officer) after a change in control; or
“Cause” is defined to include: (1) the willful and continued failure by the executive to perform substantially the duties and responsibilities of his position with Mercury after written demand; (2) the conviction of the executive•during a protected period triggered by a court of competent jurisdiction for felony criminal conduct or a plea of nolo contendere to a felony; or (3) the willful engaging by the executive in fraud, dishonesty, or other misconduct which is demonstrably and materially injurious to Mercury or our reputation, monetarily, or otherwise. No act, or failure to act, on the executive’s part will be deemed “willful” unless committed or omitted by the executive in bad faith and without reasonable belief that his act or failure to act was in, or not opposed to, the best interest of Mercury.
“Good Reason” is defined in the agreement to include: (1) a material diminution in the executive's responsibilities, authority, or duties as in effect on the date of the agreement; (2) a material diminution in the executive's annual base salary, except for across-the-board salary reductions based on our financial performance similarly affecting all or substantially all senior management employees of Mercury; or (3) a material change in the geographic location at which the executive provides services to Mercury.
Under the agreement, if we terminate the executive's employment without “cause” or the executive his employment for “good reason,” then we will pay the executive a severance amount equal to one times his annual base salary. In such event, we also will pay for certain insurance benefits and outplacement services.
The following chart illustrates the benefits that would have been received by each of our non-CEO named executive officers under his agreement had either his employment been terminated by us without “cause” or by him with “good reason.” These amounts are estimates only and do not necessarily reflect the actual amounts that would be payable to the executive upon the occurrence of such events, which amounts would only be known at the time that the executive became entitled to such benefits.
|
| | | | | | | | | | | | | | | | |
| Cash Severance | | Health Benefits | (1) | | Outplacement Services | | Total |
Christopher C. Cambria | $ | 345,000 |
| | $ | 10,506 |
| | | $ | 30,000 |
| | $ | 385,506 |
|
Gerald M. Haines II | 345,000 |
| | $ | 17,517 |
| | | 30,000 |
| | $ | 392,517 |
|
Charles A. Speicher | 250,000 |
| | $ | 17,522 |
| | | 30,000 |
| | $ | 297,522 |
|
Didier M.C. Thibaud | 375,000 |
| | $ | 11,930 |
| | | 30,000 |
| | $ | 416,930 |
|
| |
(1) | The value of health, dental, and vision insurance benefits is based on the type of coverage we carried for the executive as of June 30, 2017, and the costs associated with such coverage on that date. |
Potential Payments to Named Executive Officers upon Termination of Employment following a Change in Control
We have entered intopotential change in control severance agreements with our CEO and certain of our other executive officers. For fiscal 2017, we had such agreementsevent, but only if a change in effect with the following named executive officers: Mr. Aslett; Mr. Cambria; Mr. Haines; Mr. Speicher; and Mr. Thibaud.control actually occurs within 18 months (or 24 months) thereafter.
A change in control includes, among other events and subject to certain exceptions, the acquisition by any person of beneficial ownership of 30% or more of our outstanding common stock. IfThe material terms of these severance arrangements are set forth in the following table.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Benefit | | Standard Severance (termination by company without cause or by executive for good reason) | | Change in Control Severance |
| | Chief Executive Officer | | Other Named Executive Officers | | Chief Executive Officer | | Other Named Executive Officers |
Cash Severance | |
•18 months of base salary continuation
•Lump-sum payment of target bonus | |
•12 months of base salary continuation
•Lump-sum payment of target bonus | |
Lump-sum payment equal to twice the sum of:
•annual base salary; and
•target bonus | |
Lump-sum payment equal to one and one-half times (1.5x) of the sum of:
•annual base salary; and
•target bonus |
Outplacement | | Up to $45,000 in services | | Up to $30,000 in services | | Up to $45,000 in services | | Up to $45,000 in services |
Subsidized medical benefits at same cost as similarly situated active employees | | Up to 24 months of coverage | | Up to 12 months of coverage | | Up to 24 months of coverage | | Up to 18 months of coverage |
Accelerated Equity Vesting | | N/A
| | N/A | |
•Full acceleration of outstanding long-term incentive awards
•Performance stock award payouts will be based on actual performance through the date of the change of control (or, in the case of death or disability, as of most recent fiscal quarter end prior to the date of death or disability. For performance stock awards granted during or after fiscal 2021, the accelerated payouts will be made at no less than the target level of performance. |
In the event of an executive officer's death or disability, any unvested portion of a tender offer or exchange offer is made for more than 30% of our outstanding common stock,long-term incentive award previously granted to the executive has agreed not to leave our employ, except inwill immediately vest, with performance stock awards being paid out based on actual performance through the case of disability or retirement and certain other circumstances, and to continue to render services to Mercury until such offer has been abandoned or terminated or a change in control has occurred.
The Compensation Committee worked with Radford as compensation consultant to provide market data and analysis of market practices for such agreements in the period of time since Mercury’s prior forms of such agreements were adopted.
Chief Executive Officer
The CEO is entitled to severance benefits if, within 24 months after a change in control of Mercury (or during a potential change in control period provided that a change in control takes place within 24 months thereafter), the CEO’s employment is terminated (1) by us other than for “cause” or disability or (2) by the CEO for “good reason.” “Cause” is defined in the agreement to include the CEO’s willful failure to perform his duties, convictionend of the executive for a felony, and the CEO’s willful engaging in fraud, dishonesty, or other conduct demonstrably and materially injurious to Mercury. “Good Reason” is defined in the agreement to include an adverse change in the CEO’s status or position with Mercury, a reduction in base salary or annual target bonus, failure to maintain the CEO’s participation in existing or at least equivalent health and benefit plans, and a significant relocation of the CEO’s principal office.
Severance benefits under the agreement include the following, in additionmost recently completed fiscal quarter prior to the paymentdate of death or disability. In the event of any earned or accrued but unpaid compensation for services previously rendered:
a lump sum cash payment equal to two times (2x) the sum of the CEO’s then current annualized base salary and bonus target under our annual executive bonus plan (excludingother termination not otherwise described above, any over-achievement awards);
payment of the cost of providing the executive with outplacement services up to a maximum of $45,000; and
payment of the cost of providing the CEO with health and dental insurance up to 24 months following such termination on the same basis as though the CEO had remained an active employee.
In addition, if the CEO’s employment is terminated within 24 months after a change in control (or during a potential change in control period provided that a change in control takes place within 24 months thereafter), vesting of all his then outstanding stock options and other stock-basedunvested long-term incentive awards immediately accelerates and all such awards become exercisable or non-forfeitable.
Payment of the above-described severance benefits is subject to the CEO releasing all claims against Mercury other than claims that arise from Mercury’s obligations under the severance agreement. In addition, if the CEO is party to an employment agreement with Mercury providing for change in control payments or benefits, the CEO will receive the benefits payable under this agreement and not under the employment agreement.
The agreement provides for a reduction of payments and benefits payable under the agreement to a level where the CEO would not be subject to the excise tax pursuant to section 4999 of the Code, but only if such reduction would put the CEO in a better after-tax position than if the payments and benefits were paid in full. In addition, the agreement provides for the payment by Mercury of the CEO’s legal fees and expenses incurred in connection with good faith disputes under the agreement.
The agreement continues in effect through June 30, 2018, subject to automatic one-year extensions thereafter unless notice is given of our or the CEO’s intention not to extend the term of the agreement; provided, however, that the agreement continues in effect for not less than 24 months following a change in control that occurs during the term of the agreement. Except as otherwise provided in the agreement, we and the CEO may terminate the CEO’s employment at any time.
Non-CEO Executives
The executive is entitled to severance benefits if, within 18 months after a change in control of Mercury (or during a potential change in control period provided that a change in control takes place within 18 months thereafter), the executive’s employment is terminated (1) by us other than for “cause” or disability or (2)held by the executive for “good reason.” “Cause” is definedat the time of termination will immediately be forfeited.
Payments Upon Change in each agreement to include the executive’s willful failure to perform his duties, convictionControl or Termination of the executive for a felony, and the executive’s willful engaging in fraud, dishonesty, or other conduct demonstrably and materially injurious to Mercury. “Good Reason” is defined in each agreement to include an adverse change in the executive’s status or position with Mercury, a reduction in base salary or annual target bonus, failure to maintain the executive’s participation in existing or at least equivalent health and benefit plans, and a significant relocation of the executive’s principal office.Employment
Severance benefits under each agreement include the following, in addition to the payment of any earned or accrued compensation for services previously rendered:
a lump sum cash payment equal to one and one-half times (1.5x) the sum of the executive’s then current annualized base salary and bonus target under our annual executive bonus plan (excluding any over-achievement awards);
payment of the cost of providing the executive with outplacement services up to a maximum of $45,000; and
payment of the cost of providing the executive with health and dental insurance up to 18 months following such termination on the same basis as though the executive had remained an active employee.
In addition, if the executive’s employment is terminated within 18 months after a change in control (or during a potential change in control period provided that a change in control takes place within 18 months thereafter), vesting of all his then outstanding stock options and other stock-based awards immediately accelerates and all such awards become exercisable or non-forfeitable.
Payment of the above-described severance benefits is subject to the executive releasing all claims against Mercury other than claims that arise from Mercury’s obligations under the severance agreement. In addition, if the executive is party to an employment agreement with Mercury providing for change in control payments or benefits, the executive will receive the benefits payable under this agreement and not under the employment agreement.
Each agreement provides for a reduction of payments and benefits payable under the agreement to a level where the executive would not be subject to the excise tax pursuant to section 4999 of the Code, but only if such reduction would put the executive in a better after-tax position than if the payments and benefits were paid in full. In addition, each agreement provides for the payment by Mercury of the executive’s legal fees and expenses incurred in connection with good faith disputes under the agreement.
The agreements continue in effect through June 30, 2018, subject to automatic one-year extensions thereafter unless notice is given of our or the executive’s intention not to extend the term of the agreement; provided, however, that the agreement continues in effect for not less than 18 months following a change in control that occurs during the term of the agreement. Except as otherwise provided in the agreement, we and each executive may terminate the executive’s employment at any time.
