Our executive officers are appointed to office by the Board of Directors at the first board meeting following the 2023 Annual Meeting of Shareholders or at other board meetings as appropriate, and hold office until the first board meeting following the next Annual Meeting of Shareholders and until a successor is chosen, subject to prior death, resignation or removal.
Information regarding our executive officers as of the date of filing of this proxy statement is presented below.
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
LETTER FROM THE HUMAN CAPITAL AND COMPENSATION COMMITTEE
Dear Fellow Shareholders,
The Human Capital and Compensation Committee of Mercury's Board of Directors is committed to aligning our executive compensation programs with our strategy to create long-term shareholder value. We have listened to shareholder feedback and have implemented changes to our executive compensation programs to better align with market practices and shareholder returns. Following low support for our 2022 Say-on-Pay vote, we took decisive action to understand and respond to shareholder feedback. Over the past two years, we added two new Committee members who bring fresh perspectives to our work, including Howard L. Lance, who has been appointed as our new Committee Chair effective on the date of the 2023 Annual Meeting. We are confident that the changes made by the Committee to our executive compensation programs for fiscal 2023 and 2024 address shareholder concerns and support our business objectives.
Deliberate Engagement and Responsiveness to Address Shareholder Concerns
The Committee was disappointed in the outcome of the 2022 Say-on-Pay vote, and we have been focused over the last year on understanding and addressing the underlying concerns and perspectives of our shareholders. In the months leading up to and following the 2022 Say-on-Pay vote, the Committee executed an expanded engagement program designed specifically around executive compensation. We reached out to, and had meetings with, shareholders representing approximately 74% and 56%, respectively, of our outstanding shares during 2022, and 71% and 36%, respectively, of our outstanding shares prior to the filing of this proxy statement. Substantially all of these meetings were led by William K. O’Brien, Chair of the Board, Mary Louise (ML) Krakauer, current Chair of our Committee, and/or Howard L. Lance, incoming Chair of our Committee as discussed above.
Our shareholders are diverse, and we appreciated the candid and constructive feedback we received that reflected their individual perspectives. Following our initial consideration of these views, the Committee developed a set of comprehensive changes in response to the shareholder feedback that was received. In follow-on discussions that we held with shareholders in 2023, we consistently heard that the changes we were contemplating were on-target to address their concerns. We are confident that these changes, which have now been implemented, directly address the feedback we received from shareholders and further set the foundation for strong alignment between pay and performance going forward. The Compensation Discussion and Analysis in this proxy statement details the comprehensive changes we made, and we encourage you to review the alignment between the feedback we received and the actions we have taken. We will continue to engage with our shareholders on an ongoing basis and consider feedback when making future decisions about our executive compensation programs.
Committee Refreshment
The Committee firmly believes in the importance of ongoing rotation that brings in fresh perspectives while ensuring that we have directors who have the expertise to provide strong oversight of all aspects of our executive compensation programs. To that end, we are pleased to share that the Committee has added two new directors over the past two years who bring differentiated expertise, backgrounds, and perspectives to our oversight role – Howard L. Lance, who previously served as President and Chief Executive SummaryOfficer of Maxar Technologies, Inc. and Harris Corporation, and Scott Ostfeld, who brings an investor perspective as Managing Partner and Portfolio Manager at JANA Partners. We also wish to thank our Committee Chair, Mary Louise (ML) Krakauer, for her leadership and service on the Committee since 2017. Ms. Krakauer will be retiring from the Board and the Committee on the date of the 2023 Annual Meeting and will be succeeded by Mr. Lance as Committee Chair at that time.
Fiscal 2017 Business ReviewThe Committee considers our executive compensation programs to be a key lever to drive our strategic and financial success, and we welcome continued dialogue with our shareholders regarding Mercury's compensation programs. We appreciate your support and investment in Mercury.
The Human Capital and Compensation Committee
Fiscal 2017 was another outstanding yearMary Louise (ML) Krakauer, Committee Chair
Howard L. Lance, Committee Chair-Elect
Orlando P. Carvalho
Lisa S. Disbrow
Scott Ostfeld
Debora A. Plunkett
EXECUTIVE SUMMARY
This Compensation Discussion and Analysis describes our executive compensation program for Mercury Systems. Forour 2023 fiscal year. This section details the fullcompensation framework applied by the Human Capital and Compensation Committee of our Board of Directors (the "Committee") in determining the pay levels and programs available to our named executive officers for whom compensation is disclosed in the compensation tables included in the Tabular Executive Compensation Disclosure section of this proxy statement beginning on page 68. The named executive officers for our 2023 fiscal year total revenueare:
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Name | | Position |
William L. Ballhaus(1) | | President and Chief Executive Officer |
Michelle M. McCarthy(2) | | Senior Vice President, Chief Accounting Officer and Former Interim Chief Financial Officer and Treasurer |
Christine F. Harbison(3) | | Executive Vice President and Chief Growth Officer |
James M. Stevison(4) | | Executive Vice President and President of Mission Systems |
Charles R. Wells, IV | | Executive Vice President and President of Microelectronics |
Mark Aslett(5) | | Former President and Chief Executive Officer |
Michael D. Ruppert(6) | | Former Executive Vice President, Chief Financial Officer, and Treasurer |
(1)Mr. Ballhaus was appointed as our Interim President and Chief Executive Officer on June 24, 2023. Following the completion of a record $409 million,formal search process, he was named as our President and grew 51% year-over-year. Net income for fiscal 2017Chief Executive Officer effective August 15, 2023.
(2)Ms. McCarthy was $24.9 million, or $0.58 per share. Adjusted EBITDA wasappointed as our Interim Chief Financial Officer and Treasurer effective February 18, 2023 and served in this capacity through July 16, 2023. She also a record at $93.9 million, up 64% year-over-year,retained her prior title and at 23% of revenue was well withinresponsibilities as our Chief Accounting Officer during and after this period. On July 17, 2023, we appointed David E. Farnsworth as our new target financial model of 22-26%. FromChief Financial Officer and Treasurer, who will appear as a valuation perspective,named executive officer in our market capitalization increased 103% year-over-year to over $2 billion. Our enterprise value, post the retirementproxy statement for our 2024 Annual Meeting.
(3)Ms. Harbison joined Mercury on March 6, 2023.
(4)Mr. Stevison served as our Chief Growth Officer until October 31, 2022, when he was named as President of our term loan, ended at $1.98 billion, which represents an increaseMission Systems division.
(5)Mr. Aslett served as our President and Chief Executive Officer until his resignation effective June 24, 2023. For a further discussion, see "—Resignations of 118% versusNamed Executive Officers During Fiscal 2023" on page 63.
(6)Mr. Ruppert served as our Chief Financial Officer and Treasurer until his resignation effective February 17, 2023. For a further discussion, see "—Resignations of Named Executive Officers During Fiscal 2023" on page 63.
Shareholder Engagement and 2022 Advisory "Say-on-Pay" Vote on Executive Compensation
At our 2022 Annual Meeting of Shareholders, our Say-on-Pay proposal received the endsupport of last fiscal year. Absent the revenue associated with the acquisitions20% of the Microsemi carve-out business, CESvotes cast. In response to this disappointing outcome, we have been focused on understanding and Delta Microwave, organic revenues for fiscal year 2017 increased $24.2 million, addressing the underlying concerns and perspectives of our shareholders. We assembled an expanded engagement team, with substantially all of our meetings with shareholders led by William K. O’Brien, Chair of the Board, Mary Louise (ML) Krakauer, current Chair of our Committee, and/or approximately 10%, after excludingHoward L. Lance, a member of the same elementsCommittee who has been appointed as Committee Chair effective upon Ms. Krakauer’s previously announced retirement from the priorBoard and the Committee as of the date of the 2023 Annual Meeting of Shareholders.
In the months leading up to the 2022 Say-on-Pay vote, we reached out to our 20 largest investors and had meetings with 11 of them, representing approximately 74% and 56% of our outstanding shares, respectively. Through these engagements, we heard that the primary concern leading shareholders to vote against our 2022 Say-on-Pay proposal was the grant of special long-term incentive (“LTI”) awards in fiscal year. In addition,2022 under an Equity Retention Plan (the “ERP”) to critical business leaders across our enterprise, including our former Chief Executive Officer (our “CEO”) and our other named executive officers.
Following the 2022 Annual Meeting, we retiredcontinued our term loan and amended our existing revolving credit facility, increasing itextensive engagement with shareholders to a $400 million, 5-year credit facilitydiscuss potential actions to support our ongoing growth through organic investment and future acquisitions.
We completedrespond to the acquisitions of CES in November 2016, Delta Microwave in April 2017, and Richland Technologies in July 2017,feedback we received regarding the special LTI awards, as well as numerous integration activities relatedother matters relating to our acquisition inexecutive compensation program generally. As part of this outreach, we invited 19 shareholders to engage with us and held meetings with 6 of them, representing approximately 71% and 36% of our outstanding shares, respectively.
Throughout the prior fiscal yearlast fourteen months, we had discussions with shareholders representing more than 62% of our outstanding shares as we solicited feedback to develop and refine potential compensation program changes. During the Microsemi carve-out business,course of this engagement, our shareholders advised us that they were pleased with our commitments regarding future special awards, with the largest acquisitionchanges already reflected in our history. During fiscal 2017,2023 program design and with the opportunity to provide input on proposed program changes for fiscal 2024 prior to adoption. They were broadly supportive of our prior and pending actions, which they viewed as a comprehensive response to the concerns they had previously shared.
The table below summarizes the feedback 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% of 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 halfheard from shareholders and the second half of the fiscal year. We used two semi-annual performance periods with two different performance targets in orderactions we took to alignenhance our cash incentive programcompensation programs, respond to shareholder concerns and ensure that our programs are aligned with our strategic operating plan ("SOP") reviewpriorities and midyear SOP update. We determinedshareholder expectations going forward.
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What We Heard Concerns Identified Through Shareholder Engagement |
How we Responded to Shareholder Feedback Evolution of our Programs for Fiscal 2023 and Fiscal 2024 |
Special LTI Awards
•Scope and magnitude of ERP awards made in fiscal year 2022, and in particular, the participation of our former CEO and other named executive officers.
•Concerns about potential issuance of additional special awards to the ERP program participants prior to the completion of the vesting cycle under the ERP awards. | •Consistent with our prior commitment, we did not grant any LTI awards during fiscal 2023 to our former CEO or any other named executive officer for 2022. •The Committee confirms that it will not grant special awards to our 2022 executive officers with outstanding ERP awards absent a promotion or other extraordinary circumstance. |
Annual Incentive Plan ("AIP")
•Narrow categories of performance captured in measures.
•Use of semi-annual performance periods, with second-half targets established mid-year. | Beginning with the AIP for fiscal 2023: •We expanded the performance measures under the AIP by adding revenue (25%) and adjusted free cash flow (25%) to the legacy adjusted EBITDA (50%) measure. •We adopted a full one-year performance period based on performance targets set at the start of the fiscal year, which replaced our prior practice of using two semi-annual performance periods. |
Long-Term Incentive Plan
•Preference for greater allocation of equity incentives to performance-based awards.
•Use of performance measures that could reward M&A activities regardless of value creation.
•Rigor of relative performance targets and appropriateness of using our compensation peer group to assess relative performance achievements.