The following table sets forth an estimate ofquantifies the aggregatepayments under our severance benefits for eacharrangements and long-term incentive awards that would be made by us to, or on behalf of, our named executive officers assuming the triggeringtermination of their employment, under the circumstances described in the table, on July 1, 2022, which is the last business day of our 2022 fiscal year. Payments that are available generally to salaried employees that do not discriminate in scope, terms or operation in favor of executive officers are not included in this table.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Circumstances of Termination |
Name | | Benefit(1) | | By Mercury Without Cause | | By Executive for Good Reason | | In Connection With Change in Control(2) | | Death/Disability |
Mark Aslett | | Cash Severance(3) | | $ | 2,400,180 | | | $ | 2,400,180 | | | $ | 4,000,300 | | | $ | — | |
| | Outplacement(4) | | 45,000 | | | 45,000 | | | 45,000 | | | — | |
| | Medical Benefits(5) | | 42,476 | | | 42,476 | | | 42,476 | | | — | |
| | Accelerated Equity Vesting(6) | | — | | | — | | | 28,957,554 | | | 27,636,834 | |
| | Total | | 2,487,656 | | | 2,487,656 | | | 33,045,330 | | | 27,636,834 | |
| | | | | | | | | | |
Michael D. Ruppert | | Cash Severance(3) | | 937,336 | | | 937,336 | | | 1,406,004 | | | — | |
| | Outplacement(4) | | 30,000 | | | 30,000 | | | 45,000 | | | — | |
| | Medical Benefits(5) | | 23,683 | | | 23,683 | | | 35,525 | | | — | |
| | Accelerated Equity Vesting(6) | | — | | | — | | | 9,094,406 | | | 8,681,705 | |
| | Total | | 991,019 | | | 991,019 | | | 10,580,935 | | | 8,681,705 | |
| | | | | | | | | | |
Thomas Huber | | Cash Severance(3) | | 850,000 | | | 850,000 | | | 1,275,000 | | | — | |
| | Outplacement(4) | | 30,000 | | | 30,000 | | | 45,000 | | | — | |
| | Medical Benefits(5) | | 14,020 | | | 14,020 | | | 21,030 | | | — | |
| | Accelerated Equity Vesting(6) | | — | | | — | | | 4,798,810 | | | 4,580,553 | |
| | Total | | 894,020 | | | 894,020 | | | 6,139,840 | | | 4,580,553 | |
| | | | | | | | | | |
James M. Stevison | | Cash Severance(3) | | 850,000 | | | 850,000 | | | 1,275,000 | | | — | |
| | Outplacement(4) | | 30,000 | | | 30,000 | | | 45,000 | | | — | |
| | Medical Benefits(5) | | 14,020 | | | 14,020 | | | 21,030 | | | — | |
| | Accelerated Equity Vesting(6) | | — | | | — | | | 4,298,573 | | | 4,034,796 | |
| | Total | | 894,020 | | | 894,020 | | | 5,639,603 | | | 4,034,796 | |
| | | | | | | | | | |
Charles R. Wells, IV | | Cash Severance(3) | | 830,000 | | | 830,000 | | | 1,245,000 | | | — | |
| | Outplacement(4) | | 30,000 | | | 30,000 | | | 45,000 | | | — | |
| | Medical Benefits(5) | | 23,545 | | | 23,545 | | | 35,318 | | | — | |
| | Accelerated Equity Vesting(6) | | — | | | — | | | 4,292,147 | | | 4,022,913 | |
| | Total | | 883,545 | | | 883,545 | | | 5,617,465 | | | 4,022,913 | |
| | | | | | | | | | |
(1) Receipt of the benefits set forth in this table, other than in the event occurred on June 30, 2017,of the executive's death or disability, is conditioned upon the executive's execution of a customary release of all pursuant toclaims against Mercury.
(2) The benefits reported in this column are payable only in the termsevent the executive's employment is terminated by the Company without cause, or by the executive for good reason, within a specified time period in respect of each executive’sa potential change in control severance agreement as described above:
|
| | | | | | | | | | | | | | | | | | | | | | |
Name | Salary/Bonus Lump Sum | | Restricted Stock Acceleration (1) | | Outplacement Services (2) | | Health Benefits (3) | | Total |
Mark Aslett | $ | 2,240,000 |
| | $ | 12,566,306 | | | $ | 45,000 | | | $ | 35,035 | | | $ | 14,886,341 |
|
Christopher C. Cambria | 828,000 |
| | 3,156,750 | | | 45,000 | | | 15,759 | | | 4,045,509 |
|
Gerald M. Haines II | 828,000 |
| | 4,767,240 | | | 45,000 | | | 26,276 | | | 5,666,516 |
|
Charles A. Speicher | 525,000 |
| | 1,178,646 | | | 45,000 | | | 26,283 | | | 1,774,929 |
|
Didier M.C. Thibaud | 984,375 |
| | 5,500,490 | | | 45,000 | | | 17,895 | | | 6,547,760 |
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(1) | The amounts shown in this column represent the closing priceevent or actual change in control. For a further discussion, see "— Severance Arrangements; Effect of our common stock on the NASDAQ Global Select Market on June 30, 2017 ($42.09) multiplied by the number of restricted shares that would have vested upon the occurrence of a change in control. |
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(2) | This amount represents the maximum amount of outplacement services to which the executive is entitled under the agreement. |
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(3) | The value of health and dental insurance benefits is based on the type of coverage we carried for the named executive officer as of June 30, 2017 and the costs associated with such coverage on such date. |
Agreements with Named Executive Officers
Employment Agreement with Mr. Aslett
In November 2007, we entered into an employment agreement with Mr. Aslett. The agreement provides for an 18-month term, but automatically renews for additional one-year periods unless an advance notice of non-renewal is provided by either party to the other at least 180 days prior to the expiration of the then-current term.
Under the employment agreement, Mr. Aslett’s annual base salary will be $500,000, subject to annual review by the Board in our first fiscal quarter. In September 2009, we amended Mr. Aslett’s employment agreement to reflect that we terminated the Long Term Incentive Plan and that he is entitled to participate in our annual executive bonus program in an amount determined by the Board in accordance with the terms of the program. In August 2017, we amended Mr. Aslett's employment agreement to provide that he is entitled to continue to participate in our group health, dental, and vision programs for 24 months, an increase from the 18 months in his original employment agreement.
The employment agreement provides for termination and severance benefits in the case of a termination of Mr. Aslett’s employment by us without “cause” or by Mr. Aslett for “good reason.” A description of these benefits can be found above under the heading “Potential Payments upon Termination or Change in Control—Potential Payments to Mr. Aslett upon Termination of Employment.”
Severance AgreementsEmployment upon Long-Term Incentive Awards" beginning on page 62. In the event that the payments reported in this column, when aggregated with Non-CEO Named Executive Officers
We have entered into agreements with each of our non-CEO named executive officers providing for certain severance benefits. Underall other change in control payments, would subject the terms of the agreement, if we terminate the executive's employment without “cause” or the executive terminates his employment for “good reason,” then we will pay the executive a severance amount equal to one times his annual base pay. In such event, we also will pay for certain insurance benefits and outplacement services. A description of these benefits can be found above under the heading “Potential Payments upon Termination or Change in Control—Potential Payments to Messrs. Cambria, Haines, Speicher, and Tbibaud upon Termination of Employment.”
Change-in-Control Agreements
We also have entered into agreements with each named executive officer providingto an excise tax under IRS regulations, these payments would be reduced to the highest amount for certain benefits inwhich no excise tax would be due, but only if the eventreduced amount is greater than the unreduced amount net of the excise tax.
The occurrence of a change in control has no immediate effect on the vesting of Mercury. A descriptionRSAs or PSAs; however, any PSAs outstanding at the time of these benefits cana change in control would be found aboveautomatically converted at that time to RSAs covering a number of shares based on the actual performance achieved under the heading “Potential Payments upon TerminationPSAs through the date of the change in control (which, in the case of PSAs granted during or Changeafter fiscal 2021, would be deemed to be no less than the target level of performance). These new RSAs would be subject to the same remaining vesting schedule as the PSAs being converted.
(3) As discussed in Control—Potential Payments to Named Executive Officers upon"— Severance Arrangements; Effect of Termination of Employment upon Long-Term Incentive Awards" beginning on page 62, the cash severance payable to each named executive officer in connection with a qualified termination of employment is a multiple of annual base salary and target bonus. This payment is in lieu of any other payments under the annual incentive plan.
(4) The outplacement benefit reported in this table reflects the maximum amount payable for such services in connection with the circumstances of the applicable termination event.
(5) Medical benefits are based on the applicable multiple of the premiums paid by the Company in calendar 2022 to provide the named executive officer (and the named executive officer's spouse and dependents, as applicable) with medical, dental and vision coverage, together with an additional COBRA coverage administrative fee that would be borne by the company.
(6) The value reported reflected for accelerated equity vesting reflects the unvested number of shares underlying outstanding awards on the date of termination, multiplied by the closing price of our common stock on the date of termination. In the case of PSAs:
(a) we assumed that both the change in control (if applicable) and the termination of employment occurred on July 1, 2022; and
(b) the number of shares underlying the awards were adjusted to reflect actual performance under the awards through the date of the change in control (July 1, 2022), or the end of the most recent completed fiscal quarter prior to the date of death or disability (April 1, 2022), as applicable. In all cases, actual performance exceeded the target level of performance under the awards.
CEO Pay Ratio
We are providing the following information about the ratio for fiscal 2022 of our CEO's total compensation to the total compensation of our median compensated employee (our "CEO pay ratio") pursuant to the SEC's guidance under Item 402(u) of Regulation S-K. The CEO pay ratio disclosed below represents a Changereasonable good faith estimate, calculated in Control.”a manner consistent with SEC rules, based on our payroll and employment records and the methodology described below.
–Our CEO's total annual compensation for fiscal 2022, as reflected in the Summary Compensation Table on page 56, was $18,859,871.
–Our median employee's total annual compensation for fiscal 2022, calculated using the same methodology we used in the Summary Compensation Table with respect to our named executive officers, was $99,608.
–The resulting CEO pay ratio for fiscal 2022 is approximately 189:1.
REPORT OF THE COMPENSATION COMMITTEEWe identified our median employee using our employee population as of April 4, 2022. As of April 4, 2022, we employed 2,223 employees. These employees were located in the United States (2,063), Switzerland (123), United Kingdom (15), Spain (14), Canada (7) and Japan (1). This includes all full-time, part-time, and temporary employees. It does not include independent contractors.
We excluded from the employee population identified above all employees from the United Kingdom, Spain, Canada and Japan. This exclusion is permitted by SEC regulations because the total number of employees from these non-U.S. jurisdictions (37) is less than 5% of our total employee population identified above (2,186). Our remaining employee population was composed of 2,153 employees, of which 2,039 were U.S. employees and 114 were non-U.S. employees.
To determine our median compensated employee from this remaining employee population, we chose target cash compensation as our consistently applied compensation measure. We calculated target cash compensation for each employee by aggregating annual base pay and annual target bonus for fiscal 2022, annualizing pay for those employees who commenced work during fiscal 2022 and any employees who were on leave for a portion of fiscal 2022. For hourly employees, we used a reasonable estimate of hours worked to determine annual base pay. We then identified the median employee by ranking all employees according to the target cash compensation we calculated, from lowest to highest.
After we identified the median employee based on this ranking, we calculated annual total compensation for that employee using the same methodology we used for our named executive officers in the Summary Compensation Table.
The Compensation Committee has reviewedSEC rules for identifying the median compensated employee and discussed with managementcalculating the Compensation Discussion and Analysis included in this proxy statement, andCEO pay ratio based on that employee's annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions and to make reasonable estimates and assumptions that reflect their compensation practices. As such, reviewthe CEO pay ratio reported by other companies, including in our own industry, may not be comparable to the CEO pay ratio reported above, as other companies may have different employment and discussion, the Compensation Committee recommended to Mercury’s Board that the Compensation Discussioncompensation practices and Analysis be includedmay utilize different methodologies, exclusions, estimates and assumptions in this proxy statement and be incorporated by reference into Mercury’s annual report on Form 10-K for the fiscal year ended June 30, 2017.calculating their own CEO pay ratios.
By the Compensation Committee of the Board of
Directors of Mercury Systems, Inc.Michael A. Daniels, Chairman
Mary Louise Krakauer
George K. Muellner
Vincent Vitto
REPORT OF THE AUDIT COMMITTEE
The following is the reportNo portion of thethis Audit Committee report shall be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended (the "Securities Act"), or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), through any general statement incorporating by reference in its entirety the proxy statement in which this report appears, except to the extent that the Company specifically incorporates this report or a portion of it by reference. In addition, this report shall not be deemed to be "soliciting material" or filed under either the Securities Act or the Exchange Act.
The Mercury Systems, Inc. (the "Company") Board of Directors appointed us as an Audit Committee to oversee the Company's accounting and financial reporting processes on behalf of the Board of Directors, including review of Mercurythe Company's consolidated financial statements, its system of internal controls, and the independence and performance of its internal auditor and independent registered public accounting firm. As an Audit Committee, we select the independent registered public accounting firm. The Audit Committee has robust policies and procedures in place for selecting and monitoring the independent registered public accounting firm and its independence, including: an annual evaluation process; review of auditor and team member qualifications; rotation of lead engagement and concurring partners every five years; hiring restrictions for auditor employees; pre-approval of non-audit services; review of results from internal quality reviews, peer reviews, and Public Company Accounting Oversight Board ("PCAOB") inspections; and private meetings between the Audit Committee and the independent registered public accounting firm throughout the year.
We are governed by a written charter adopted by the Audit Committee and our Board of Directors, which is available through the Investor Relations page of the Company's website at www.mrcy.com.
The Audit Committee consisted of six members, Messrs. Nearhos, Ballhaus, Bass, and O'Brien, and Mses. Disbrow and Plunkett, all non-employee directors. Messrs. Nearhos, Bass, and O'Brien and Ms. Disbrow served on the Committee for the full fiscal year ended July 1, 2022, and Mr. Ballhaus and Ms. Plunkett were appointed to the Committee in June 2022. None of the members of the Audit Committee is an officer or employee of the Company, and the Board of Directors has determined that each member of the Audit Committee meets the independence requirements promulgated by The Nasdaq Stock Market, Inc. and the Securities and Exchange Commission ("SEC"), including Rule 10A-3(b)(1) under the Exchange Act. Messrs. Nearhos, Bass, and O'Brien and Ms. Disbrow are "audit committee financial experts" and Mr. Ballhaus and Ms. Plunkett are "financially literate" as such terms are defined under SEC rules.
The Company's management is responsible for the financial reporting process, including the system of internal controls, and for the preparation of consolidated financial statements in accordance with respectgenerally accepted accounting principles. The Company's independent registered public accounting firm is responsible for auditing those financial statements. Our responsibility is to Mercury’smonitor and review these processes. However, we are not professionally engaged in the practice of accounting or auditing. We have relied, without independent verification, on the information provided to us and on the representations made by the Company's management and the independent registered public accounting firm.
In fulfilling our oversight responsibilities, we discussed with representatives of KPMG LLP, the independent registered public accounting firm for the Company's fiscal year ended July 1, 2022, the overall scope and plans for their audit of the consolidated financial statements for the fiscal year ended July 1, 2022. At the end of each quarter and financial year, we have met with the Company's independent registered public accounting firm, KPMG LLP, with and without the Company's management present, to discuss the results of their examinations, their evaluations of the Company's internal control over financial reporting and the overall quality of the Company's financial reporting. We reviewed and discussed the audited consolidated financial statements for the fiscal year ended June 30, 2017. Management is responsible for Mercury’s internal controlsJuly 1, 2022 with management and financial reporting. Mercury’sthe independent registered public accounting firm is responsiblefirm.
We also reviewed the report of management contained in the Annual Report on Form 10-K for performing anthe fiscal year ended July 1, 2022, filed with the SEC, on its assessment of the effectiveness of the Company's internal control over financial reporting, as well as the Reports of the Independent Registered Public Accounting Firm included in the Annual Report on Form 10-K related to KPMG's audit of Mercury’s(i) the consolidated financial statements expressing an opinion as to their conformity with U.S. generally accepted accounting principles and expressing an opinion on(ii) the effectiveness of internal control over financial reporting. The Audit Committee is responsible for monitoringWe continue to oversee the Company's efforts related to its internal control over financial reporting and overseeing these processes.
The Audit Committee reviewed Mercury’s audited consolidated financial statementsmanagement's preparations for the evaluation in the Company's fiscal year endedending June 30, 2017, and2023.
We discussed these consolidated financial statements with Mercury’s management. Management represented to the Audit Committee that Mercury’s consolidated financial statements had been prepared in accordance with U.S. generally acceptedindependent registered public accounting principles. The Audit Committee also reviewed and discussed the audited consolidated financial statements andfirm the matters required to be discussed by Auditing Standard No. 16, 1301, Communications with Audit Committees, as amended, as adopted by the PublicPCAOB, including a discussion of the Company's accounting principles, the application of those principles, and the other matters required to be discussed with Audit Committees under generally accepted auditing standards.
We have reviewed the permitted services under rules of the SEC as currently in effect and discussed with KPMG their independence from management and the Company, Accounting Oversight Board, with Mercury’s independent registered public accounting firm. The Audit Committee receivedincluding the matters in the written disclosures and the letter from the independent registered public accounting firm required by the applicable requirements of the Public Company Accounting Oversight BoardPCAOB regarding the independent registered public accounting firm’saccountant's communications with the Audit Committee concerning independence. Further,In evaluating the independence of our independent registered public accountant, we considered whether the services they provided beyond their audit and review of the consolidated financial statements were compatible with maintaining their independence. We also noted that the only fees they received were for audit and audit-related services.
Based on our review and these meetings, discussions and reports, and subject to the limitations on our role and responsibilities referred to above and in the Audit Committee has discussed with the independent registered public accounting firm its independence.
Based on its review and the discussions with management and the independent registered public accounting firm described above, and its review of the information provided by management and the independent registered public accounting firm, the Audit Committeecharter, we recommended to Mercury’sthe Board of Directors that the audited consolidated financial statements for the fiscal year ended July 1, 2022 be included in Mercury’s annual reportthe Annual Report on Form 10-K for the fiscal year ended June 30, 2017.July 1, 2022.
By the Audit Committee of the Board of
Directors of Mercury Systems, Inc.
Barry R. Nearhos, Chair
William K. O’Brien, ChairmanL. Ballhaus
James K. Bass
Lisa S. Disbrow
Mark S. NewmanWilliam K. O’Brien
Debora A. Plunkett
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has appointed KPMG LLP (“KPMG”) as the independent registered public accounting firm to audit Mercury’sMercury's consolidated financial statements for the fiscal year ending June 30, 2018.2023. KPMG served as our independent registered public accounting firm for the fiscal years ended June 30, 2017July 1, 2022 and 2016.July 2, 2021. A representative of KPMG is expected to be present at the annual meeting of shareholders and will have the opportunity to make a statement if he or she desires and to respond to appropriate questions.
What were the fees of our independent registered public accounting firm for services rendered to us during the last two fiscal years?
The aggregate fees for professional services rendered to us by KPMG, our independent registered public accounting firm, for the fiscal years ended June 30, 2017July 1, 2022 and 2016July 2, 2021 were as follows:
| | | Fiscal 2017 | | Fiscal 2016 | | Fiscal 2022 | | Fiscal 2021 |
Audit | $1,706,500 | | $1,802,000 | Audit | $ | 2,666,600 | | | $ | 2,168,600 | |
Audit-Related | 180,000 | | 1,007,861 | Audit-Related | — | | | — | |
Tax | 10,800 | | 149,220 | Tax | — | | | — | |
All Other | — |
| | — |
| All Other | — | | | — | |
| $1,897,300 | | $2,959,081 | | $ | 2,666,600 | | | $ | 2,168,600 | |
Audit fees for fiscal years 20172022 and 20162021 were for professional services provided for the audits of our consolidated financial statements and our internal control over financial reporting, as well as reviews of the consolidated financial statements included in each of our quarterly reports on Form 10-Q.10-Q, as well as the statutory review of a foreign subsidiary. Audit fees for fiscal years 20172022 and 20162021 also were for professional services provided for consents issued relating to registration statements in each fiscal year and for the auditor comfort letterletters provided in connection with the Company's underwritten follow-on common stock offeringsAt-The-Market equity distribution agreement in fiscal 2017 and 2016.
For fiscal year 2017, audit-related fees included professional service fees related to the acquisition of CES Creative Electronic Systems SA. For fiscal year 2016, audit-related fees included professional service fees related to the acquisition of the embedded security, RF and microwave, and custom microelectronics business of the Power and Microelectronics Group of Microsemi Corporation, the acquisition of Lewis Innovative Technologies, Inc., and due diligence reviews of other potential acquisition candidates.
Tax fees for fiscal years 2017 and 2016 were for tax return preparation and related consulting, as well as miscellaneous tax advice regarding state income tax filings and potential business reorganizations.2021.
What is the Audit Committee’sCommittee's pre-approval policy?
The Audit Committee pre-approves all auditing services and the terms of non-audit services provided by our independent registered public accounting firm, but only to the extent that the non-audit services are not prohibited under applicable law and the committeeCommittee determines that the non-audit services do not impair the independence of the independent registered public accounting firm.
In situations where it is impractical to wait until the next regularly scheduled quarterly meeting, the chairmanChairman of the committeeCommittee has been delegated authority to approve audit and non-audit services to be provided by our independent registered public accounting firm. Fees payable to our independent registered public accounting firm for any specific, individual service approved by the chairmanChairman pursuant to the above-described delegation of authority may not exceed $100,000, and the chairmanChairman is required to report any such approvals to the full committeeCommittee at its next scheduled meeting. In addition, the Audit Committee has pre-approved a list of acceptable services and fees payable to KPMG in an aggregate amount of up to $25,000 per quarter for such services, including without limitation audit and allowable non audit, tax consulting, and M&A transactional services. This pre-approval is for small projects needing quick reaction and judged by the Audit Committee not to raise any independence issues with KPMG. Such projects and fees are required to be presented in detail at the next Audit Committee meeting.
The Audit Committee has considered and determined that the provision of the non-audit services described is compatible with maintaining the independence of our registered public accounting firm.
HUMAN CAPITAL AND COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 2017,2022, Mary Louise Krakauer, Orlando P. Carvalho, and Michael A. Daniels George K. Muellner, and Vincent Vitto served on the Human Capital and Compensation Committee for the entire fiscal year. Vincent Vitto served on the Committee from the beginning of fiscal 2022 through his term on our Board ending at our 2021 Annual Meeting and Debora A. Plunkett served on the Committee starting with her election to the Board at the 2021 Annual Meeting. Barry R. Nearhos served on the Committee starting immediately after our 2021 Annual Meeting through June 2022. In June 2022, Lisa S. Disbrow and Howard L. Lance joined the Committee. No member of the committeeCommittee is a present or former officer or employee of Mercury or any of its subsidiaries or had any business relationship or affiliation with Mercury or any of its subsidiaries (other than his or her service as a director) requiring disclosure in this proxy statement.
DELINQUENT SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCEREPORTS
Section 16(a) of the Exchange Act requires our officers and directors and persons beneficially owning more than 10% of our outstanding common stock to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Officers, directors, and beneficial owners of more than 10% of our common stock are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.
Based solely on copies of such forms furnished as provided above, or written representations that no Forms 5 were required, we believe that during the fiscal year ended June 30, 2017,July 1, 2022, all Section 16(a) filing requirements applicable to our officers, directors, and beneficial owners of greater than 10% of our common stock were complied with.with, except that: (i) a Form 4 reporting the award of 3,767 restricted shares on June 23, 2022 to William L. Ballhaus, a new non-employee director, was filed late on June 30, 2022 as a result of a delay in reactivating his EDGAR filing codes; and (ii) a Form 3 reporting the initial ownership as of September 7, 2021 of 0 shares by Thomas Huber, a new executive officer, and a Form 4 reporting the award of 30,236 restricted shares on September 15, 2021 to Thomas Huber were filed late on September 24, 2021 due to a delay in obtaining EDGAR filing codes.
SHAREHOLDER PROPOSALS FOR THE 20182023 ANNUAL MEETING
Under regulations adopted by the SEC, any shareholder proposal submitted for inclusion in Mercury’sMercury's proxy statement relating to the 20182023 annual meeting of shareholders must be received at our principal executive offices on or before May 23, 2018.11, 2023. In addition to the SEC requirements regarding shareholder proposals, our by-laws contain provisions regarding matters to be brought before shareholder meetings. If shareholder proposals, including proposals relating to the election of directors, are to be considered at the 20182023 annual meeting, notice of them, whether or not they are included in Mercury’sMercury's proxy statement and form of proxy, must be given by personal delivery or by United States mail, postage prepaid, to the Secretary no earlier than May 21, 201829, 2023 and no later than June 20, 2018.28, 2023. The notice must include the information set forth in our by-laws. Proxies solicited by the Board will confer discretionary voting authority with respect to these proposals, subject to SEC rules governing the exercise of this authority.
It is suggested that any shareholder proposal be submitted by certified mail, return receipt requested.