•Magnitude of maximum incentive opportunity. | Beginning with annual LTI awards for fiscal 2024: •We increased the allocation of our annual LTI granted in the form of performance awards from 50% to 60% for our CEO, and to 55% for all other executive officers. •Performance awards use absolute financial performance measures instead of relative measures for greater alignment with internal forecasts and better line-of-sight for recipients. •Performance awards use Organic Revenue instead of Total Revenue to more effectively drive intended value-creation behaviors. •Performance awards are subject to a modifier based on relative total shareholder return ("TSR") to align payouts with shareholder outcomes. •Relative TSR performance is assessed against the Spade Defense Index components instead of our compensation peer group to promote relative performance against a broader industry index that is more representative of comparable investment opportunities available to our shareholders. •Maximum payouts under our performance awards have been reduced from 300% to 200% of target shares, subject to a modifier based on relative TSR of up to ±25% of target shares. |
Compensation Benchmarking
•Use of compensation peer groups that are misaligned with current Company size. | Beginning with benchmarking of executive pay levels for fiscal 2024: •Eliminated multiple peer groups intended to reflect future Company growth in favor of a new peer group with median revenues aligned with the Company's current size. |
Company Background
Mercury is a technology company that delivers processing power for the potential total sizemost demanding aerospace and defense missions. 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.
2023 Financial Performance
•Our bookings increased by 1.9% from $1.06 billion in fiscal 2022 to $1.08 billion in fiscal 2023. Our book-to-bill ratio increased from 1.08x in fiscal 2022 to 1.10x in fiscal 2023.
•Our total backlog at year end increased by 9.8% from $1,037.7 million for fiscal 2022 to $1,139.8 million for fiscal 2023.
•Our fiscal 2023 revenues declined by 1.4% to $973.9 million, compared to $988.2 million for fiscal 2022. Our fiscal 2023 results included organic revenue, a non-GAAP financial measure, of $948.8 million, a decrease of 3.4% from fiscal 2022 organic revenue of $982.2 million. The organic revenue results discussed in this paragraph are subject to the adjustments set forth in "Appendix B: Reconciliation of Non-GAAP Measures to GAAP Measures."
•Our net loss was $28.3 million for fiscal 2023, compared to net income of $11.3 million for fiscal 2022. Our adjusted EBITDA, a non-GAAP financial measure, declined from $200.5 million for fiscal 2022 to $132.3 million for fiscal 2023, which includes adverse impacts of $56.3 million in fiscal 2023 from approximately 20 challenged programs. 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."
•Our cash flows used in operating activities were $(21.3) million, compared to $(18.9) million in fiscal 2022. Our free cash flow, a non-GAAP financial measure defined as cash flows from operating activities less capital expenditures from property and equipment, was $(60.1) million for fiscal 2023 and $(46.5) million for fiscal 2022. The free cash flow results discussed in this paragraph are subject to the adjustments set forth in "Appendix B: Reconciliation of Non-GAAP Measures to GAAP Measures."
2023 Compensation Program Highlights
Our compensation philosophy 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 55 and as otherwise appropriate. The majority of each executive's target pay is in the form of incentive compensation that is subject to achieving pre-set performance goals to have any realized value. See the information in "– Mix of Pay" on page 54.
Consistent with our prior commitment, we did not grant LTI awards during fiscal 2023 to any of our executive officers for fiscal 2022. As detailed in our 2022 proxy statement, a portion of the ERP awards granted in fiscal 2022 represents the value of annual cash incentive bonusesLTI awards that would have ordinarily been granted at the beginning of 2023 as compensation for the 2023 fiscal yearyear. Accordingly, we committed in our 2022 proxy statement that we would not grant any LTI awards during fiscal 2023 to our former CEO or any of our other named executive officers for 2022, all of whom received ERP awards. Consistent with this commitment, none of our executive officers from 2022, including those who continued to serve as well as setnamed executive officers during 2023 (Messrs. Stevison, Wells, Aslett and Ruppert), received grants of LTI awards during fiscal 2023. The compensation reported for fiscal 2023 for these executives in the first half financialSummary Compensation Table on page 68 is limited to base salary, annual incentive award payouts and customary benefit payments.
No target pay increases for fiscal 2023 to any of our executive officers in fiscal 2022. The Committee did not award any base salary increases for fiscal 2023 to any of our executive officers from 2022 (including Messrs. Stevison, Wells, Aslett and Ruppert), nor did it increase their 2023 target bonuses or (as described above) grant them any LTI awards during 2023.
2023 Annual Incentive Plan paid out significantly below target. With respect to our AIP, our performance for fiscal 2023 fell below threshold requirements for adjusted EBITDA and adjusted free cash flow measures that represented 75% of the value of target bonuses, and then setabove threshold but below our plan targets for the second half and full year performanceremaining 25% of target in connection with our midyear SOP update. Potential over-achievement awards werebonuses based on exceeding the sum of the two half-year corporate financial performance objectives. Our executive officers earnedrevenue performance. Accordingly, aggregate plan 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 forto our named executive officers was 50% performance-based vestingfor fiscal 2023 represented only 18.8% of their respective target bonuses. For a further discussion, see “– Elements of Fiscal 2023 Target Pay – Annual Incentives” beginning on page 59.
No payouts under long-term performance program. We did not make any payouts to our named executive officers under long-term performance awards with performance periods ending in fiscal 2023. None of our named executive officers previously received grants of long-term performance awards for these performance periods other than Messrs. Aslett and 50% time-basedRuppert, who forfeited their awards in connection with their resignation prior to vesting. For
2023 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 LTI awards (collectively, "target pay") for fiscal 2023. We use target pay as the time-based vesting halfbasis for benchmarking our named executive officers’ annual compensation and for allocating compensation among different pay elements.
As noted above, a portion of the ERP awards granted in fiscal 20172022 were made in lieu of annual LTI awards one-third veststhat would have ordinarily been granted at the beginning of fiscal 2023 as compensation for the 2023 fiscal year. The value of these “accelerated” awards are reflected in this Compensation, Discussion and Analysis as part of each named executive officer’s 2023 target pay in order to match these awards with the 2023 fiscal year to which they relate. In contrast, the Summary Compensation Table on each of the first three anniversaries of the grant date. In fiscal 2017, we transitioned to the use of longer term relative performance metrics for our performance restricted stockpage 68 reports these accelerated awards as we believepart of each named executive officer’s compensation for fiscal 2022, in accordance with SEC rules 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 the fiscal 2017 annualrequire such 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 valuebe reported as compensation for the fiscal 2017year in which they are granted.
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Target Pay for Fiscal 2023(1) | |
| Salary(2) | | Target Bonus as % of Salary(2) | | Annual LTI Awards (including accelerated 2023 awards granted in 2022)(3) | Target Pay |
Current Employees: | | | | | | |
William L. Ballhaus(4) | $ — | — | % | | $ — | $ — |
Michelle M. McCarthy(5) | 340,000 | | 50% | | 215,000 | 725,000 |
Christine F. Harbison(6) | 415,000 | | 100% | | 800,000 | 1,630,000 |
James M. Stevison | 425,000 | | 100% | | 796,000 | 1,646,000 |
Charles R. Wells, IV | 415,000 | | 100% | | 830,000 | 1,660,000 |
Former Employees: | | | | | | |
Mark Aslett(7) | 800,060 | | 150% | | 4,300,000 | 6,300,150 |
Michael D. Ruppert(7) | 446,351 | | 110% | | 1,430,000 | 2,367,337 |
(1)This table is intended to reflect each executive's ordinary compensation for fiscal 2023. Accordingly, for Ms. McCarthy, the table excludes awards that were made to her in December of 2022 in connection with her promotion to Senior Vice President, and in February and July of 2023 in recognition of her additional responsibilities as our Interim Chief Financial Officer and Treasurer during fiscal 2023. For a further discussion, see "—Recognition Awards for Michelle McCarthy" on page 63. In the case of Ms. Harbison, this table excludes the value of "new-hire" LTI awards that were granted in connection with the commencement of her employment in March 2023 because they were intended, in part, to restore compensation forfeited to a prior employer in connection with her departure to join Mercury. Instead, the table includes the annual restricted stockvalue established by the Committee and set forth in Ms. Harbison's offer letter as the basis for her future LTI awards wasbeginning in fiscal 2024. For a further discussion, see "—Offer Letter with Christine Harbison" on page 63.
(2)Represents each executive's annual base salary rate and target bonus as a percentage of salary at the medianbeginning of a market composite, with upside potential if we outperformedfiscal 2023 or at such later time during fiscal 2023 at which they became an executive officer.
(3)Other than for Mr. Ballhaus and Ms. Harbison as described below in Note 4 and above in Note 1, respectively, the LTI awards granted to our peer groupnamed executive officers for fiscal 2023 were granted on the relative performance metrics discussed above. Historically (prior to fiscal 2017), we reliedan accelerated basis on short term, absolute performance metrics based on our internal performance targets to determine vestingFebruary 15, 2022, six months earlier than normal, as part of our performance2022 equity retention plan to promote the continuity of our critical talent during a period of heightened industry and labor market challenges. For a further discussion, see "—Long-Term Incentives – Long-Term Incentives Awarded for Fiscal 2023."
(4)Mr. Ballhaus was appointed as our Interim President and CEO at the end of fiscal 2023, on June 24, 2023. Prior to that time during fiscal 2023, he served as a non-employee member of our Board of Directors. No target pay is disclosed for Mr. Ballhaus because the Committee did not award him any compensation for his service as Interim President and CEO for his seven days of service in fiscal 2023. Mercury later entered into an employment agreement with him as of August 15, 2023 that established his compensation as an executive officer as of the start of fiscal 2024, on July 1, 2023. For a further discussion, see "Summary of Compensation Actions for Fiscal 2024" on page 64.
(5)Ms. McCarthy became an executive officer effective February 18, 2023 by virtue of her appointment at that time as our Interim Chief Financial Officer and Treasurer. For a further discussion, see "—Recognition Awards for Michelle McCarthy" on page 63.
(6)Ms. Harbison became an executive officer on March 6, 2023 in connection with the commencement of her employment as our Executive Vice President, Chief Growth Officer. For a further discussion, see "—Offer Letter with Christine Harbison" on page 63.
(7)Messrs. Aslett and Ruppert served as executive officers until their resignations effective June 24, 2023 and February 17, 2023, respectively. For a further discussion, see "—Resignations of Named Executive Officers During Fiscal 2023" on page 63.
2024 Compensation Program Changes
To further align our LTI programs with our long-term growth strategy and in response to investor feedback received through our comprehensive shareholder engagement process, the Committee adopted a new LTI plan design for fiscal 2024 that places a greater emphasis on performance-based awards with no upside potential if we exceedednew performance measures and payout opportunities that are designed to more effectively drive intended value-creation behaviors and better reflect shareholder expectations and outcomes. For a further discussion, see "—Summary of Compensation Actions for Fiscal 2024" on page 64.
SOUND PAY PRACTICES
The Committee believes that Mercury's executive compensation program reinforces our performance targets.pay-for-performance culture and includes corporate governance practices that are considered by investors to promote strong alignment with, and appropriate protections of, their interests. Following our disappointing 2022 Say-on-Pay vote, the Committee engaged a new independent advisor, Meridian Compensation Partners, to provide a fresh perspective in connection with the Committee's reassessment of our executive compensation philosophy, design and practices, and to recommend improvements to strengthen the alignment of our program with shareholder expectations.
ForThe table below highlights key features of our executive compensation program, with recent changes or enhancements appearing in italics.