OTHER MATTERS
We know of no matters which may properly be and are likely to be brought before the meeting other than the matters discussed in this proxy statement. However, if any other matters properly come before the meeting, the persons named in the accompanying proxy card will vote in accordance with their best judgment.
ANNUAL REPORT ON FORM 10-K
You may obtain a copy of our annual report on Form 10-K for the fiscal year ended June 30, 2017July 1, 2022 (without exhibits) without charge by writing to: Investor Relations, Mercury Systems, Inc., 50 Minuteman Road, Andover, Massachusetts 01810.
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By Order of the Board of Directors |
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Christopher C. Cambria |
Secretary |
Andover, Massachusetts
September 5, 2017
8, 2022
Appendix A
MERCURY SYSTEMS, INC.
AMENDED AND RESTATED 2018 STOCK INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the Mercury Systems, Inc. 2018 Stock Incentive Plan (the “Plan”). The purpose of the Plan is to encourage and enable the officers, employees, Non-Employee Directors and other key persons (including consultants and qualified individuals who have received offers of employment) of Mercury Systems, Inc. (the “Company”) and its Subsidiaries upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business to acquire a proprietary interest in the Company and to induce qualified individuals who have received offers of employment to enter and remain in the employ of the Company. It is anticipated that providing such persons with a direct stake in the Company’s welfare will assure a closer identification of their interests with those of the Company and its shareholders, thereby stimulating their efforts on the Company’s behalf and strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
“Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.
“Administrator” is defined in Section 2(a).
“Award” or “Awards,” except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Deferred Stock Awards and Restricted Stock Awards.
“Board” means the Board of Directors of the Company.
“Code” means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations.
“Committee” means the compensation committee of the Board or a similar committee performing the functions of the compensation committee and which is comprised of not less than two Non‑Employee Directors who are independent, or the Board as a whole acting as the compensation committee.
“Deferred Stock Award” means Awards granted pursuant to Section 8.
“Effective Date” means the date on which the Plan is approved by shareholders as set forth in Section 18.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
“Fair Market Value” of the Stock on any given date means if the shares of Stock are listed on any national securities exchange, or traded on the National Association of Securities Dealers Automated Quotation System (“Nasdaq”) Global Market or another national securities exchange, the closing price reported on Nasdaq or such other exchange on such date. If the market is closed on such date, the determination shall be made by reference to the last date preceding such date for which the market is open. If the fair market value cannot be determined under the preceding two sentences, it shall be determined in good faith by the Administrator.
“Incentive Stock Option” means any Stock Option designated and qualified as an “incentive stock option” as defined in Section 422 of the Code.
“Non-Employee Director” means a member of the Board who is not also an employee of the Company or any Subsidiary.
“Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option.
“Option” or “Stock Option” means any option to purchase shares of Stock granted pursuant to Section 5.
“Performance Cycle” means one or more periods of time, which may be of varying and overlapping durations, as the Administrator may select, over which the attainment of one or more performance criteria will be measured for the purpose of determining a grantee’s right to and the payment of an Award.
“Restricted Stock Award” means Awards granted pursuant to Section 7.
“Section 409A” means Section 409A of the Code and the regulations and other guidance promulgated thereunder.
“Stock” means the Common Stock, par value $0.01 per share, of the Company, subject to adjustments pursuant to Section 3.
“Stock Appreciation Right” means any Award granted pursuant to Section 6.
“Subsidiary” means any corporation or other entity (other than the Company) in which the Company has a controlling interest, either directly or indirectly.
“Ten Percent Owner” means an employee who owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent (10%) of the combined voting power of all classes of stock of the Company or any parent or subsidiary corporation.
SECTION 2. ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT GRANTEES AND DETERMINE AWARDS
(a) Committee. The Plan shall be administered by the Committee (the “Administrator”).
(b) Powers of Administrator. The Administrator shall have the power and authority to grant Awards consistent with the terms of the Plan, including the power and authority:
(i) To select the individuals to whom Awards may from time to time be granted;
(ii) To determine the time or times of grant, and the extent, if any, of Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards and Deferred Stock Awards, or any combination of the foregoing, granted to any one or more grantees;
(iii) To determine the number of shares of Stock to be covered by any Award;
(iv) To determine and modify from time to time the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Award, which terms and conditions may differ among individual Awards and grantees, and to approve the form of written instruments evidencing the Awards;
(v) Subject to the provisions of Sections 5(h), 6(e), 7(d) and 8(a), to accelerate at any time the exercisability or vesting of all or any portion of any Award;
(vi) Subject to the provisions of Section 5(c) and 6(c), to extend at any time the period in which Stock Options and Stock Appreciation Rights may be exercised; and
(vii) At any time to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any Award (including related written instruments); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Administrator shall be binding on all persons, including the Company and Plan grantees.
Notwithstanding the foregoing, the Administrator’s power and authority to make grants under the Plan shall be subject to the right of the Board, upon its request, to ratify Awards granted to the Chairman and other individuals specified by the Board, and in such event, the date of grant shall be the date of Board ratification.
(c) Delegation of Authority to Grant Awards. The Administrator, in its discretion, may delegate to the Company’s Chief Executive Officer, Chief Financial Officer, General Counsel, or Chief Human Resources Officer, or any person designated by the Board as an “executive officer” as defined in Rule 3b-7 under the Exchange Act all or part of the Administrator’s authority and duties with respect to the granting of Awards to individuals who are not subject to the reporting and other provisions of Section 16 of the Exchange Act. Any such delegation by the Administrator shall include a limitation as to the amount of Awards that may be granted during the period of the delegation and shall contain guidelines as to the determination of the exercise price of any Stock Option or Stock Appreciation Right, the conversion ratio or price of other Awards and the vesting criteria. The Administrator may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Administrator’s delegate or delegates that were consistent with the terms of the Plan.
(d) Detrimental Activity. Unless the award agreement specifies otherwise, the Administrator may cancel, rescind, suspend, withhold or otherwise limit or restrict any Award (whether vested or unvested, exercised or unexercised) at any time if the recipient is not in compliance with all applicable provisions of the award agreement and the Plan, or if the recipient engages in any “Detrimental Activity.” For purposes of this Section 2, “Detrimental Activity” shall include: (i) the rendering of services for any organization or engaging directly or indirectly in any business which is or becomes competitive with the Company, or which organization or business, or the rendering of services to such organization or business, is or becomes otherwise prejudicial to or in conflict with the interests of the Company; (ii) the disclosure to anyone outside the Company, or the use in other than the Company’s business, without prior written authorization from the Company, of any confidential information or material, as defined in the Company’s employee confidentiality agreement or such other agreement regarding confidential information and intellectual property that the recipient and the Company may enter into (collectively, the “Confidentiality Agreement”), relating to the business of the Company, acquired by the recipient either during or after employment with the Company; (iii) the failure or refusal to disclose promptly and to assign to the Company, pursuant to the Confidentiality Agreement or otherwise, all right, title and interest in any invention or idea, patentable or not, made or conceived by the recipient during employment by the Company, relating in any manner to the actual or anticipated business, research or development work of the Company or the failure or refusal to do anything reasonably necessary to enable the Company to
secure a patent where appropriate in the United States and in other countries; (iv) activity that results in termination of the recipient’s employment for cause; (v) a material violation of any rules, policies, procedures or guidelines of the Company; (vi) any attempt directly or indirectly to induce any employee of the Company to be employed or perform services elsewhere or any attempt directly or indirectly to solicit the trade or business of any current or prospective customer, supplier or partner of the Company; or (vii) the recipient being convicted of, or entering a guilty plea with respect to, a crime, whether or not connected with the Company.
(e) Indemnification. Neither the Board nor the Committee, nor any member of either or any delegate thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan, and the members of the Board and the Committee (and any delegate thereof) shall be entitled in all cases to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, reasonable attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under any directors’ and officers’ liability insurance coverage which may be in effect from time to time and/or any indemnification agreement between such individual and the Company.
SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
(a) Stock Issuable. The maximum number of shares of Stock reserved and available for issuance under the Plan shall be 7,862,000, plus the number of shares of Stock reserved and available for issuance under the Mercury Systems, Inc. Amended and Restated 2005 Stock Incentive Plan (the “2005 Stock Incentive Plan”) as of the date of shareholder approval of this Plan, subject to adjustment as provided in Section 3(c). For purposes of this limitation, the shares of Stock underlying any Awards that are forfeited, are canceled, expire or are terminated (other than by exercise) under (i) this Plan or (ii) from and after shareholder approval of this Plan, the 2005 Stock Incentive Plan shall be added to the shares of Stock available for issuance under this Plan. Shares tendered or held back upon exercise of an Option or settlement of an Award to cover the exercise price or tax withholding shall not be available for future issuance under the Plan. In addition, upon exercise of Stock Appreciation Rights, the gross number of shares exercised shall be deducted from the total number of shares remaining available for issuance under the Plan. Also, shares purchased in the open market using proceeds received upon the exercise of an Option shall not be available for future issuance under the Plan. Subject to such overall limitations and Section 3(c), shares of Stock may be issued up to such maximum number pursuant to any type or types of Award; provided, however, that Stock Options or Stock Appreciation Rights with respect to no more than 500,000 shares of Stock may be granted to any one individual grantee during any one calendar year period and provided, further, that in no event may Incentive Stock Options granted under the Plan exceed 7,862,000 shares of Stock. The shares available for issuance under the Plan may be authorized but unissued shares of Stock or shares of Stock reacquired by the Company.
(b) Effect of Awards. The grant of any full value Award (i.e., an Award other than an Option or a Stock Appreciation Right) shall be deemed, for purposes of determining the number of shares available for issuance under Section 3(a), as an Award of two (2) shares of Stock for each such share actually subject to the Award. The grant of an Option or a Stock Appreciation Right shall be deemed, for purposes of determining the number of shares available for issuance under Section 3(a), as an Award of one (1) share of Stock for each such share actually subject to the Award.
(c) Changes in Stock. Subject to Section 3(d) hereof, if, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Company’s capital stock, the outstanding shares of Stock are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Stock or other securities, or, if, as a result of any merger or consolidation, sale of all or substantially all of the assets of the Company, the outstanding shares of Stock are converted into or exchanged for a different number or kind of securities of the Company or any successor entity (or a parent or subsidiary thereof), the Administrator shall make an appropriate or proportionate adjustment in (i) the maximum number of shares reserved for issuance under the Plan, including the maximum number of shares that may be issued in the form of Incentive Stock Options, (ii) the number of Stock Options or Stock Appreciation Rights that can be granted to any one individual grantee and the maximum number of shares that may be granted under a Performance-based Award, (iii) the number and kind of shares or other securities subject to any then outstanding Awards under the Plan, (iv) the repurchase price, if any, per share subject to each outstanding Restricted Stock Award, and (v) the price for each share subject to any then outstanding Stock Options and Stock Appreciation Rights under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of Stock Options and Stock Appreciation Rights) as to which such Stock Options and Stock Appreciation Rights remain exercisable. The Administrator shall also make equitable or proportionate adjustments in the number of shares subject to outstanding Awards and the exercise price and the terms of outstanding Awards to take into consideration cash dividends paid other than in the ordinary course or any other extraordinary corporate event. The adjustment by the Administrator shall be final, binding and conclusive. No fractional shares of Stock shall be issued under the Plan resulting from any such adjustment, but the Administrator in its discretion may make a cash payment in lieu of fractional shares.
(d) Mergers and Other Transactions. In the case of and subject to the consummation of (i) the dissolution or liquidation of the Company, (ii) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (iii) a merger, reorganization or consolidation in which the outstanding shares of Stock are converted into or exchanged for a different kind of securities of the successor entity and the holders of the Company’s outstanding voting power immediately prior to such transaction do not own a majority of the outstanding voting power of the successor entity
immediately upon completion of such transaction, or (iv) the sale of all of the Stock of the Company to an unrelated person or entity (in each case, a “Sale Event”), the Plan and all outstanding Awards granted hereunder shall terminate, unless provision is made in connection with the Sale Event in the sole discretion of the parties thereto for the assumption or continuation of Awards theretofore granted by the successor entity, or the substitution of such Awards with new Awards of the successor entity or parent thereof, with appropriate adjustment as to the number and kind of shares and, if appropriate, the per share exercise prices, as such parties shall agree (after taking into account any acceleration hereunder). In the event of such termination, each grantee shall be permitted, within a specified period of time prior to the consummation of the Sale Event as determined by the Administrator, to exercise all outstanding vested and exercisable Options and Stock Appreciation Rights held by such grantee.
Notwithstanding anything to the contrary in this Section 3(d), in the event of a Sale Event pursuant to which holders of the Stock of the Company will receive upon consummation thereof a cash payment for each share surrendered in the Sale Event, the Company shall have the right, but not the obligation, to make or provide for a cash payment to the grantees holding vested and exercisable Options and Stock Appreciation Rights, in exchange for the cancellation thereof, in an amount equal to the difference between (A) the value as determined by the Administrator of the consideration payable per share of Stock pursuant to the Sale Event (the “Sale Price”) times the number of shares of Stock subject to such outstanding Options and Stock Appreciation Rights (to the extent then exercisable at prices not in excess of the Sale Price) and (B) the aggregate exercise price of all such outstanding Options and Stock Appreciation Rights.
(e) Substitute Awards. The Administrator may grant Awards under the Plan in substitution for stock and stock based awards held by employees, directors or other key persons of another corporation in connection with the merger or consolidation of the employing corporation with the Company or a Subsidiary or the acquisition by the Company or a Subsidiary of property or stock of the employing corporation. The Administrator may direct that the substitute awards be granted on such terms and conditions as the Administrator considers appropriate in the circumstances. Any substitute Awards granted under the Plan shall not count against the share limitation set forth in Section 3(a).
SECTION 4. ELIGIBILITY
Grantees under the Plan will be such full- or part-time officers and other employees, Non-Employee Directors and key persons (including consultants and qualified individuals who have received offers of employment) of the Company and its Subsidiaries as are selected from time to time by the Administrator in its sole discretion.
SECTION 5. STOCK OPTIONS
(a) Grant of Stock Options. Any Stock Option granted under the Plan shall be in such form as the Administrator may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock Options or Non-Qualified Stock Options. Incentive Stock Options may be granted only to employees of the Company or any Subsidiary that is a “subsidiary corporation” within the meaning of Section 424(f) of the Code. To the extent that any Option does not qualify as an Incentive Stock Option, it shall be deemed a Non-Qualified Stock Option.
Stock Options granted pursuant to this Section 5(a) shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable. Stock Options may be granted in lieu of cash compensation at the optionee’s election, subject to such terms and conditions as the Administrator may establish. No dividends or dividend equivalents shall be paid on Options.
(b) Exercise Price. The exercise price per share for the Stock covered by a Stock Option granted pursuant to this Section 5(a) shall be determined by the Administrator at the time of grant but shall not be less than 100 percent (100%) of the Fair Market Value on the date of grant.
(c) Option Term. The term of each Stock Option shall be fixed by the Administrator, but no Stock Option shall be exercisable more than seven (7) years after the date the Stock Option is granted.
(d) Exercisability; Rights of a Shareholder. Stock Options shall become exercisable at such time or times, whether or not in installments, as shall be determined by the Administrator at or after the grant date. An optionee shall have the rights of a shareholder only as to shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options.
(e) Method of Exercise. Stock Options may be exercised in whole or in part, by giving written notice of exercise to the Company, specifying the number of shares to be purchased; provided, however, that no Stock Option may be partially exercised with respect to fewer than 50 (fifty) shares. Payment of the purchase price may be made by one or more of the following methods to the extent provided in the Option Award agreement:
(i) In cash, by certified or bank check or other instrument acceptable to the Administrator;
(ii) Through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the optionee on the open market or that are beneficially owned by the optionee and are not then subject to restrictions under any Company plan. Such surrendered shares shall be valued at Fair Market Value on the exercise date;
(iii) By the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company for the purchase price; or
(iv) By the optionee delivering to the Company a properly executed net exercise notice. Such shares withheld by the Company in the net exercise shall be valued at Fair Market Value on the exercise date.
Payment instruments will be received subject to collection. The transfer to the optionee on the records of the Company or of the transfer agent of the shares of Stock to be purchased pursuant to the exercise of a Stock Option will be contingent upon receipt from the optionee (or a purchaser acting in his stead in accordance with the provisions of the Stock Option) by the Company of the full purchase price for such shares and the fulfillment of any other requirements contained in the Option Award agreement or applicable provisions of laws (including the satisfaction of any withholding taxes that the Company is obligated to withhold with respect to the optionee). In the event an optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the optionee upon the exercise of the Stock Option shall be net of the number of shares attested to.
(f) Annual Limit on Incentive Stock Options. To the extent required for “incentive stock option” treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the shares of Stock with respect to which Incentive Stock Options granted under this Plan and any other plan of the Company or its parent and subsidiary corporations become exercisable for the first time by an optionee during any calendar year shall not exceed one hundred thousand dollars ($100,000). To the extent that any Stock Option exceeds this limit, it shall constitute a Non-Qualified Stock Option.
(g) Restrictions. Stock Options may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the Option Award agreement. Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 15 below, in writing after the Award agreement is issued, if any, if a grantee’s employment (or other service relationship) with the Company and its Subsidiaries terminates for any reason, any Stock Options that have not vested at the time of termination shall automatically and without any requirement of notice to such grantee from or other action by or on behalf of, the Company be deemed to have been reacquired by the Company at its original purchase price from such grantee or such grantee’s legal representative simultaneously with such termination of employment (or other service relationship).
(h) Vesting of Stock Options. The Administrator at the time of grant shall specify the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which the non-transferability of the Stock Options and the Company’s right of repurchase or risk of forfeiture shall lapse. In the event that any such Stock Options granted to employees shall have a performance-based goal, the vesting period with respect to such options shall not be less than one (1) year, and in the event that any such Stock Options granted to employees shall have a time-based restriction, the total vesting period with respect to such options shall not be less than three years; provided, however, that Stock Options granted to employees with a time-based restriction may become vested incrementally over such three-year period. No portion of any Stock Options granted to employees may vest prior to the first anniversary of the grant date. Subsequent to such date or dates and/or the attainment of such pre-established performance goals, objectives and other conditions, the rights on which all restrictions have lapsed shall no longer be restricted and shall be deemed “vested.” Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 15 below, in writing after the Award agreement is issued, a grantee’s rights in any Stock Options that have not vested shall automatically terminate upon the grantee’s termination of employment (or other service relationship) with the Company and its Subsidiaries and such options shall be subject to the provisions of Section 5(g) above.
Notwithstanding the foregoing, the Administrator may accelerate the vesting of Stock Options granted to an employee in the case of retirement, death or disability.
SECTION 6. STOCK APPRECIATION RIGHTS
(a) Nature of Stock Appreciation Rights. A Stock Appreciation Right is an Award entitling the recipient to receive shares of Stock having a value equal to the excess of the Fair Market Value of the Stock on the date of exercise over the exercise price of the Stock Appreciation Right, which price shall not be less than 100 percent of the Fair Market Value of the Stock on the date of grant (or more than the option exercise price per share, if the Stock Appreciation Right was granted in tandem with a Stock Option) multiplied by the number of shares of Stock with respect to which the Stock Appreciation Right shall have been exercised. No dividends or dividend equivalents shall be paid on Stock Appreciation Rights.
(b) Grant and Exercise of Stock Appreciation Rights. Stock Appreciation Rights may be granted by the Administrator in tandem with, or independently of, any Stock Option granted pursuant to Section 5 of the Plan. In the case of a Stock Appreciation Right granted in tandem with a Non-Qualified Stock Option, such Stock Appreciation Right may be granted either at or after the time of the grant of such Option. In the case of a Stock Appreciation Right granted in tandem with an Incentive Stock Option, such Stock Appreciation Right may be granted only at the time of the grant of the Option.
A Stock Appreciation Right or applicable portion thereof granted in tandem with a Stock Option shall terminate and no longer be exercisable upon the termination or exercise of the related Option.
(c) Terms and Conditions of Stock Appreciation Rights. Stock Appreciation Rights shall be subject to such terms and conditions as shall be determined from time to time by the Administrator, subject to the following:
(i) Stock Appreciation Rights granted in tandem with Options shall be exercisable at such time or times and to the extent that the related Stock Options shall be exercisable; provided, however, that no Stock Appreciation Right may be partially exercised with respect to fewer than fifty (50) shares.
(ii) Upon exercise of a Stock Appreciation Right granted in tandem with an Option, the applicable portion of any related Option shall be surrendered.
(iii) The term of a Stock Appreciation Right may not exceed seven (7) years.
(d) Restrictions. Stock Appreciation Rights may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the Stock Appreciation Rights Award agreement. Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 15 below, in writing after the Award agreement is issued, if any, if a grantee’s employment (or other service relationship) with the Company and its Subsidiaries terminates for any reason, any Stock Appreciation Rights that have not vested at the time of termination shall automatically and without any requirement of notice to such grantee from or other action by or on behalf of, the Company be deemed to have been reacquired by the Company at its original purchase price from such grantee or such grantee’s legal representative simultaneously with such termination of employment (or other service relationship).
(e) Vesting of Stock Appreciation Rights. The Administrator at the time of grant shall specify the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which the non-transferability of the Stock Appreciation Rights and the Company’s right of repurchase or risk of forfeiture shall lapse. In the event that any such Stock Appreciation Rights granted to employees shall have a performance-based goal, the vesting period with respect to such rights shall not be less than one (1) year, and in the event that any such Stock Appreciation Rights granted to employees shall have a time-based restriction, the total vesting period with respect to such rights shall not be less than three years; provided, however, that Stock Appreciation Rights granted to employees with a time-based restriction may become vested incrementally over such three-year period. No portion of any Stock Appreciation Rights granted to employees may vest prior to the first anniversary of the grant date. Subsequent to such date or dates and/or the attainment of such pre-established performance goals, objectives and other conditions, the rights on which all restrictions have lapsed shall no longer be restricted and shall be deemed “vested.” Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 15 below, in writing after the Award agreement is issued, a grantee’s rights in any Stock Appreciation Rights that have not vested shall automatically terminate upon the grantee’s termination of employment (or other service relationship) with the Company and its Subsidiaries and such rights shall be subject to the provisions of Section 6(d) above.
Notwithstanding the foregoing, the Administrator may accelerate the vesting of Stock Appreciation Rights granted to an employee in the case of retirement, death or disability.
SECTION 7. RESTRICTED STOCK AWARDS
(a) Nature of Restricted Stock Awards. A Restricted Stock Award is an Award entitling the recipient to acquire, at such purchase price (which may be zero) as determined by the Administrator, shares of Stock subject to such restrictions and conditions as the Administrator may determine at the time of grant (“Restricted Stock”). Conditions may be based on continuing employment (or other service relationship) and/or achievement of pre-established performance goals and objectives. The grant of a Restricted Stock Award is contingent on the grantee executing the Restricted Stock Award agreement. The terms and conditions of each such agreement shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees.
(b) Rights as a Shareholder. Upon execution of a written instrument setting forth the Restricted Stock Award and payment of any applicable purchase price, a grantee shall have the rights of a shareholder with respect to the voting of the Restricted Stock, subject to such conditions contained in the written instrument evidencing the Restricted Stock Award. Unless the Administrator shall otherwise determine, (i) uncertificated Restricted Stock shall be accompanied by a notation on the records of the Company or the transfer agent to the effect that they are subject to forfeiture until such Restricted Stock are vested as provided in Section 7(d) below, and (ii) certificated Restricted Stock shall remain in the possession of the Company until such Restricted Stock is vested as provided in Section 7(d) below, and the grantee shall be required, as a condition of the grant, to deliver to the Company such instruments of transfer as the Administrator may prescribe. Cash dividends and stock dividends, if any, with respect to the Restricted Stock shall be withheld by the Company for the grantee’s account, and shall be subject to forfeiture to the same degree as the shares of Restricted Stock to which such dividends relate. Except as otherwise determined by the Committee, no interest will accrue or be paid on the amount of any cash dividends withheld.