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Executive Compensation Program Features |
Executive Compensation Program Includes |
•Transparent, formulaic incentive plans designed to promote short- and long-term business success based on expanded measures tied to our strategic priorities and better aligned with investor outcomes •Limits on maximum payouts under incentive plans •Stronger emphasis on long-term, performance-based compensation •Limited perquisites consistent with competitive practices •Enhanced stock ownership guidelines that align executive and shareholder interests •New clawback policy that provides for recoupment of performance-based compensation and time-based LTI awards in connection with restatements of financial results that reduce previously earned payouts, regardless of individual culpability, in compliance with Nasdaq’s new rules •New tally-sheet reviews that provide the Committee with a better understanding of named executive officers’ current and accumulated compensation and benefits •Double trigger provisions for accelerated equity vesting and cash severance payable in connection with a change in control |
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 for fiscal 2017, we also granted a special acquisition integration incentive restricted stock award2023. Detailed descriptions of each element of compensation and discussion of how the Committee determined compensation levels for fiscal 2023 can be found in the section "— Elements of Fiscal 2023 Target Pay" beginning of page 58.
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2023 Compensation Program Design |
Plan | Annual Pay Element | Performance Period | Performance Measures | Payout Range (vs. Target) | Fiscal 2023/2024 Highlights |
— | Base Salary | — | — | — | Fiscal 2023: •No base salary increases for continuing executive officers from 2022 (including Messrs. Stevison, Wells, Aslett, and Ruppert) |
Annual Incentive Plan | Cash Bonus | Annual | Adjusted EBITDA (50%) | 0% to 150% | Fiscal 2023: •Diversified performance measurement by adding revenue and adjusted free cash flow to our adjusted EBITDA measure
•Eliminated semi-annual performance periods and target setting in favor of one annual performance period with pre-established targets
Fiscal 2024: •Tailored relative weightings of performance measures to reflect our strategic priorities for 2024, in particular our near-term emphasis on stronger free cash flow generation, with 2024 payouts based 50%, 35%, and 15% on adjusted EBITDA, adjusted free cash flow and revenue performance, respectively |
Revenue (25%) |
Adjusted Free Cash Flow (25%) |
Long-Term Incentive Plan | Restricted Stock Awards (50%) | Three Years with Annual Vesting | — | — | Fiscal 2024: •Increased the allocation of annual LTI granted in the form of performance awards from 50% to 60% for the CEO and 55% for all other executive officers
•Modified principal performance measures (absolute instead of relative measures, organic revenue instead of total revenue) to more effectively drive value-creation behaviors
•Added a relative TSR modifier, with performance measured against Spade Defense Index component companies, to align payouts with investor outcomes
•Reduced maximum payout opportunities under performance awards to reflect market norms and shareholder expectations (payouts capped at 200% of target shares, subject to a relative TSR modifier of up to ±25% of target shares) |
Performance Stock Awards (50%) | Three Years with Cliff Vesting | Relative EBITDA Margin (50%) | 0% to 300% |
Relative Total Revenue Growth (50%) |
DETERMINING EXECUTIVE COMPENSATION
Role of the Human Capital and Compensation Committee
Our executive compensation program is administered by the Committee. The Committee is primarily responsible for the review and approval of compensation for all of our executive officers. Compensation 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
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 maintain a significant portion of an executive’s total compensation at risk tied to our annual and long-term financial performance.
Our objective is to implement strategies for delivering compensation that are well structured, are competitive with the technology and defense industries, apply pay-for-performance principles, are appropriately aligned with our financial goals, and are aligned with our shareholders’ objectives.
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 for our executive compensation philosophy and the overall design of our executive compensation programs. The Compensation Committee is primarily responsible for setting executive compensation, which in the case of our CEO, isfurther 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 20.
The compensationRole of our executive officers is reviewedManagement and approved by the CompensationChief Executive Officer
Our human resources, finance and legal departments assist the Committee (with ratification of the CEO’s compensation by a majority of the independent directors on the Board). The Compensation Committee analyzes all elements of compensation separately and in the aggregate. In additiondesign and development of competitive compensation programs by providing data and analyses to evaluating our executives’ contributionthe Committee and performance in light of corporate financial performance objectives, we also base our compensation decisions on market considerations. The Compensation 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 anits independent compensation consultant. Radford assists the Compensation Committeeconsultant in among other things, applyingorder to ensure that our compensation philosophy for our executive officersprograms 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, bothincentives align with and without members of management present,support our business strategy. Management also recommends incentive plan metrics, performance targets, and interact with members ofother plan objectives to be achieved, based on our human resources department with respectexpected performance and subject to its assessment of the compensation for our executive officers. In addition, Radford may assist management in analyzing the compensation of our non-executive employees. For fiscal 2017, Radford’s services included providing compensation survey data 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, 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 consultant to provide market compensation data.Committee approval.
In connection with its benchmarking efforts,setting target compensation for fiscal 2023, our former CEO reviewed the performance of our other executive officers and submitted recommendations to the Committee for proposed target pay adjustments, but had no role in determining his own compensation. Our former CEO also submitted pay recommendations for executive officer candidates for hire. No other executive officer participated in the setting of his or her own compensation and, except as described above, no executive officer other than our former CEO participated in the setting of the compensation of any other executive officer during fiscal 2023.
Role of the Compensation Consultant
The Committee useshas 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.
During fiscal 2023, the Committee retained Mercerto provide information, analysis, and advice regarding executive compensation decisions through December 2022 and incurred $204,332 in expenditures for such services. In addition to its work for the Committee, Mercer assisted management by providing other services that are unrelated to the work performed for the Committee. During fiscal 2023, we incurred $108,967 with Mercer for the performance of these unrelated services, including a comprehensive study on our broad-based compensation levels and practices and support on long-term incentive valuations.
Following our disappointing 2022 Say-on-Pay vote, the Committee initiated a formal process to consider whether to retain a new independent advisor to provide a fresh perspective on executive compensation matters. Upon the conclusion of this review in December 2022, the Committee engaged Meridian Compensation Partners as its new compensation consultant effective January 2023. Meridian advises the Committee on executive and non-employee director compensation generally, and performs no other services for management.
In the course of conducting its activities for the Committee during fiscal 2023, representatives of Meridian attended meetings of the Committee and presented findings and recommendations to the Committee for discussion. Representatives of Meridian also met with management to obtain and validate data includedand review materials. Beyond providing advice and recommendations on the amount and form of executive and director compensation, Meridian provided no additional services to either the Committee or management during fiscal 2023.
MIX OF PAY
The Committee believes that Mercury's pay mix strongly supports the Company's pay-for-performance culture. For fiscal 2023, 87% of our former CEO's target pay was in the Radford Global Technology Surveyform of variable pay that was 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 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 also specificshareholder interests over time.
(1)For a further discussion of the amounts underlying our named executive officers' target pay for fiscal year 2023, see "Executive Summary — 2023 Target Pay" beginning on page 50.
(2)"Other Named Executive Officers" refers to our non-CEO executive officers serving in a non-interim capacity for fiscal 2023 (Ms. Harbison and Messrs. Stevison, Wells, and Ruppert). The target pay mix for these officers was calculated on an aggregate basis.
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 the benchmarking of target pay for fiscal 2023, the Company 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 size of Mercury (targeted at approximately $2 billion in annual revenues).
The primary peer group data.was 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 was used as a supplemental reference when 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 thatattract top talent suitable for Mercury's next stage of growth.
The table below shows the composition of our primary peer group comparisons are meaningful.
Data with respect to the peer group listed below and the Radford Global Technology Surveythat was consideredestablished by the Compensation Committee in determiningJanuary 2022 for use in benchmarking target pay levels and practices at the base compensation, bonus targets,end of fiscal 2022 and the equity awardsin connection with making pay decisions for fiscal 2017. Target total direct compensation for executive officers in fiscal 2017 approximated the composite median.2023.
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ADTRAN, Inc. | | Ducommun Incorporated | | Netgear Inc.Primary Peer Group for Fiscal 2023 |
AeroVironment, Inc.Astronics Corporation | II-VI Incorporated | Gigamon, Inc. | | NetScout Systems, Inc. |
AnalogicBelden Inc. | Infinera Corporation | | Novanta Inc. (fka GSI Group Inc.) | | Progress Software Corporation |
AstronicsCognex Corporation | iRobot Corporation | Infinera Corporation | | Qualys,OSI Systems, Inc. |
Brooks Automation, Inc. | | InvenSense, Inc. | | Ruckus Wireless, Inc. |
CalAmp Corp. | | iRobot Corporation | | Shore Tel, Inc. |
Cognex Corporation | | Ixia | | Sonus Networks, Inc. |
Comtech Telecommunications Corp. | | Kratos Defense & Security Solutions, Inc. | | Sparton Corp.Ribbon Communications Inc. |
Cray,Diodes Incorporated | Methode Electronics, Inc. | Rogers Corporation |
Ducommun Incorporated | M/A-COMMKS Instruments, Inc. | |
HEICO Corporation | NETGEAR, Inc. | |
The table below shows the composition of our reference peer group that was established by the Committee in January 2022 for use as a supplemental reference in considering appropriate pay levels at the end of fiscal 2022, and in connection with making pay decisions for fiscal 2023.
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Reference Peer Group for Fiscal 2023 |
Belden Inc.(1) | Keysight Technologies, Inc. | Rogers Corporation |
Curtis-Wright Corporation | Maxar Technologies Inc. | Teledyne Technologies Incorporated |
Diodes Incorporated(1) | Methode Electronics, Inc.(1) | Teradyne, Inc. |
HEICO Corporation(1) | MKS Instruments, Inc.(1) | TTM Technologies, Inc. |
Hexcel Corporation | Moog Inc. | Viasat, Inc. |
II-VI Incorporated(1) | NetScout Systems, Inc.(1) | |
Infinera Corporation(1) | OSI Systems, Inc.(1) | |
(1)Reflects companies that are also contained in the primary peer group for fiscal 2023.
As compared to the primary and reference peer groups used to evaluate fiscal 2022 pay levels and practices, the Committee removed Brooks Automation from the primary peer group and FLIR Systems from both peer groups after recent mergers and dispositions activities that rendered them no longer suitable for these groups.
The Committee subsequently met in April 2023 to consider potential changes to its benchmarking methodology in connection with its evaluation of executive pay levels and practices for fiscal 2024. Consistent with the recommendations of its new independent compensation advisor and in response to investor feedback received through our comprehensive shareholder engagement process, the Committee eliminated its practice of using multiple peer groups intended to reflect future growth in favor of a single peer group with median revenues aligned with the Company's current size. The Committee selected component companies for our 2024 compensation peer group using a scorecard approach that took relevant factors into account for each potential peer considered, including comparable industry and financial demographics; representation in defense and aerospace stock indices; use as a Mercury comparator by one of Mercury's stock analysts or by nationally-recognized proxy advisors; use of Mercury by the potential peer as one of its own peers for executive pay benchmarking; and inclusion by Mercury as a component in one of its 2023 compensation peer groups. Using this approach, the Committee approved the following peer group of companies to use for benchmarking executive pay levels and practices for fiscal 2024.