(c) Restrictions. Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the Restricted Stock Award agreement. Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 15 below, in writing after the Award agreement is issued, if any, if a grantee’s employment (or other service relationship) with the Company and its Subsidiaries terminates for
any reason, any Restricted Stock that has not vested at the time of termination shall automatically and without any requirement of notice to such grantee from or other action by or on behalf of, the Company be deemed to have been reacquired by the Company at its original purchase price from such grantee or such grantee’s legal representative simultaneously with such termination of employment (or other service relationship), and thereafter shall cease to represent any ownership of the Company by the grantee or rights of the grantee as a shareholder. Following such deemed reacquisition of unvested Restricted Stock that are represented by physical certificates, a grantee shall surrender such certificates to the Company upon request without consideration.
(d) Vesting of Restricted Stock. The Administrator at the time of grant shall specify the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which the non-transferability of the Restricted Stock and the Company’s right of repurchase or risk of forfeiture shall lapse. In the event that any such Restricted Stock granted to employees shall have a performance-based goal, the restriction period with respect to such shares shall not be less than one (1) year, and in the event that any such Restricted Stock granted to employees shall have a time-based restriction, the total restriction period with respect to such shares shall not be less than three years; provided, however, that Restricted Stock granted to employees with a time-based restriction may become vested incrementally over such three-year period. No portion of any Restricted Stock granted to employees may vest prior to the first anniversary of the grant date. Subsequent to such date or dates and/or the attainment of such pre-established performance goals, objectives and other conditions, the shares on which all restrictions have lapsed shall no longer be Restricted Stock and shall be deemed “vested.” Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 15 below, in writing after the Award agreement is issued, a grantee’s rights in any shares of Restricted Stock that have not vested shall automatically terminate upon the grantee’s termination of employment (or other service relationship) with the Company and its Subsidiaries and such shares shall be subject to the provisions of Section 7(c) above.
Notwithstanding the foregoing, the Administrator may accelerate the vesting of Restricted Stock granted to an employee in the case of retirement, death or disability.
SECTION 8. DEFERRED STOCK AWARDS
(a) Nature of Deferred Stock Awards. A Deferred Stock Award is an Award of phantom stock units to a grantee, subject to restrictions and conditions as the Administrator may determine at the time of grant. Conditions may be based on continuing employment (or other service relationship) and/or achievement of pre-established performance goals and objectives. The grant of a Deferred Stock Award is contingent on the grantee executing the Deferred Stock Award agreement. The terms and conditions of each such agreement shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees. In the event that any such Deferred Stock Award granted to employees shall have a performance-based goal, the restriction period with respect to such award shall not be less than one (1) year, and in the event any such Deferred Stock Award shall have a time-based restriction, the total restriction period with respect to such award shall not be less than three (3) years; provided, however, that any Deferred Stock Award with a time-based restriction may become vested incrementally over such three (3) year period. No portion of any Deferred Stock Award granted to employees may vest prior to the first anniversary of the grant date. At the end of the deferral period, the Deferred Stock Award, to the extent vested, shall be paid to the grantee in the form of shares of Stock.
Notwithstanding the foregoing, the Administrator may accelerate the vesting of a Deferred Stock Award granted to an employee in the case of retirement, death or disability.
(b) Election to Receive Deferred Stock Awards in Lieu of Compensation. The Administrator may, in its sole discretion, permit a grantee to elect to receive a portion of future cash compensation otherwise due to such grantee in the form of a Deferred Stock Award. Any such election shall be made in writing and shall be delivered to the Company no later than the date specified by the Administrator and in accordance with Section 409A and such other rules and procedures established by the Administrator. The Administrator shall have the sole right to determine whether and under what circumstances to permit such elections and to impose such limitations and other terms and conditions thereon as the Administrator deems appropriate. Any deferred compensation shall be converted to a fixed number of phantom stock units based on the Fair Market Value of Stock on the date the compensation would otherwise have been paid but for the deferral.
(c) Rights as a Shareholder. During the deferral period, a grantee shall have no rights as a shareholder; provided, however, that the grantee may be credited with dividend equivalent rights with respect to the phantom stock units underlying his Deferred Stock Award, subject to such terms and conditions as the Administrator may determine, but shall not be entitled to dividends, if any, or dividend equivalents prior to settlement.
(d) Termination. Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 15 below, in writing after the Award agreement is issued, a grantee’s right in all Deferred Stock Awards that have not vested shall automatically terminate upon the grantee’s termination of employment (or cessation of service relationship) with the Company and its Subsidiaries for any reason.
SECTION 9. PERFORMANCE-BASED AWARDS
(a) Performance Criteria. The performance criteria used in performance goals governing Performance-based Awards may include any or all of the following criteria at the Company, Subsidiary, business unit or business segment level as
appropriate: (i) the Company’s return on equity, assets, capital or investment: (ii) pre-tax or after-tax profit levels or EBITDA or adjusted EBITDA; (iii) bookings or revenue growth; (iv) bookings or revenues; (v) operating income as a percentage of sales; (vi) total shareholder return; (vii) changes in the market price of the Stock; (viii) sales or market share; (ix) earnings per share; (x) improvements in operating margins; (xi) operating cash flow or free cash flow; (xii) working capital improvements; (xiii) design wins or entering into contracts with key customers; and (xiv) any combination of such performance metrics, comparisons of such performance metrics to corresponding metrics used by other companies or comparison of such performance metrics to industry data.
(b) Grant of Performance-based Awards. With respect to each Performance-based Award, the Committee shall select, within the first ninety (90) days of a Performance Cycle the performance criteria for such grant, and the achievement targets with respect to each performance criterion (including a threshold level of performance below which no amount will become payable with respect to such Award). Each Performance-based Award will specify the amount payable, or the formula for determining the amount payable, upon achievement of the various applicable performance targets. The performance criteria established by the Committee may be (but need not be) different for each Performance Cycle and different goals may be applicable to Performance-based Awards to different grantees.
(c) Payment of Performance-based Awards. Following the completion of a Performance Cycle, the Committee shall meet to review and certify in writing whether, and to what extent, the performance criteria for the Performance Cycle have been achieved and, if so, to also calculate and certify in writing the amount of the Performance-based Awards earned for the Performance Cycle. The Committee shall then determine the actual size of each grantee’s Performance-based Award.
SECTION 10. TRANSFERABILITY OF AWARDS
(a) Transferability. Except as provided in Section 10(b) below, during a grantee’s lifetime, his or her Awards shall be exercisable only by the grantee, or by the grantee’s legal representative or guardian in the event of the grantee’s incapacity. No Awards shall be sold, assigned, transferred or otherwise encumbered or disposed of by a grantee other than by will or by the laws of descent and distribution or pursuant to a domestic relations order. No Awards shall be subject, in whole or in part, to attachment, execution, or levy of any kind, and any purported transfer in violation hereof shall be null and void.
(b) Committee Action. Notwithstanding Section 10(a), the Administrator, in its discretion, may provide either in the Award agreement regarding a given Award or by subsequent written approval that the grantee (who is an employee or director) may transfer his or her Awards (other than any Incentive Stock Options) to his or her immediate family members, to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners, provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Award.
(c) Family Member. For purposes of Section 10(b), “family member” shall mean a grantee’s child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the grantee’s household (other than a tenant of the grantee), a trust in which these persons (or the grantee) have more than fifty percent (50%) of the beneficial interest, a foundation in which these persons (or the grantee) control the management of assets, and any other entity in which these persons (or the grantee) own more than fifty percent (50%) of the voting interests.
(d) Designation of Beneficiary. Each grantee to whom an Award has been made under the Plan may designate a beneficiary or beneficiaries to exercise any Award or receive any payment under any Award payable on or after the grantee’s death. Any such designation shall be on a form provided for that purpose by the Administrator and shall not be effective until received by the Administrator. If no beneficiary has been designated by a deceased grantee, or if the designated beneficiaries have predeceased the grantee, the beneficiary shall be the grantee’s estate.
SECTION 11. TAX WITHHOLDING
(a) Payment by Grantee. Each grantee shall, no later than the date as of which the value of an Award or of any Stock or other amounts received thereunder first becomes includable in the gross income of the grantee for federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Administrator regarding payment of, any federal, state, or local taxes of any kind required or permitted by law to be withheld by the Company with respect to such income. The Company and its Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the grantee. The Company’s obligation to deliver evidence of book entry (or stock certificates) to any grantee is subject to and conditioned on tax withholding obligations being satisfied by the grantee.
(b) Payment in Stock. Subject to approval by the Administrator, depending on the withholding method, a grantee may elect to have such grantee’s tax withholding obligation satisfied at the minimum or other applicable withholding rate in the grantee’s applicable jurisdiction, including maximum applicable rates that may be utilized without creating adverse accounting treatment under Financial Accounting Standards Board Accounting Standards Codification Topic 718 (or any successor pronouncement thereto) and permitted under applicable withholding rules promulgated by the Internal Revenue Service or another applicable governmental entity, in whole or in part, by (i) authorizing the Company to withhold from shares of Stock to be issued pursuant to any Award a number of shares with an aggregate Fair Market Value (as of the date the withholding is
effected) that would satisfy such withholding amount, or (ii) transferring to the Company shares of Stock owned by the grantee with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy such withholding amount.
SECTION 12. CHANGE OF CONTROL
(a) Occurrence of Change of Control. If within six monthsfollowing the consummation of a Change of Control of the Company, as defined in Section 12(b)(i), the employment of a grantee with a minimum of six months of service with the Company or any of its Subsidiaries as of the effective date of such Change of Control (the “Effective Date”) is involuntarily terminated, then (i) if such Change of Control does not constitute a Sale Event, 100% of the unvested Awards of such grantee will automatically be fully vested, (ii) if such Change of Control constitutes a Sale Event and provision is made for the assumption or continuation of Awards hereunder, or the substitution of such Awards with new Awards of the successor entity or parent thereof, 100% of the unvested assumed, continued or substituted Awards will automatically be fully vested, and (iii) if such Change of Control constitutes a Sale Event and provision is not made for the assumption, continuation or substitution of Awards hereunder, such that all of the unvested Awards of such grantee terminated upon consummation of the Sale Event without any payment with respect thereto, the grantee will be entitled to receive a cash payment equal to the difference between (x) the Sale Price multiplied by the number of shares of Stock subject to 100% of such grantee’s unvested Awards as of the consummation of the Sale Event and (y) the aggregate exercise price of such unvested Awards. Notwithstanding the foregoing, in the event that the fair market value (less any exercise price) of the Awards subject to automatic vesting or any cash payment to which the grantee may become entitled in accordance with the preceding sentence exceeds $25,000 as of the date of termination of employment, then such vesting or payment shall be conditioned upon the grantee executing and failing to revoke during any applicable revocation period a general release of all claims against the Company and its Subsidiaries and affiliates in a form acceptable to the Company or its successor within 60 days of such termination. For purposes hereof, a grantee’s employment with the Company or any Subsidiary is considered “involuntarily terminated” if the Company or any Subsidiary terminates such grantee’s employment with the Company or such Subsidiary without Cause, as defined in Section 12(b)(ii), or such grantee resigns his or her employment with the Company or such Subsidiary for Good Reason, as defined in Section 12(b)(iii). Notwithstanding the foregoing, in the event the Change of Control of the Company is not approved by the Board of Directors, all of the outstanding Awards will automatically become fully vested upon the consummation of the Change of Control of the Company. Further, all of the outstanding Awards held by Non-Employee Directors will automatically become fully vested upon the consummation of a Change of Control of the Company.