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Compensation Peer Group for Fiscal 2024 |
3D Systems Corporation | FormFactor, Inc. | Novanta Inc. |
Aerojet Rocketdyne Holdings, Inc. | Infinera Corporation | Onto Innovation Inc. |
AeroVironment, Inc. | iRobot Corporation | OSI Systems, Inc. |
Axcelis Technologies, Inc. | Kaman Corporation | RBC Bearings Incorporated |
Belden Inc. | Kratos Defense & Security Solutions, Inc. | Rogers Corporation |
BWX Technologies, Inc. | Leonardo DRS, Inc. | Viasat, Inc. |
Curtiss-Wright Corporation | MACOM Technology Solutions Holdings, Inc. | | Vicor Corp. |
Digi InternationalDiodes Incorporated | Maxar Technologies Inc. | | MKS Instruments, Inc. | | |
The CompensationUse of Market Data
In reviewing competitive compensation levels of our named executive officers at the beginning of fiscal 2023 (or at such later time during fiscal 2023 at which they became an executive officer), the Committee considered compensation peer group data for all named executive officers, except for the role of Chief Growth Officer due to the limited number of benchmarking matches for this position within our 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 Messrs. Stevison and Wells (who served as the respective Presidents of our Mission Systems and Microelectronics divisions in determiningfiscal 2023), 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 our divisions. The Survey Data utilized was size adjusted by our independent consultant to reflect the annual revenues of our Company and of our divisions, as applicable, and an aging factor of 3.5% per year was applied to reported base salary and annual incentive data in order to approximate the impact of market movements between the survey publication date and the time at which our benchmarking activities took place.
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 or August 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 as its reference point in making executive pay decisions; 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 are shown below.
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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 |
Based on the most recent benchmarking conducted by the Committee in July 2023, target long-term incentive compensation, which consistspay for our non-interim named executive officers in fiscal 2023 (that is, all of equity awards; and
target total direct compensation (i.e., target cash plus target long-term incentive compensation).
Each such element of compensation was compared to peer group data at the 25th, 50th, 75th , and 90th percentiles. The peer group used for fiscal 2017 consisted of a blend 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 other than Mr. Ballhaus or Ms. McCarthy) fell, on average, within a competitive range of 80% to 120% of peer median target pay levels. For a further discussion of the amounts underlying our named executive officers' target pay for fiscal year 2023, see "Executive Summary — 2023 Target Pay" beginning on page 50.
ELEMENTS OF FISCAL 2023 TARGET PAY
The sections below detail the base salaries, annual incentives, and long-term incentive grants awarded to our named executive officers as part of their fiscal 2023 compensation. Mr. Ballhaus, who was generally positionedappointed as our Interim President and CEO at the market 50th percentile.
Our Elementsend of Total Compensation
Our total compensation program consists of fixed elements, such 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 our peer group for annual performance-based equity awards.
We compensate our executives principally through base salary, performance-based cash bonuses, and time and performance-based equity awards. The objective of this approach is to remain competitive with other companies2023 on June 24, 2023, does not appear in the same marketsections below because the Committee did not award him any compensation for his service as an executive talent, while ensuringofficer for his seven days of service in fiscal 2023. Mercury later entered into an employment agreement with him as of August 15, 2023 that our executives are givenestablished his compensation as an executive officer as of the appropriate incentives to deliver strong short- and long-term financial results. The Compensation Committee has chosen to put a substantial portionstart 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 our peer group for annual performance-based equity awards.
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 directorsfiscal 2024, on the Board.July 1, 2023.
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, effective October 1, 2016, we increased2023, the Committee approved the initial base salaries forsalary of Ms. Harbison in connection with the commencement of her employment on March 6, 2023. For a further discussion, see "— Offer Letter with Christine Harbison" beginning on page 63. The Committee did not award any base salary increases to our namedcontinuing executive officers from 2022 (including Messrs. Stevison, Wells, Aslett, and Ruppert), nor did it award such an increase to Ms. McCarthy upon the commencement of her additional role as follows:
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Named Executive Officer and Title | Fiscal 2017 Salary (effective October 1, 2016) |
Mark Aslett, President and Chief Executive Officer | $ | 560,000 |
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Gerald M. Haines II, EVP, Chief Financial Officer, and Treasurer | 345,000 |
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Didier M.C. Thibaud, EVP, Chief Operating Officer | 375,000 |
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Charles A. Speicher, VP, Controller, Chief Accounting Officer, and Assistant Treasurer | 250,000 |
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These increases were consistent with market conditionsour Interim Chief Financial Officer and Treasurer on February 18, 2023. However, in her capacity as our Chief Accounting Officer at the change in our financial profile from our recent acquisitionbeginning of the Carve-Out Business and organic growth.
Mr. Cambria joined usfiscal year, Ms. McCarthy received a customary merit increase in August 2016 asher base salary of 4.0% effective on September 24, 2022. Thereafter, she received a base salary increase of 8.5% effective December 3, 2022 in connection with her promotion to Senior Vice President, General Counsel, and Secretary withresulting in a total base salary increase of $345,000.12.8% for fiscal 2023.
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| Fiscal 2023 Base Salary(1) | Fiscal 2022 Base Salary(2) | Percent Change |
Current Employees: | | | |
Michelle M. McCarthy(3) | 340,000 | 301,394 | 12.8% |
Christine F. Harbison(4) | 415,000 | N/A | N/A |
James M. Stevison | 425,000 | 425,000 | 0.0% |
Charles R. Wells, IV | 415,000 | 415,000 | 0.0% |
Former Employees: | | | |
Mark Aslett(5) | 800,060 | 800,060 | 0.0% |
Michael D. Ruppert(5) | 446,351 | 446,351 | 0.0% |
(1)Reflects each executive's annual base salary rate at the beginning of fiscal 2023 or at such later time during fiscal 2023 at which they became an executive officer.
A portion(2)Reflects each executive's annual base salary rate at the beginning of Mr. Thibaud’s salary is paidthe second quarter of fiscal 2022 (the time at which annual increases for that fiscal year became effective).
(3)Ms. McCarthy became an executive officer effective February 18, 2023 by virtue of her appointment at that time as our Interim Chief Financial Officer and Treasurer. For a further discussion, see "—Recognition Awards for Michelle McCarthy" on page 63.
(4)Ms. Harbison became an executive officer on March 6, 2023 in Euros. The salary column inconnection with the Summary Compensation Table reflects the conversioncommencement of each monthly payment from Euros into U.S. Dollars (USD) basedher employment as our Executive Vice President, Chief Growth Officer. For a further discussion, see "—Offer Letter with Christine Harbison" on the average conversion rate between Eurospage 63.
(5)Messrs. Aslett and USD for such month.
For fiscal 2018, effective October 1, 2017, the Compensation Committee increased the base salaries for our namedRuppert served as executive officers as follows:until their resignations effective June 24, 2023 and February 17, 2023, respectively. For a further discussion, see "—Resignations of Named Executive Officers During Fiscal 2023" on page 63.
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Named Executive Officer and Title | Fiscal 2018 Salary (effective October 1, 2017) |
Mark Aslett, President and Chief Executive Officer | $ | 600,000 |
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Christopher C. Cambria, EVP, General Counsel, and Secretary | 355,400 |
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Gerald M. Haines II, EVP, Chief Financial Officer, and Treasurer | 355,400 |
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Didier M.C. Thibaud, EVP, Chief Operating Officer | 395,000 |
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Charles A. Speicher, VP, Controller, Chief Accounting Officer, and Assistant Treasurer | 257,500 |
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Annual IncentivesThese increases were consistent with market conditions and the growth in the size 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 fromThe AIP provides 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 month of the fiscal year. Participants in the program are senior executives who have a strategic function and are recommended by the CEO to the Compensation Committee for participation in the program. In general, 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 total targeton Company performance relative to pre-established goals. Beginning with the AIP for fiscal 2023, we expanded the measures under the plan that are used to evaluate our annual performance by adding revenue and adjusted free cash compensation, and may be subjectflow to change from year to year. For fiscal 2017, each executive officer’s target bonus was determined based on the percentage of actuallegacy adjusted EBITDA (defined below)measure that was previously used as the sole metric on which our performance was based. We chose these performance measures for our annual incentive plan because we believe that they constitute the most important financial measures that drive long-term shareholder value creation.
Under the AIP for fiscal 2023, 50% of our plan payouts are tied to our adjusted EBITDA results, while 25% of payouts are tied to our achievements for revenue reaching 23%and adjusted free cash flow, respectively. We selected these different weightings for the performance measures under the AIP to align with their relative importance in respect of our strategic priorities for fiscal 2023.
In addition to these changes, we established full-year targets for each of our performance measures at the beginning of the 2023 fiscal year, rather than using semi-annual performance periods that were determined at the start of each period, to better align with each executive's potential over-achievement award determined based on the percentagemarket norms and in response to investor feedback received through our comprehensive shareholder engagement process.
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Key Features of the AIP for Fiscal 2023 |
•Performance criteria defined at the beginning of the fiscal year |
•Performance compared to pre-established annual goals for adjusted EBITDA, revenue and adjusted free cash flow that reflect or are aligned with the mid-point of our published guidance at the beginning of the fiscal year |
•Payouts can range from 0% to 150% 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 based on performance
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•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 2023
AIP target bonuses are established at the beginning of each fiscal year for each named executive officer as a percentage of histheir base salary; and (2) the percentage ofsalary. For fiscal 2023, the target bonus tiedfor each of our continuing executive officers from 2022 (including Messrs. Stevison, Wells, Aslett, and Ruppert), as a percentage for their respective base salaries, was held constant at fiscal 2022 levels. Ms. McCarthy's target bonus was increased from 40% to corporate financial performance objectives.50% of base salary in connection with her promotion from Vice President to Senior Vice President in December 2022. Finally, the Committee approved a target bonus percentage for Ms. Harbison in connection with the commencement of her employment in fiscal 2023. For a further discussion, see "— Offer Letter with Christine Harbison" beginning on page 63.
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| Fiscal 2023 Base Salary(1) | Fiscal 2023 Target Bonus (%) | Fiscal 2023 Target Bonus ($) |
Current Employees: | | | |
Michelle M. McCarthy | 340,000 | 50% | 170,000 |
Christine F. Harbison(2) | 121,042 | 100% | 121,042 |
James M. Stevison | 425,000 | 100% | 425,000 |
Charles R. Wells, IV | 415,000 | 100% | 415,000 |
Former Employees: | | | |
Mark Aslett(3) | 800,060 | 150% | 1,200,090 |
Michael D. Ruppert(3) | 446,351 | 110% | 490,986 |
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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 |
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Gerald M. Haines II, EVP, Chief Financial Officer, and Treasurer | 60 |
| | 100 |
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Didier M.C. Thibaud, EVP, Chief Operating Officer | 75 |
| | 100 |
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Charles A. Speicher, VP, Controller, Chief Accounting Officer, and Assistant Treasurer | 40 |
| | 100 |
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Corporate Financial Performance Objectives
As part of our fiscal 2017 strategic operating plan, the Compensation Committee(1)Except as set the financial portion of our executive bonus plan for the first half of fiscal 2017 at the July 2016 meetingforth in Note 2 below, reflects annualized base salary rates in effect as of the Boardbeginning of Directors. The Compensation Committee set the financial portion of our executive bonus plan for the second half and full yearquarter (when annual increases typically become effective) or, in the case of Ms. McCarthy, as of the date she became an executive officer.
(2)For the purpose of calculating Ms. Harbison's AIP payout for fiscal 2017 at2023, her base salary was prorated to reflect the January 2017 meetingcommencement of the Boardher employment with Mercury on March 6, 2023.
(3)Messrs. Aslett and Ruppert served as executive officers until their resignations effective June 24, 2023 and February 17, 2023, respectively. For a further discussion, see "—Resignations of Directors as part of our mid-year strategic operating plan review. PayoutsNamed Executive Officers During Fiscal 2023" on page 63.
Performance Goals and Payout Ranges for corporate financial performance 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)
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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)
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| | | |
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 |
2023The Compensation Committee reserves the right to vary from year to year the percentages of the target corporate bonus earned upon achievement of theestablished threshold, target, and maximum adjusted EBITDA objectives alongperformance goals for each of our performance measures under the AIP at the beginning of our fiscal year in early August. Our target performance goal for each measure reflects, or is aligned with, the annual performance objectives.
Fiscal 2017 actual adjusted EBITDA/ revenue was 22.3% formid-point of our published guidance at the first half of the fiscal year and 23.6% for the second halfbeginning of the fiscal year. The table below sets forth the specific performance goals and related payout factors established by the Committee under the AIP for fiscal 2023.
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Achievement Levels | Performance Goals for Fiscal 2023(1) | Payout Factor (% of Target Bonus)(2) |
| Adjusted EBITDA (50% Weighting) | Revenue (25% Weighting) | Adjusted Free Cash Flow (25% Weighting) | |
Maximum | ≥ 270.0 | ≥ 1,154.0 | ≥ 135.0 | 200% |
Target | 207.5 | 1,025.0 | 103.8 | 100% |
Threshold | 182.6 | 922.5 | 72.6 | 50% |
Below Threshold | < 182.6 | < 922.5 | < 72.6 | 0% |
(1)All performance goals are expressed in millions.
(2)Payouts for performance between the stated achievement levels are calculated using linear interpolation.
Actual Results and AIP Payouts for Fiscal 2023
For purposes of calculating actual financial results under the AIP, the Committee excludes the effects of pre-established categories of items that it believes are not reflective of operating performance. For a further discussion of these adjustments with respect to adjusted EBITDA, see "Appendix B: Reconciliation of Non-GAAP Measures to GAAP Measures." Our executive officerscalculation of adjusted free cash flow excludes similar items relevant to cash flow calculations.
After giving effect to these adjustments, our performance under the AIP for fiscal 2023 fell below threshold for both adjusted EBITDAand adjusted free cash below, and between threshold and target for revenue. As a result, executives earned payouts at 87.5%a payout of 18.8% of their first halftarget bonus under the AIP for fiscal 2023.
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Actual Results under the AIP for Fiscal 2023 |
Performance Goal | Performance Achieved(1) | Payout Factor | Weighting | Payout Earned (% of Target Bonus) |
Adjusted EBITDA | 132.3 | 0.0% | 50% | 0.0% |
Revenue | 973.9 | 75.1% | 25% | 18.8% |
Adjusted Free Cash Flow | (40.3) | 0.0% | 25% | 0.0% |
Total | | | | 18.8% |
(1)Performance results are expressed in millions.
Individual executives who participate in the AIP must remain employed with Mercury through the date of payment in order to receive a bonus payable thereunder. For fiscal 2023, bonuses earned under the AIP were paid to executives on August 31, 2023. Messrs. Aslett and 100%Ruppert did not receive a bonus payout under the AIP for fiscal 2023 by virtue 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 forearlier resignations during the fiscal year. For a further discussion, see "—Resignations of Named Executive Officers During Fiscal 2023" on page 63. The size of any over-achievement award pool is determined based onamounts earned under the amountAIP by which the percentage of actual adjusted EBITDA to revenue exceeded 23% for the full fiscal year. The potential over-achievement award poolother named executive officers for fiscal 2017 was 25%2023 are set forth below.
| | | | | | | | | | | |
| Fiscal 2023 Target Bonus | Fiscal 2023 AIP Earned (%) | Fiscal 2023 AIP Earned ($) |
Current Employees: | | | |
Michelle M. McCarthy | 170,000 | 18.8% | 31,960 |
Christine F. Harbison | 121,042 | 18.8% | 22,756 |
James M. Stevison | 425,000 | 18.8% | 79,900 |
Charles R. Wells, IV | 415,000 | 18.8% | 78,020 |
Former Employees: | | | |
Mark Aslett(1) | 1,200,090 | — | — |
Michael D. Ruppert(1) | 490,986 | — | — |
(1)Messrs. Aslett and Ruppert forfeited their fiscal 2023 payouts under the AIP by virtue of their resignations effective June 24, 2023 and February 17, 2023, respectively. For a further discussion, see "—Resignations of Named Executive Officers During Fiscal 2023" on page 63.
Long-Term Incentives
LTI awards are intended to align the interests of the amount, if any,named executive officers with shareholders by whichlinking a meaningful portion of executive pay to shareholder value creation over a multi-year period. LTI awards are also provided to drive 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, including the payout percentages for each element of the plan.
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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 Program for Fiscal 2018
In establishing the executive bonus program 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 achievementlong-term business strategy, engage and retain our key executives, and facilitate ownership of our strategic operating plan consistently positioning us in the top quartile. In ordercommon stock. The Committee grants long-term incentives 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 based on performance. For fiscal 2018, the target bonus as a percentage of base salary for the Chief Executive Officer under theour named 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 EBITDA as set forth in our strategic operating plan for fiscal 2018, with targets again relating to the first and second halves of the fiscal year.
Equity Compensation
We believe that compensationofficers in the form of Mercury stock should be a significant portion of our executive officers’ total compensation in order 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 types of equity instruments, including stock options, stock appreciation rights, restricted stock awards ("RSAs") and deferredperformance stock awards. The Compensation Committee determines which instruments to use on a grant-by-grant basis. When approving equity awards ("PSAs").
Long-Term Incentives Awarded 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 attract and retain senior executives who would contribute to our future success. As a result, 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.Fiscal 2023
The Compensation Committee has adoptedtypically grants LTI awards on 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 includedannual basis 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 15thmid-August of each month followingfiscal year. However, 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 time 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 stockLTI awards granted to our named executive officers approximated the 50th percentileas part of a market composite consistingtheir annual compensation for fiscal 2023 were granted on an accelerated basis on February 15, 2022, six months earlier than normal, as part of our named peer group2022 equity retention plan to promote the continuity of our critical talent during a period of heightened industry and compensation survey data fromlabor market challenges. The table below sets forth the Radford Global Technology Surveyvalues of public high technology companies with annual revenue levels generally between $200 million and $1 billion with a median revenue of $480 million with median performance relativethe LTI awards for fiscal 2023 that were granted to our peer group yielding vestingnamed executive officers at that approximates median pay based on such market composite. The revenue range fortime.
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| Grant Date Target Value of Annual LTI Awards For Fiscal 2023 (accelerated 2023 awards granted in 2022) |
| Restricted Stock Awards(1) ($) | | Performance Stock Awards(1) ($) | | Total ($) |
Current Employees: | | | | | |
Michelle M. McCarthy(2) | 215,000 | | — | | 215,000 |
James M. Stevison | 398,000 | | 398,000 | | 796,000 |
Charles R. Wells, IV | 415,000 | | 415,000 | | 830,000 |
Former Employees: | | | | | |
Mark Aslett(3) | 2,150,000 | | 2,150,000 | | 4,300,000 |
Michael D. Ruppert(3) | 715,000 | | 715,000 | | 1,430,000 |
(1)Grant date target values were converted into 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 for the executive grant effective as of August 15, 2016 forunderlying each named executive officer was determined by dividing the dollar value fixed for such executive grant byaward based on the average closing price of ourMercury's common stock during the 30 calendar days prior to August 15, 2016. Thethe grant datedate.
(2)Ms. McCarthy was not eligible to receive PSAs because PSAs are granted only to recipients who serve as an executive officer at the time of grant, and in a permanent capacity.
(3)Messrs. Aslett and Ruppert forfeited all their outstanding and unvested LTI awards, including those set forth in this table, by virtue of their resignations effective June 24, 2023 and February 17, 2023, respectively. For a further discussion, see "—Resignations of Named Executive Officers During Fiscal 2023" on page 63.
Ms. McCarthy later received additional LTI awards in connection with her subsequent promotion to Senior Vice President and in recognition of her additional responsibilities as Interim Chief Financial Officer and Treasurer between February and July of 2023. Ms. Harbison was not employed by Mercury at the time the LTI awards for fiscal 2017 equity2023 were granted, and therefore does not appear in the table above. However, Ms. Harbison received "new-hire" LTI awards was August 15, 2016.in connection with her commencement of employment on March 6, 2023. For a further discussion of these awards, see "—Recognition Awards for Michelle McCarthy" on page 63 and "— Offer Letter with Christine Harbison" on page 63.
Each fiscal 2017 annual restricted stock award for ourRestricted Stock Awards
RSAs are awarded to named executive officers has 50% performance-based vestingunder our LTI program to facilitate executive ownership of Company stock, to align the interests of our executives with those of our shareholders, and 50% time-basedto support retention. RSAs vest in equal annual increments over a three-year period (or in the case of recipients who do not serve as executive officers in a permanent capacity, a four-year period), and the ultimate value of these awards to recipients is dependent on our stock price at the time of vesting. For the time-based vesting half
Performance Stock Awards
PSAs are awarded to named executive officers under our LTI 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 2017 annual awards, one-third vests on each of2023 are substantially identical to those awarded by 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 relativeCommittee in prior years. The requirements are equally weighted between goals for revenue growth and Adjusted EBITDA Margin performance to our peer group for the three-year fiscal period ending June 30, 2019. Forcommencing with the fiscal 2017 annual performance-based awards, we used two new 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 2017 annual restricted stock awards is the median of a market composite consisting of our named peer group and compensation survey data from the Radford Global Technology Survey of public high technology companies, with the performance half of the annual award having upside potential (subject to a cap) if we outperform, and downside potential if we underperform, our peer group 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.
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 in our history. This acquisition integration grant related specifically to our acquisition of 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 also 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% 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)awards were granted, relative to the achievements over this period of our primary peer group. For the list of companies that comprise our primary peer group, see "Use of Market Data and Competitive Compensation Positioning — Compensation Peer Groups" beginning on page 55. The number of annual performance-based restricted shares inultimately earned under the table above reflects the probable number (calculated asPSAs will range from 0% to 300% of the grant date)target number of shares thatawarded at the executive is expected to earn fortime of grant, based on our actual performance achievements over 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 sharesas further described 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 equity 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 2015-2017PSA Performance
(Adjusted EBITDA/ Revenue)Goal
| Vesting % | Threshold/CapPerformance Achievement Relative to Peer Group | | Payout Percentage(1) |
Less than 12%Maximum | 0% | Below Threshold |
Equal to 12%At or above 90th percentile | 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:
300% |
| | 75th percentile | | 200% |
Fiscal 2016-2017 Performance
(Adjusted EBITDA/ Revenue) Target | Vesting % | Threshold/Cap50th percentile | | 100% |
Less than 12%Threshold | 0% | Below Threshold |
Equal to 12%At or below 25th percentile | 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%— |
(1)Payout percentages for achievements between Threshold and Maximum are calculated using linear interpolation.
The ratio ofFor PSA awards granted for fiscal 2023, "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 revenuethe adjustments that we use for the two-year period ended June 30, 2017 was 22%, thus exceeding 18%external reporting of our adjusted 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."