(b) Definitions. For purposes of the Plan:
(i) A “Change of Control of the Company” shall be deemed to have occurred by the Committee, in its sole discretion, upon the occurrence of any of the following events:
(A) Any “Person,” as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than the Company, any of its subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its subsidiaries), together with all “affiliates” and “associates” (as such terms are defined in Rule 12b-2 under the Exchange Act) of such person, shall become the “beneficial owner” (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing thirty percent (30%) or more of the combined voting power of the Company’s then outstanding securities having the right to vote in an election of the Company’s Board of Directors (“Voting Securities”) (in such case other than as a result of an acquisition of securities directly from the Company or an acquisition of securities involving a Corporate Transaction of the type described in the exclusion set forth in clause (C) below); or
(B) Persons who, as of the date hereof, constitute the Company’s Board of Directors (the “Incumbent Directors”) cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board, provided that any person becoming a director of the Company subsequent to the date hereof shall be considered an Incumbent Director if such person’s election was approved by or such person was nominated for election by either (x) a vote of at least a majority of the Incumbent Directors or (y) a vote of at least a majority of the Incumbent Directors who are members of a nominating committee comprised, in the majority, of Incumbent Directors; but provided further, that any such person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Board of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director; or
(C) The consummation of a consolidation, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Corporate Transaction”); excluding, however, a Corporate Transaction in which the shareholders of the Company immediately prior to the Corporate Transaction, would, immediately after the Corporate Transaction, beneficially own (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, shares representing in the aggregate more than fifty percent (50%) of the voting shares of the corporation issuing cash or securities in the Corporate Transaction (or of its ultimate parent corporation, if any).
Notwithstanding the foregoing, (i) a “Change of Control of the Company” shall not be deemed to have occurred for purposes of the foregoing clause (A) solely as the result of an acquisition of securities by the Company that, by reducing the number of shares of Voting Securities outstanding, increases the proportionate number of shares of Voting Securities beneficially owned by any person to thirty percent (30%) or more of the combined voting power of all then
outstanding Voting Securities; provided, however, that if any person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the Company) and immediately thereafter beneficially owns thirty percent (30%) or more of the combined voting power of all then outstanding Voting Securities, then a “Change of Control of the Company” shall be deemed to have occurred for purposes of the foregoing clause (A) and (ii) for any Awards subject to the requirements of Section 409A of the Code that will become payable on a Change of Control of the Company, the transaction constituting a “Change of Control” must also constitute a “change in control event” for purposes of Section 409A(a)(2)(A)(v) of the Code.
(ii) “Cause” shall mean (A) conduct by the grantee constituting a material act of willful misconduct in connection with the performance of his or her duties, including, without limitation, misappropriation of funds or property of the Company or any of its Subsidiaries other than the occasional, customary and de minimis use of the Company or its Subsidiaries’ property for personal purposes; (B) the commission by the grantee of any felony or a misdemeanor involving moral turpitude, deceit, dishonesty or fraud, or any conduct by the grantee that would reasonably be expected to result in material injury to the Company or any of its Subsidiaries; (C) the grantee’s willful and continued failure to perform his or her duties with the Company and its Subsidiaries (other than any failure resulting from incapacity due to physical or mental illness), which continues thirty (30) days after a written demand of performance is delivered to the grantee by any Senior Vice President or Vice President of the Company, which identifies the manner in which such person believes that the grantee has not performed his or her duties; (D) a violation by the grantee of the employment policies of the Company and its Subsidiaries which has continued following written notice of such violation from any Senior Vice President or Vice President of the Company; or (E) the grantee’s willful failure to cooperate with a bona fide internal investigation or an investigation by regulatory or law enforcement authorities, after being instructed by the Company or any of its Subsidiaries to cooperate, or the willful destruction or failure to preserve documents or other materials known to be relevant to such investigation or the willful inducement of others to fail to cooperate or to produce documents or other materials.
(iii) “Good Reason ” shall mean (A) a reduction in the grantee’s annual cash base salary as in effect on the Effective Date, except for across-the-board reductions similarly affecting all or substantially all Company employees; or (B) a relocation whereby the Company or any Subsidiary requires the grantee to be principally based at any office or location that is more than fifty (50) miles from the grantee’s office on the Effective Date; provided that the reasons set forth above will not constitute “Good Reason” unless, within thirty (30) days after the first occurrence of such Good Reason event, the grantee shall have given written notice to the Company specifically identifying the event that the grantee believes constitutes Good Reason and the Company, or, if applicable, its Subsidiary, has not remedied such event within a reasonable cure period of not less than thirty (30) days after the Company’s receipt of such notice.
SECTION 13. Additional Conditions Applicable to Nonqualified Deferred Compensation Under Section 409A.
In the event any Stock Option or Stock Appreciation Right under the Plan is granted with an exercise price of less than one hundred percent (100%) of the Fair Market Value on the date of grant (regardless of whether or not such exercise price is intentionally or unintentionally priced at less than Fair Market Value), or such grant is materially modified and deemed a new grant at a time when the Fair Market Value exceeds the exercise price, or any other Award is otherwise determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A of the Code (a “409A Award”), the following additional conditions shall apply and shall supersede any contrary provisions of this Plan or the terms of any agreement relating to such 409A Award.
(a) Exercise and Distribution. Except as provided in Section 13(b) hereof, no 409A Award shall be exercisable or distributable earlier than upon one of the following:
(i) Specified Time. A specified time or a fixed schedule set forth in the written instrument evidencing the 409A Award.
(ii) Separation from Service. Separation from service (within the meaning of Section 409A) by the 409A Award grantee; provided, however, that if the 409A Award grantee is a “key employee” (as defined in Section 416(i) of the Code without regard to paragraph (5) thereof) and any of the Company’s Stock is publicly traded on an established securities market or otherwise, exercise or distribution under this Section 13(a)(ii) may not be made before the date that is six months after the date of separation from service.
(iii) Death. The date of death of the 409A Award grantee.
(iv) Disability. The date the 409A Award grantee becomes disabled (within the meaning of Section 13(c)(ii) hereof).
(v) Unforeseeable Emergency. The occurrence of an unforeseeable emergency (within the meaning of Section 13(c)(iii) hereof), but only if the net value (after payment of the exercise price) of the number of shares of Stock that become issuable does not exceed the amounts necessary to satisfy such emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the exercise, after taking into account the extent to which the emergency is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the grantee’s other assets (to the extent such liquidation would not itself cause severe financial hardship).
(vi) Change of Control Event. The occurrence of a Change of Control Event (within the meaning of Section 13(c)(i) hereof), including the Company’s discretionary exercise of the right to accelerate vesting of such grant upon a Change of Control Event or to terminate the Plan or any 409A Award granted hereunder within twelve (12) months of the Change of Control Event.
(b) No Acceleration. A 409A Award may not be accelerated or exercised prior to the time specified in Section 13(a) hereof, except in the case of one (1) of the following events:
(i) Domestic Relations Order. The 409A Award may permit the acceleration of the exercise or distribution time or schedule to an individual other than the grantee as may be necessary to comply with the terms of a domestic relations order (as defined in Section 414(p)(1)(B) of the Code).
(ii) Conflicts of Interest. The 409A Award may permit the acceleration of the exercise or distribution time or schedule as may be necessary to comply with the terms of a certificate of divestiture (as defined in Section 1043(b)(2) of the Code).
(iii) Change of Control Event. The Administrator may exercise the discretionary right to accelerate the vesting of such 409A Award upon a Change of Control Event or to terminate the Plan or any 409A Award granted thereunder within twelve (12) months of the Change of Control Event and cancel the 409A Award for compensation.
(c) Definitions. Solely for purposes of this Section 13 and not for other purposes of the Plan, the following terms shall be defined as set forth below:
(i) “Change of Control Event” means the occurrence of a change in the ownership of the Company, a change in effective control of the Company, or a change in the ownership of a substantial portion of the assets of the Company (as defined in regulations promulgated under Section 409A).
(ii) “Disabled” means a grantee who (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 (twelve) months, or (ii) is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) (twelve) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Company or its Subsidiaries.
(iii) “Unforeseeable Emergency” means a severe financial hardship to the grantee resulting from an illness or accident of the grantee, the grantee’s spouse, or a dependent (as defined in Section 152(a) of the Code) of the grantee, loss of the grantee’s property due to casualty, or similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the grantee.
SECTION 14. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a termination of employment:
(a) A transfer to the employment of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another; or
(b) An approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the employee’s right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Administrator otherwise so provides in writing.
SECTION 15. AMENDMENTS AND TERMINATION
a.Amendments in General. The Board may, at any time, amend or discontinue the Plan and the Administrator may, at any time, amend or cancel any outstanding Award for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding Award without the holder’s consent. Except as provided in Section 3(c) or 3(d), in no event may the Administrator exercise its discretion to reduce the exercise price of outstanding Stock Options or Stock Appreciation Rights, effect repricing through cancellation and re-grants, or repurchase out-of-the-money Stock Options or Stock Appreciation Rights for cash, unless the Administrator proposes for shareholder vote, and shareholders approve, such reduction, cancellation and re-grant, repricing, or repurchase. Any material Plan amendments (other than amendments that curtail the scope of the Plan), including any Plan amendments that (i) increase the number of shares reserved for issuance under the Plan, (ii) expand the type of Awards available under, materially expand the eligibility to participate in, or materially extend the term of, the Plan, or (iii) materially change the method of determining Fair Market Value, shall be subject to approval by the Company shareholders entitled to vote at a meeting of shareholders. In addition, to the extent determined by the Administrator to be required by the Code to ensure that Incentive Stock Options granted under the Plan are qualified under Section 422 of the Code or to ensure that compensation earned under Awards qualifies as performance-based compensation under Section 162(m) of the Code, Plan amendments shall be subject to approval by the Company shareholders entitled to
vote at a meeting of shareholders. Nothing in this Section 15 shall limit the Administrator’s authority to take any action permitted pursuant to Section 3(c) or 3(d).
a.No Repricing of Awards Without Stockholder Approval. Notwithstanding any other provision of the Plan, the repricing of Awards shall not be permitted without stockholder approval. For this purpose, a “repricing” means any of the following (or any other action that has the same effect as any of the following): (1) changing the terms of an Award to lower its exercise or base price (other than on account of capital adjustments resulting from share splits, etc., as described herein, (2) any other action that is treated as a repricing under GAAP, and (3) repurchasing for cash or canceling an Award in exchange for another Award at a time when its exercise or base price is greater than the Fair Market Value of the underlying share of Stock, unless the cancellation and exchange occurs in connection with an event set forth in Section 3 hereof.
With respect to the portion of any Award that has not been exercised and any payments in cash, Stock or other consideration not received by a grantee, a grantee shall have no rights greater than those of a general creditor of the Company unless the Administrator shall otherwise expressly determine in connection with any Award or Awards. In its sole discretion, the Administrator may authorize the creation of trusts or other arrangements to meet the Company’s obligations to deliver Stock or make payments with respect to Awards hereunder, provided that the existence of such trusts or other arrangements is consistent with the foregoing sentence.
SECTION 16. GENERAL PROVISIONS
(a) No Distribution; Compliance with Legal Requirements. The Administrator may require each person acquiring Stock pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all applicable securities law and other legal and stock exchange or similar requirements have been satisfied. The Administrator may require the placing of such stop-orders and restrictive legends on certificates for Stock and Awards as it deems appropriate.
(b) Delivery of Stock Certificates. Stock certificates to grantees under this Plan shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have mailed such certificates in the United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company. Uncertificated Stock shall be deemed delivered for all purposes when the Company or a Stock transfer agent of the Company shall have given to the grantee by electronic mail (with proof of receipt) or by United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company, notice of issuance and recorded the issuance in its records (which may include electronic “book entry” records). Stock Certificates or uncertified Stock for any Restricted Stock Award shall be delivered to the Secretary of the Company to be held in escrow until the Award becomes vested.