While the Committee has elected to use adjusted EBITDA as a factor in determining performance under both our annual incentive awards and yielding 100% vestingour PSAs, the performance requirements under these awards are designed so that resulting payouts reflect different and important aspects of Company performance that are not duplicative. Payouts under the AIP are based on performance for a 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 2/3rdsimportance of the performance-based restricted stock award thatearnings in creating long-term shareholder value.
RECOGNITION AWARDS FOR MICHELLE McCARTHY
On December 15, 2022, Ms. McCarthy received a grant of RSAs, having an aggregate grant date target value of $135,000, in connection with her promotion to Senior Vice President. She 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 grantedsubsequently appointed as our Interim Chief Financial Officer and Treasurer effective February 18, 2023 and served in fiscal 2017 was subject to the following vesting formula:
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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 millionthis capacity through July 16, 2023. She also retained her prior title and responsibilities as our Chief Accounting Officer during and after this period. On July 17, 2023, we appointed David E. Farnsworth as our new Chief Financial Officer and Treasurer, who will appear 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 approximateofficer in our proxy statement for our 2024 Annual Meeting.
In recognition of Ms. McCarthy's additional responsibilities as our Interim Chief Financial Officer and Treasurer between February 18, 2023 and July 16, 2023, the 50th percentileCommittee awarded her:
•grants of a market composite for executivesLTI awards on February 15, 2023 and July 17, 2023 in the same roles. The market composite consistsform of our named peer groupRSAs, in each case having a grant date target value of $200,000; and compensation survey data from the Radford Global Technology Survey
•a supplemental cash bonus payment 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.$215,000 effective July 6, 2023.
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 asunderlying each of August 15, 2017 for each named executive officerMs. McCarthy's RSA grants was determined by dividing the dollar value fixed for such executive grant bycalculated based on the average closing price of ourMercury's common stock during the 30 calendar days prior to August 15, 2017. Thethe grant date. For a further discussion of the terms of these awards, see "— Elements of Fiscal 2023 Target Pay — Long-Term Incentives — Restricted Stock Awards" beginning on page 62.
OFFER LETTER WITH CHRISTINE HARBISON
During fiscal 2023, the Committee approved the execution of an offer letter with Ms. Harbison that provided for the following initial terms of her employment as our Chief Growth Officer:
•her initial base salary at the annual rate set forth in "— Elements of Fiscal 2023 Target Pay — Base Salary" beginning on page 58;
•participation in our AIP with a target bonus of 100% of her prorated base salary for fiscal 2023; and
•grants of "new-hire" LTI awards, composed equally of RSAs and PSAs having an aggregate grant date target value of $1.6 million, which were intended to restore compensation forfeited with a prior employer, to motivate multi-year financial achievements that are aligned with shareholder value creation, and to further align her interests with those of our shareholders.
Ms. Harbison's new-hire LTI awards were granted on March 15, 2023, with the number of shares underlying each award based on the average closing price of Mercury's common stock during the 30 calendar days prior to the grant date. For a further discussion of the fiscal 2017 equityterms of these awards, was August 15, 2017.see "— Elements of Fiscal 2023 Target Pay — Long-Term Incentives" beginning on page 61.
EXECUTIVE PERQUISITES
Each fiscal 2018 annual restricted stock award forWe provide our named executive officers is 50% performance-based vesting and 50% time-based vesting. For the time-based vesting half of the fiscal 2018 annual awards, one-third vests on each of the first three anniversaries of the grant date. For the performance-based vesting half of the fiscal 2018 annual awards, the award vests based on relative performance to our peer group for the three-year period ending June 30, 2020. For the fiscal 2018 annual performance-based 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 is the median of a market composite consisting of our named peer group and compensation survey data from the Radford Global Technology Survey of public high technology companies, with the performance half of the annual award having upside potential (subject to 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.
limited personal perquisites consistent with competitive practices. 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 three of these newly acquired businesses along with the continuing integration activities related to our acquisition 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 and 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), 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 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 potential 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 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 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 granted to the executives.
Employee Benefits
We offer employee benefit programs that are intended to provide financial protection and security for our employees and to reward them for the total commitment we expect from them in service to Mercury. All of our named executive officers are eligible to participate in these programs on the same basis as our other employees. These benefits include the following: (1) medical, dental, and vision insurance, with employees sharing a percentage of the cost that may be adjusted from year to year; (2) company-paid group life and accident insurance 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 plan 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 purchase our common stock at a 15% discount.
Perquisites and Personal Benefits
For fiscal 2017,2023, we provided our continuing executive officers from 2022 (including Messrs. Stevison, Wells, Aslett, and Ruppert) with up to $2,000 annuallya $12,000 annual allowance for personal tax and financial planning services.planning. We also maintain an employee relocation policy, offering different tiers of benefits based on job level, for employees who are requested to relocate their primary residence in connection with their employment. In fiscal 2023, Mr. Wells relocated his primary residence at our request, and his relocation expenses were paid and/or reimbursed under this policy based on a tier of benefits generally available to our employees at or above the job level of Vice President. For a further discussion, see Note 5 to the “Summary Compensation Table” beginning on page 68.
RESIGNATIONS OF NAMED EXECUTIVE OFFICERS DURING FISCAL 2023
On January 25, 2023, our Board of Directors received notice of the resignation of Michael D. Ruppert from his positions as our Executive Vice President, Chief Financial Officer and Treasurer effective February 17, 2023. By virtue of his resignation, Mr. Ruppert forfeited his fiscal 2018,2023 payout under the AIP and all of his LTI awards that were not vested at the effective time of his resignation, including those granted under the equity retention plan.
On June 19, 2023, our Board of Directors received notice of the resignation of Mark Aslett from his positions as our President and Chief Executive Officer. The Board accepted his resignation effective June 24, 2023. In his notice, Mr.
Aslett claimed he was entitled to certain benefits, including equity vesting, severance and other benefits, under his change in control severance agreement because he had resigned with good reason during a potential change in control period. We dispute these claims and maintain that he resigned without good reason, resulting in the forfeiture of his fiscal 2023 payout under the AIP and of all of his LTI awards that were not vested at the effective time of his resignation, including those granted under the equity retention plan. The parties must submit any dispute under the change in control severance agreement to binding arbitration. If an arbitration is commenced and the arbitrator rules in our favor, we changedmay still need to pay Mr. Aslett's reasonable legal fees and interim compensation during the personaldispute. If instead the arbitrator rules for Mr. Aslett, we could be liable for up to approximately $12.9 million, based on the closing price of our common stock on June 26, 2023, plus legal fees and financial planning perquisiteexpenses, for accelerated equity vesting, severance and other benefits under his change in control severance agreement. We believe we have strong arguments that Mr. Aslett's claims lack merit, and intend to a $4,000 annual allowance which is consistent with current market pay practice.vigorously contest any assertions to the contrary.
Employment and Severance AgreementsSUMMARY OF COMPENSATION ACTIONS FOR FISCAL 2024
We haveOn August 15, 2023, we entered into an employment agreement with Mr. AslettBallhaus that sets forth his initial target pay, retroactive to July 1, 2023, and onboarding awards in connection with his appointment as our President and Chief Executive Officer. Also in August 2023, we approved annual adjustments to the target pay of the other named executive officers who continued as employees in fiscal 2024. After giving effect to these actions, fiscal 2024 target pay for our continuing, non-interim named executive officers (that is, our named executive officers other than Ms. McCarthy) fell, on average, within a competitive range of 80% to 120% of peer median target pay levels (consistent with our competitive pay positioning for fiscal 2023 as described in "— Use of Market Data and Competitive Compensation Positioning" beginning on page 55).
With respect to our AIP for fiscal 2024, the Committee made adjustments to the relative weightings of the performance measures under the plan, which are tailored to reflect our strategic priorities for the fiscal year, and in particular our near-term emphasis on stronger free cash flow generation. After giving effect to these changes, 50%, 35%, and 15% of each executive officer's annual incentive opportunity for fiscal 2024 will be based on our full-year adjusted EBITDA, adjusted free cash flow, and revenue performance, respectively.
The Committee also approved the following changes with respect to the design of our LTI plan, beginning with the annual LTI awards granted for fiscal 2024:
•the composition of our annual LTI awards granted in the form of performance-based PSAs was increased from 50% to 60% for our CEO and to 55% for all other executive officers;
•the PSAs use absolute financial performance measures instead of relative financial performance measures for greater alignment with internal forecasts and better line-of-sight for recipients;
•the PSAs use Organic Revenue instead of Total Revenue to more effectively drive intended value-creation behaviors;
•the PSAs are subject to a modifier based on relative TSR to align payouts with shareholder outcomes;
•our relative TSR performance will be assessed against the Spade Defense Index components instead of our compensation peer group, for better correlation with Mercury's long-term value creation and enhanced objectivity in selecting benchmark components; and
•the maximum payout opportunity under our PSAs was reduced to 200% of target shares, subject to a modifier based on relative TSR of up to ±25% of target shares.
EMPLOYMENT, SEVERANCE, AND CHANGE IN CONTROL ARRANGEMENTS
As of June 30, 2023, we have entered into severance agreementagreements with each of our othernamed executive officers who are current employees other than with Mr. Ballhaus, with whom we later entered into an employment agreement on August 15, 2023 as described below. Theabove in "Summary of Compensation Committee consulted with Radford regarding the market parameters of similar compensation arrangementsActions for executive officersFiscal 2024." Our severance agreements provide specified benefits in connection with entering intocertain terminations of employment that 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 intended 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 interests, 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 toUpon Change in Control or Termination of Employment" beginning on page 76.
In addition, we previously entered into a severance agreement with Mr. Aslett under which he has asserted claims for benefits in connection with his resignation that are in dispute. For a further discussion, see "— Resignations of Named Executive Officers upon Termination of Employment Following a Change in Control.”During Fiscal 2023."
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 holdingreflect 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 Committee recently amended our stock ownership guidelines, among other things, to increase the ownership requirements for itsof both our Chief Executive Officer?Officer and Chief Financial Officer and to eliminate ownership credit under the policy for unvested PSAs granted on or after September 15, 2023 (the effective date of the revised policy).
Under our revised guidelines, the ownership guidelines for our Chief Executive Officer and Chief Financial Officer were increased in value from five times (5x) to six times (6x) base salary, and from three times (3x) to four times (4x) base salary, respectively. The ownership guidelines for other executives who report directly to our CEO is expectedequivalent in value to own or control, directly or indirectly, shares of Mercury common stock with a value of at least fivethree times the CEO’s(3x) base salary.salary for our division presidents, and one and one-half times (1.5x) base salary for all other executives. The CEO is expected to meet thisCommittee reviews progress toward guideline within five years of first becoming CEO, or within five years of April 22, 2014, whichever is later, and is expected 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 CEOachievement annually. Each covered executive 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 in compliance withmet. Each covered executive is expected to meet the applicable ownership guideline within five years of the effective date of the policy. For purposes of the revised guidelines, stock ownership guideline. Exceptionsincludes shares of Company stock held outright, share equivalents held in benefit plans, unvested RSAs, and (if granted prior to this stock ownership guideline may beSeptember 15, 2023) unvested PSAs assuming target performance.
COMPENSATION CLAWBACK POLICY
At the beginning of fiscal 2024, the Committee adopted a revised clawback policy that complies with new standards applicable to Nasdaq-listed companies, which were approved from time to time by the Board as it deems necessaryU.S. Securities and Exchange Commission in June of 2023. The revised policy applies to address individual circumstances.our current and former executive officers together with our Chief Accounting Officer.
Does Mercury have a 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,Committee will, in all appropriate circumstances, require reimbursement of any annual incentive paymentcompensation that, during or long-term incentive payment to an executive officer where:after the three most recently completed fiscal years, was granted, earned, or vested (1) based upon the payment was predicated upon achieving certain financial results that were subsequently the subjectattainment of a substantialfinancial reporting measure in whole or in part, or (2) in connection with a time-based equity award, in each case to the extent that:
•we are required to prepare an accounting restatement of Companydue to material noncompliance with any financial statements filed with the SEC; (2) the Board determines the executive engaged in intentional misconduct that caused or substantially caused the need for the substantial restatement;reporting requirement under applicable securities laws; and (3)
•a lowersmaller payment would have been made to or realized by the executive based upon the restated financial results.
ANTI-HEDGING AND ANTI-PLEDGING POLICIES
Does MercuryOur policies prohibit all executives, employees, and non-employee directors from purchasing financial instruments (including prepaid variable forward contracts, equity swaps, collars, and exchange funds) or otherwise engaging in transactions that hedge, offset, or are designed to hedge or offset, any decrease in the market value of Company stock. Our policies further prohibit all executives, employees, and non-employee directors from pledging Company stock as collateral for any obligation.
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, revenue, and cash flow as key performance measures. We believe that our focus on these measures encourages a comprehensive approach to our overall performance and emphasizes consistent behavior across the organization.
•Payouts under our AIP 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 prior approvalCompany.
TAX CONSIDERATIONS
Section 162(m) of the Chief Financial Officer or,Internal Revenue Code ("IRC") generally disallows a tax deduction to publicly-held companies (such as Mercury) for compensation paid to certain "covered employees" in excess of $1 million per covered employee in any year. Neither the Committee nor the full Board has adopted a formal policy regarding tax deductibility of compensation paid to the Company's executive officers. While the Committee carefully considers the net cost and value to the Company of maintaining the deductibility of all compensation, it also desires the flexibility to reward the Company's executive officers in a manner that enhances the Company's ability to attract and retain individuals as well as to create longer term value for our stockholders. Thus, income tax deductibility is only one of several factors the Committee considers in making decisions regarding the Company's executive compensation program. The Committee may authorize compensation that might not be deductible, if the Committee determines that such compensation decision is in the casebest interest of directors, the AuditCompany.
EQUITY GRANT TIMING
We do not time the grant of equity awards to precede the release of non-public information. Grants of annual LTI 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 LTI plans, the exercise price of stock options awarded under such plans may not be less than 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
No portion of this Human Capital and Compensation 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 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 Committee 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 June 30, 2023.
During fiscal 2023, Mary Louise (ML) Krakauer, Howard L. Lance, Orlando P. Carvalho, Lisa S. Disbrow and Debora A. Plunkett served as members of the Committee. Scott Ostfeld has served as a member of the Committee since July 10, 2023.
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 (ML) Krakauer, Committee Chair
How were the executive officers compensated for fiscal 2015, 2016, and 2017?Howard L. Lance, Committee Chair-Elect
Orlando P. Carvalho
Lisa S. Disbrow
Scott Ostfeld
Debora A. Plunkett
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 all individuals serving as our Chief Executive Officer, our Chief Financial Officer,principal executive officer or principal financial officer at any time during fiscal 2023, and each of our three other three most highly compensated executive officers whoserving at our 2023 fiscal year end. These officers are collectively referred to as our "named executive officers."
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Name and Principal Position | Fiscal Year | Salary | Bonus(1) | Stock Awards(2)(3) | Non-Equity Incentive Plan Compensation(4) | All Other Compensation(5) | Total |
Current Employees: | | | | | | | |
| | | | | | |
William L. Ballhaus(6)(7) President and Chief Executive Officer | 2023 | $ | — | | $ | — | | $ | — | | $ | 255,967 | | $ | — | | $ | 255,967 | |
| | | | | | |
| | | | | | |
Michelle M. McCarthy(7)(8) SVP, Chief Accounting Officer and Former Interim Chief Financial Officer and Treasurer | 2023 | 324,500 | | 215,000 | | 341,140 | | 31,960 | | 18,365 | | 930,965 | |
| | | | | | |
| | | | | | |
Christine F. Harbison(7)(9) EVP and Chief Growth Officer | 2023 | 119,712 | | — | | 1,468,650 | | 22,756 | | 5,746 | | $ | 1,616,864 | |
| | | | | | |
| | | | | | |
James M. Stevison(10)(11) EVP and President of Mission Systems Division | 2023 | 425,000 | | — | | — | | 79,900 | | 29,423 | | 534,323 | |
2022 | 302,404 | | 300,000 | | 3,572,049 | | 380,741 | | 11,152 | | 4,566,346 | |
| | | | | | |
Charles R. Wells, IV(10) EVP and President of Microelectronics Division | 2023 | 415,000 | | — | | — | | 78,020 | | 168,709 | | $ | 661,729 | |
2022 | 263,365 | | — | | 3,600,657 | | 371,783 | | 9,498 | | 4,245,303 | |
| | | | | | |
Former Employees: | | | | | | | |
| | | | | | |
Mark Aslett(12) Former President and Chief Executive Officer | 2023 | 800,060 | | — | | — | | — | | 36,473 | | 836,533 | |
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 | |
Michael D. Ruppert(12) Former EVP, Chief Financial Officer and Treasurer | 2023 | 300,428 | | — | | — | | — | | 23,978 | | 324,406 | |
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 | |
(1)The amount reported in this column for Ms. McCarthy in fiscal 2023 represents a cash payment made on July 6, 2023 in recognition of her additional responsibilities as our Interim Chief Financial Officer and Treasurer during fiscal 2023.
(2)Represents the “namedaggregate grant date fair value of stock awards granted to our named executive officers,” forofficers. The amounts reported in this column do not reflect whether the last three fiscal years.
Summary Compensation Table
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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 the aggregate grant date fair value for equity awards made to our named executive officersnamed executive officer has actually realized a financial benefit from the awards. The grant date fair value of stock awards is computed in accordance with Accounting Standards Codification Topic 718 (ASC Topic 718). For a discussion of the assumptions and methodologies used to calculate the grant date fair value of stock awards in this proxy statement, please refer to Note B of the financial statements in fiscal years 2015, 2016 and 2017. The amounts reported in this table do not reflect whether the named executive officer has actually realized a financial benefit from the award. Grant date fair value of equity awards is computed in accordance with Accounting Standards Codification Topic 718 (ASC Topic 718). For a discussion of the assumptions and methodologies used to calculate grant date fair value in this proxy statement, please refer to Note B of the financial statements in |
our annual report on Form 10-K for the fiscal year ended June 30, 2017.2023.
Certain of our named executive officers received LTI awards on February 15, 2022 representing accelerated grants of their annual LTI compensation for fiscal 2023 under an equity retention plan intended to promote the continuity of our critical talent during a period of heightened industry and labor market challenges. The grant date fair values of these accelerated awards are: Ms. McCarthy – $207,099; Mr. Stevison – $843,516; Mr. Wells – $879,531; Mr. Aslett – $4,556,277; and Mr. Ruppert – $1,515,228. For those executives who were named executive officers in fiscal 2022, these amounts are reported in
the annual performance-based restricted stock awards column as part of the executive's fiscal 2022 compensation in accordance with SEC rules because they were granted during that fiscal year. For a further discussion, see "Compensation Discussion and Analysis — Long-Term Incentives — Long-Term Incentives Awarded for Fiscal 2023" on page 61.
The grant date fair values of stock awards reported in this Summary Compensation Table and the acquisition incentive performance-based restrictedother tables in the "Tabular Executive Compensation Disclosure" section of this proxy statement are different than the grant date target values for such awards that are reported in the Compensation Discussion and Analysis. The amounts that appear in the Compensation Discussion and Analysis reflect our practice of valuing LTI awards based on the average per share closing price of Mercury common stock awards, theseover the 30 days prior to the date of grant, while the amounts that appear in the Tabular Executive Compensation Disclosure section are calculated using the closing price of Mercury common stock only on the grant date itself.
(3)The amounts reported for PSAs in this column reflect the grant date fair value of such awards based upon the probable outcome atof their performance conditions. Ms. Harbison is the time of grant. The maximum potentialonly executive officer who was granted PSAs during the 2023 fiscal year, and the value of her PSAs included in this column for fiscal 2023 is $734,325. If these PSAs had been valued as of the annual performance-based restricted stock awards (assuminggrant date assuming that the highest level of performance achievement)would be achieved, the value of these awards that couldwould have been earned in fiscal 2017 was: Mr. Aslett – $2,842,832; Mr. Cambria – $885,750; Mr. Haines – $995,016; Mr. Speicher – $341,191; and Mr. Thibaud – $1,350,379. The maximum potential value of the acquisition incentive performance-based restricted stock awards (assuming the highest level of performance achievement) that could have been earned in fiscal 2017 was: Mr. Aslett – $1,895,222; Mr. Haines – $663,320; and Mr. Thibaud – $900,229.
| |
(2) | The aggregate amounts in this column reflect payments under our executive bonus program. The table below shows the components of our executive bonus program earned for fiscal 2017: |
|
| | | | | | | | | | | |
Name | Corporate Financial Performance Bonus | | Over- Achievement Award | | Total Non-Equity Incentive Plan Compensation |
Mark Aslett | $ | 560,000 |
| | $ | — |
| | $ | 560,000 |
|
Christopher C. Cambria | 189,419 |
| | — |
| | 189,419 |
|
Gerald M. Haines II | 207,000 |
| | — |
| | 207,000 |
|
Charles A. Speicher | 100,000 |
| | — |
| | 100,000 |
|
Didier M.C. Thibaud | 281,250 |
| | — |
| | 281,250 |
|
(3) The amountsincluded for her in this column reflect the aggregate change in the actuarial present value of Mr. Thibaud’s accumulated benefit under the retirement indemnities pension plan for our French national employees. Amounts under the plan are payable in Euros and the amounts listed in the table abovewould have been converted to dollars using the exchange rate in effect at the end of$2,202,975.
(4)Represents amounts earned under our annual incentive plan (or AIP) based on performance for the applicable fiscal year. For a further discussion, see "Compensation Discussion and Analysis — Elements of Fiscal 2023 Target Pay — Annual Incentives" beginning on page 59.
(4) (5)The table below shows the components of this column for fiscal 2017:2023
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Director Compensation | | Employee Compensation |
Name | | Annual Cash Retainer(a) | | Stock Awards(b) | | Employer Contributions to 401(k) Plan(c) | | Personal Tax and Financial Planning(d) | | Other | | Total All Other Compensation |
Current Employees: | | | | | | | | | | | | |
William L. Ballhaus | | $ | 65,000 | | | $ | 190,967 | | | $ | — | | | $ | — | | | $ | — | | | $ 255,967 |
Michelle M. McCarthy | | — | | | — | | | 18,365 | | | — | | | — | | | 18,365 |
Christine F. Harbison | | — | | | — | | | 5,746 | | | — | | | — | | | 5,746 |
James M. Stevison | | — | | | — | | | 17,423 | | | 12,000 | | | — | | | 29,423 |
Charles R. Wells, IV | | — | | | — | | | 17,123 | | | 12,000 | | | 139,586 | | (e) | 168,709 |
Former Employees: | | | | | | | | | | | | |
Mark Aslett | | — | | | — | | | 24,473 | | | 12,000 | | | — | | | 36,473 |
Michael D. Ruppert | | — | | | — | | | 8,478 | | | 12,000 | | | 3,500 | | (f) | 23,978 |
|
| | | | | | | | | | | | |
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)Represents the annual cash retainer received by Mr. Ballhaus for his service as a non-employee director in fiscal 2023. For a further discussion, see Note 6 below. | |
(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(b)Represents the aggregate grant date fair value of Plan-Based Awards
stock awards granted to Mr. Ballhaus in his capacity as a non-employee director during fiscal 2023. For a further discussion, see Note 6 below. The following table reflects: (i)grant date fair value of stock awards is computed in accordance with ASC Topic 718. For a discussion of the assumptions and methodologies used to calculate the grant date fair value of equitystock awards in this proxy statement, please refer to Note B of the financial statements in our annual report on Form 10-K for the fiscal year ended June 30, 2023.