(c) Other Compensation Arrangements; No Employment Rights. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, including trusts, and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of this Plan and the grant of Awards do not confer upon any employee any right to continued employment with the Company or any Subsidiary.
(d) Trading Policy Restrictions. Option exercises and other Awards under the Plan shall be subject to such Company’s applicable insider trading policy and procedures, as in effect from time to time.
(e) Grantees Outside of the United States. The Committee may modify the terms of any Award under the Plan made to or held by a grantee who is then a resident, or is primarily employed or providing services, outside of the United States in any manner deemed by the Committee to be necessary or appropriate in order that such Award shall conform to laws, regulations, and customs of the country in which the grantee is then a resident or primarily employed or providing services, or so that the value and other benefits of the Award to the grantee, as affected by non–U.S. tax laws and other restrictions applicable as a result of the grantee’s residence, employment, or providing services abroad, shall be comparable to the value of such Award to a grantee who is a resident, or is primarily employed or providing services, in the United States. An Award may be modified under this Section 17(e) in a manner that is inconsistent with the express terms of the Plan, so long as such modifications will not contravene any applicable law or regulation or result in actual liability under Section 16(b) of the Exchange Act for the grantee whose Award is modified. Additionally, the Committee may adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the Plan by Eligible Persons who are non–U.S. nationals or are primarily employed or providing services outside the United States.
(f) Data Privacy. As a condition of receipt of any Award, each grantee explicitly and unambiguously consents to the collection, use, and transfer, in electronic or other form, of personal data as described in this Section 17(f) by and among, as applicable, the Company and its Affiliates for the exclusive purpose of implementing, administering, and managing the Plan and Awards and the grantee’s participation in the Plan. In furtherance of such implementation, administration, and management, the Company and its Affiliates may hold certain personal information about a grantee, including, but not limited to, the grantee’s name, home address, telephone number, date of birth, social security or insurance number or other identification number, salary, nationality, job title(s), information regarding any securities of the Company or any of its Affiliates, and details of all Awards (the “Data”). In addition to transferring the Data amongst themselves as necessary for the
purpose of implementation, administration, and management of the Plan and Awards and the grantee’s participation in the Plan, the Company and its Affiliates may each transfer the Data to any third parties assisting the Company in the implementation, administration, and management of the Plan and Awards and the grantee’s participation in the Plan. Recipients of the Data may be located in the grantee’s country or elsewhere, and the grantee’s country and any given recipient’s country may have different data privacy laws and protections. By accepting an Award, each grantee authorizes such recipients to receive, possess, use, retain, and transfer the Data, in electronic or other form, for the purposes of assisting the Company in the implementation, administration, and management of the Plan and Awards and the grantee’s participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Company or the grantee may elect to deposit any shares of Stock. The Data related to a grantee will be held only as long as is necessary to implement, administer, and manage the Plan and Awards and the grantee’s participation in the Plan. A grantee may, at any time, view the Data held by the Company with respect to such grantee, request additional information about the storage and processing of the Data with respect to such grantee, recommend any necessary corrections to the Data with respect to the grantee, or refuse or withdraw the consents herein in writing, in any case without cost, by contacting his or her local human resources representative. The Company may cancel the grantee’s eligibility to participate in the Plan, and in the Committee’s discretion, the grantee may forfeit any outstanding Awards if the grantee refuses or withdraws the consents described herein. For more information on the consequences of refusal to consent or withdrawal of consent, grantees may contact their local human resources representative.
SECTION 17. EFFECTIVE DATE OF PLAN
This Plan shall become effective upon approval by the holders of a majority of the votes cast at a meeting of shareholders at which a quorum is present. Subject to such approval by the shareholders and to the requirement that no Stock may be issued hereunder prior to such approval, Stock Options and other Awards may be granted hereunder on and after adoption of this Plan by the Board. No grants of Stock Options and other Awards may be made hereunder after July 23, 2028 and no grants of Incentive Stock Options may be made hereunder after the tenth (10th) anniversary of the date the Plan is approved by the Board.
SECTION 18. GOVERNING LAW
This Plan and all Awards and actions taken thereunder shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts, applied without regard to conflict of law principles.
DATE INITIALLY APPROVED BY BOARD OF DIRECTORS: July 23, 2018
DATE INITIALLY APPROVED BY SHAREHOLDERS: October 24, 2018
DATE RESTATEMENT APPROVED BY BOARD OF DIRECTORS: January 22, 2019
DATE RESTATEMENT APPROVED BY BOARD OF DIRECTORS: August 31, 2020
DATE RESTATEMENT APPROVED BY SHAREHOLDERS: October 28, 2020
DATE RESTATEMENT APPROVED BY BOARD OF DIRECTORS: July 28, 2021
DATE RESTATEMENT APPROVED BY BOARD OF DIRECTORS: July 26, 2022
DATE RESTATEMENT APPROVED BY SHAREHOLDERS:
Appendix B
Reconciliation of Non-GAAP Measures to GAAP Measures
The Company defines adjusted EBITDA as income before other non-operating adjustments, interest income and expense, income taxes, depreciation, amortization of intangible assets, restructuring and other charges, impairment of long-lived assets, acquisition, financing and other third party costs, fair value adjustments from purchase accounting, litigation and settlement income and expense, COVID related expenses, and stock-based and other non-cash compensation expense. The adjustments to calculate this non-GAAP financial measure, and the basis for such adjustments, are outlined below:
•Other non-operating adjustments. The Company records other non-operating adjustments such as gains or losses on foreign currency remeasurement, investments and fixed asset sales or disposals among other adjustments. These adjustments may vary from period to period without any direct correlation to underlying operating performance.
•Interest income and expense. The Company receives interest income on investments and incurs interest expense on loans, capital leases and other financing arrangements. These amounts may vary from period to period due to changes in cash and debt balances and interest rates driven by general market conditions or other circumstances outside of the normal course of the Company’s operations.
•Income taxes. The Company’s GAAP tax expense can fluctuate materially from period to period due to tax adjustments that are not directly related to underlying operating performance or to the current period of operations.
•Depreciation. The Company incurs depreciation expense related to capital assets purchased to support the ongoing operations of the business. These assets are recorded at cost or fair value and are depreciated using the straight-line method over the useful life of the asset. Purchases of such assets may vary significantly from period to period and without any direct correlation to underlying operating performance.
•Amortization of intangible assets. The Company incurs amortization of intangible assets primarily as a result of acquired intangible assets such as backlog, customer relationships and completed technologies but also due to licenses, patents and other arrangements. These intangible assets are valued at the time of acquisition or upon receipt of right to use the asset, amortized over the requisite life and generally cannot be changed or influenced by management after acquisition.
•Restructuring and other charges. The Company incurs restructuring and other charges in connection with management’s decisions to undertake certain actions to realign operating expenses through workforce reductions and the closure of certain Company facilities, businesses and product lines. The Company’s adjustments reflected in restructuring and other charges are typically related to acquisitions and organizational redesign programs initiated as part of discrete post-acquisition integration activities. Management believes these items are non-routine and may not be indicative of ongoing operating results.
•Impairment of long-lived assets. The Company incurs impairment charges of long-lived assets based on events that may or may not be within the control of management. Management believes these items are outside the normal operations of the Company’s business and are not indicative of ongoing operating results.
•Acquisition, financing and other third party costs. The Company incurs transaction costs related to acquisition and potential acquisition opportunities, such as legal, accounting, and other third party advisory fees. The Company may also incur third-party costs, such as legal, banking, communications, proxy solicitation, and other third party advisory fees in connection with engagements by activist investors or unsolicited acquisition offers. Although the Company may incur such third-party costs and other related charges and adjustments, it is not indicative that any transaction will be consummated. Additionally, the Company incurs unused revolver and bank fees associated with maintaining its credit facility as well as non-cash financing expenses associated with obtaining its credit facility. Management believes these items are outside the normal operations of the Company’s business and are not indicative of ongoing operating results.
•Fair value adjustments from purchase accounting. As a result of applying purchase accounting rules to acquired assets and liabilities, certain fair value adjustments are recorded in the opening balance sheet of acquired companies. These adjustments are then reflected in the Company’s income statements in periods subsequent to the acquisition. In addition, the impact of any changes to originally recorded contingent consideration amounts are reflected in the income statements in the period of the change. Management believes these items are outside the normal operations of the Company and are not indicative of ongoing operating results.
•Litigation and settlement income and expense. The Company periodically receives income and incurs expenses related to pending claims and litigation and associated legal fees and potential case settlements and/or judgments. Although the Company may incur such costs and other related charges and adjustments, it is not indicative of any
particular outcome until the matter is fully resolved. Management believes these items are outside the normal operations of the Company’s business and are not indicative of ongoing operating results. The Company periodically receives warranty claims from customers and makes warranty claims towards its vendors and supply chain. Management believes the expenses and gains associated with these recurring warranty items are within the normal operations and operating cycle of the Company’s business. Therefore, management deems no adjustments are necessary unless under extraordinary circumstances.
•COVID related expenses. The Company incurred costs associated with the COVID pandemic. These costs relate primarily to enhanced compensation and benefits for employees as well as incremental supplies and services to support social distancing and mitigate the spread of COVID. These costs include expanded sick pay related to COVID, overtime, the Mercury Employee COVID Relief Fund, meals and other compensation-related expenses as well as ongoing testing for onsite employees. Management believes these items are outside the normal operations of the Company and are not indicative of ongoing operating results.
•Stock-based and other non-cash compensation expense. The Company incurs expense related to stock-based compensation included in its GAAP presentation of cost of revenues, selling, general and administrative expense and research and development expense. The Company also incurs non-cash based compensation in the form of pension related expenses. Although stock-based and other non-cash compensation is an expense of the Company and viewed as a form of compensation, these expenses vary in amount from period to period, and are affected by market forces that are difficult to predict and are not within the control of management, such as the market price and volatility of the Company’s shares, risk-free interest rates and the expected term and forfeiture rates of the awards, as well as pension actuarial assumptions. Management believes that exclusion of these expenses allows comparisons of operating results to those of other companies, both public, private or foreign, that disclose non-GAAP financial measures that exclude stock-based compensation and other non-cash compensation.
Below is a reconciliation between adjusted EBITDA and the most comparable GAAP financial metric.measure, net income.
| | | | | | | | |
(in thousands) | | Fiscal 2022 |
Net income (loss) | | $ | 11,275 | |
Other non-operating adjustments, net | | 2,932 | |
Interest expense, net | | 5,663 | |
Income tax provision (benefit) | | 7,120 | |
Depreciation | | 33,150 | |
Amortization of intangible assets | | 60,267 | |
Restructuring and other charges | | 27,445 | |
Impairment of long-lived assets | | — | |
Acquisition, financing and other third party costs | | 13,608 | |
Fair value adjustments from purchase accounting | | (2,009) | |
Litigation and settlement (income) expense, net | | 1,908 | |
COVID related expenses | | 689 | |
Stock-based and other non-cash compensation expense | | 38,459 | |
Adjusted EBITDA | | $ | 200,507 | |
|
| | | |
(in thousands) | Fiscal 2017 |
Net income | $ | 24,875 |
|
Interest expense (income), net | 7,106 |
|
Tax provision (benefit) | 6,193 |
|
Depreciation | 12,589 |
|
Amortization of intangible assets | 19,680 |
|
Restructuring and other charges | 1,952 |
|
Impairment of long-lived assets | — |
|
Acquisition and financing costs | 2,389 |
|
Fair value adjustments from purchase accounting | 3,679 |
|
Litigation and settlement expenses | 117 |
|
Stock-based compensation expense | 15,341 |
|
Adjusted EBITDA | $ | 93,921 |
|