(c)Reflects Company contributions credited to accounts of our named executive officers under the Mercury Employees Retirement Investment Trust, which is a tax-qualified, 401(k) defined contribution plan. Employer contributions vest in equal annual increments over the two-year period following the participant's date of hire.
(d)The amounts in this column represent an annual stipend paid in lump sum to secure personal tax and financial planning advisory services.
(e)Represents payments or reimbursements of relocation expenses under our employee relocation policy at a tier of benefits generally available to employees serving at or above the job level of Vice President. Consistent with this policy, the amount for relocation expenses includes a gross-up payment of $19,875 related to the portion of the relocation expenses treated as taxable compensation, in order to make the relocation tax neutral to the employee.
(f)Represents reimbursements of housing expenses incurred in lieu of lodging arrangements.
(6)During fiscal 2023, Mr. Ballhaus served as a non-employee director until June 24, 2023, when he was appointed as our Interim President and Chief Executive Officer. We later named him as our President and Chief Executive Officer on August 15, 2023 in connection with an employment agreement entered into with him as of that date. The compensation set forth for Mr. Ballhaus for fiscal 2023 represents amounts earned in his capacity as a non-employee director. Mr. Ballhaus did not receive any incremental compensation for his service as our Interim President and Chief Executive Officer during the final days of fiscal 2023. For a further discussion of our non-employee director compensation program, see "Director Compensation" on page 26.
(7)Mr. Ballhaus and Messes. McCarthy and Harbison were not named executive officers prior to our 2023 fiscal year.
(8)Ms. McCarthy was appointed as our Interim Chief Financial Officer and Treasurer effective February 18, 2023 and served in this capacity through July 16, 2023. She also retained her prior title and responsibilities as our Senior Vice President, Chief Accounting Officer during and after this period. In recognition of her additional service for her interim role, she received a cash payment of $215,000 on July 6, 2023, and RSAs on February 15, 2023 and July 17, 2023 with grant date fair values of $212,307 and $201,268, respectively. The cash payment and the RSAs granted on February 15, 2023 appear in the Bonus and Stock Award columns for fiscal 2023, respectively. The RSAs granted on July 17, 2023 will appear in the Stock Awards column as part of her fiscal 2024 compensation in accordance with SEC rules because they were granted during that fiscal year. For a further discussion of the awards described in this paragraph, see "Compensation Discussion and Analysis — Recognition Awards for Michelle McCarthy" on page 63.
(9)Ms. Harbison joined Mercury on March 6, 2023. The amounts that appear in the Stock Awards column as part of her fiscal 2023 compensation represent new hire awards in connection with the commencement of her employment. For a further discussion of these awards, see "Compensation Discussion and Analysis — Offer Letter for Christine Harbison" on page 63.
(10)Messrs. Stevison and Wells were not named executive officers prior to our 2022 fiscal year.
(11)Mr. Stevison served as our Chief Growth Officer until October 31, 2022, when he was named as President of our Mission Systems division.
(12)Messrs. Aslett and Ruppert resigned from their positions with Mercury effective June 24, 2023 and February 17, 2023, respectively. For a further discussion, see "Compensation Discussion and Analysis — Resignation of Named Executive Officers During Fiscal 2023" on page 63.
Grants of Plan-Based Awards
The following table provides information regarding: (1) annual incentive plan awards and (2) PSAs and RSAs under the Mercury Systems, Inc. Amended and Restated 2018 Stock Incentive Plan. Except as set forth below, plan-based awards granted to the named executive officers underin fiscal year 2023 were approved by the 2005 Plan during fiscal 2017;Human Capital and (ii)Compensation Committee (the "Committee"), or by the possible cash amounts that could have been earned under each element (i.e., corporate financial performance and over-achievement awards)independent members of our executive bonus program forBoard of Directors (in the case of all awards granted to our current or former Chief Executive Officer), on the dates below. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 ($) |
| Grant Type | | Grant Date | | Approval Date | | Threshold ($) | | Target ($) | | Maximum ($) | | Threshold (#) | | Target (#) | | Maximum (#) | |
| | | | | | | | | | | | | | | | | | | | | | |
Current Employees: | | | | | | | | | | | | | | | | | | | | |
William L. Ballhaus | | Board RSAs(1) | | 10/26/22 | | 7/26/22 | | | | | | | | | | | | | | 3,976 | | | 190,967 | |
| | | | | | | | | | | | | | | | | | | | | | |
Michelle M. McCarthy | | AIP(2) | | — | | — | | 85,000 | | 170,000 | | 255,000 | | | | | | | | | | | |
| RSA(3)(4) | | 12/15/22 | | 12/1/22 | | | | | | | | | | | | | | 2,714 | | | 128,834 | |
| | RSA(3)(4) | | 2/15/23 | | 1/25/23 | | | | | | | | | | | | | | 3,882 | | | 212,307 | |
| | | | | | | | | | | | | | | | | | | | | | |
Christine F. Harbison | | AIP(2) | | | | — | | 60,521 | | 121,042 | | 181,563 | | | | | | | | | | | |
| PSA(5)(6) | | 3/15/23 | | 2/27/23 | | | | | | | | — | | 15,172 | | | 45,516 | | | | | 734,325 | |
| | RSA(3)(6) | | 3/15/23 | | 2/27/23 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
James M. Stevison | | AIP(2) | | — | | — | | 212,500 | | 425,000 | | 637,500 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Charles R. Wells, IV | | AIP(2) | | — | | — | | 207,500 | | 415,000 | | 622,500 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Former Employees: | | | | | | | | | | | | | | | | | | | | |
Mark Aslett(7) | | AIP(2) | | — | | — | | 600,045 | | | 1,200,090 | | | 1,800,135 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Michael D. Ruppert(7) | | AIP(2) | | — | | — | | 245,493 | | | 490,986 | | | 736,479 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | \ | | | | | | | | | | |
(1)During fiscal 2017. The actual payouts for fiscal 20172023, Mr. Ballhaus served as a non-employee director until June 24, 2023, when he was appointed as our Interim President and Chief Executive Officer. In connection with his earlier Board service, Mr. Ballhaus received an annual award of RSAs under our non-employee director compensation program. These RSAs vest in equal annual executive bonus program are reflectedincrements over a one-year period. The amount disclosed in the Grant Date Fair Value of Stock and Option Awards column titled “Non-Equity Incentive Plan Compensation” inrepresents the Summary Compensation Table.
Grantsgrant date fair value of Plan-Based Awards—Fiscal 2017
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 this column have beenthe award, as calculated in accordance with FASB ASC Topic 718. For a further discussion, see "Director Compensation" on page 26.
(2) These time-based restricted stock awards and performance restricted stock awards were grantedRepresents the cash payout opportunities under the 2005 Plan with an August 15, 2016 grant date. The time-based restricted share awards vest in three equal installments on eachour annual incentive plan for fiscal 2023 that would be earned assuming achievement of the first three anniversariesspecific Threshold, Target, or Maximum levels of performance established by 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) 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, vestingCommittee for the performance awards is contingent in each casemeasures under the plan. For a further discussion of the performance measures and payout opportunities for 2023, see "Compensation Discussion and Analysis – Elements of 2023 Target Pay – Annual Incentives" beginning on page 59. For a discussion of additional changes made to the executive remaining an employee as of each vesting date.
Vesting Formulasplan for fiscal 2024 to align with our strategic priorities for the year, see "Compensation Discussion and Analysis – Summary of Compensation Actions for Fiscal 2017 Annual Performance-Based Restricted Share Awards2024."
(3)RSAs vest in equal annual increments over a three-year period (or in the case of recipients who do not serve as executive officers in a permanent capacity, a four-year period). The amount disclosed in the Grant Date Fair Value of Stock and Option
|
| | |
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” forAwards column represents 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 each award, as calculated in accordance with FASB ASC Topic 718. For a further discussion of our RSAs, see "Compensation Discussion and Analysis – Elements of Fiscal 2023 Target Pay – Long-Term Incentives – Restricted Stock Awards" on page 62. For a discussion concerning the restrictedeffect 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 76.
(4)These RSAs were granted to Ms. McCarthy on December 15, 2022 in connection with her promotion to Senior Vice President, and on February 15, 2023 in recognition of her additional responsibilities as Interim Chief Financial Officer and Treasurer. The award of RSAs to her in December 2022 was granted prior to her becoming an executive officer, and was approved by Mr. Aslett pursuant to a delegation of authority from the Committee allowing for his approval of non-executive LTI awards subject to certain dollar limits. For a further discussion of the awards, see "Recognition Awards for Michelle McCarthy" on page 63.
(5)PSAs vest on the third anniversary following their grant date. For awards granted during fiscal 2023, the final number of shares of our common stock earned in respect of each award has been calculated by multiplyingwill 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 2025. The amounts disclosed in the Estimated Future Payouts Under Equity Incentive Plan 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 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 FASB ASC Topic 718. For a further discussion of the PSAs granted in fiscal 2023, see "Compensation Discussion and Analysis – Elements of Fiscal 2023 Target Pay – Long-Term Incentives – Performance Stock Awards" beginning on page 62. For a discussion of design improvements applicable to PSAs granted in fiscal 2024, see "Compensation Discussion and Analysis – Summary of Compensation Actions for Fiscal 2024" on page 64. See also "– Potential Payments Upon Change in Control or Termination of Employment" beginning on page 76 for a discussion concerning the effect of a change in control or termination of employment on outstanding PSAs.
(6)Represents awards granted in connection with the hiring of the executive, including (a) to restore compensation forfeited with a prior employer as a result of the executive's commencement of employment with Mercury and (b) to further align the executive's interests with those of our shareholders. For a further discussion, see “Compensation Discussion and Analysis – Offer Letter with Christine Harbison” on page 63.
(7)Messrs. Aslett and Ruppert forfeited their fiscal 2023 payouts under the AIP by virtue of their resignations effective June 24, 2023 and February 17, 2023, respectively. For a further discussion, see "Compensation Discussion and Analysis — Resignations of Named Executive Officers During Fiscal 2023" on page 63.
Outstanding Equity Awards at 2023 Fiscal Year-End
The following table provides information with respect to holdings of unvested RSAs and PSAs held by the named executive officers at June 30, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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) ($) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested(3) (#) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested(2) ($) |
Current Employees: | | | | | | | | | | |
William L. Ballhaus | | 6/23/22 | (4) | 1,883 | | 65,133 | | — | | — |
| | 10/26/22 | (5) | 3,976 | | 137,530 | 34,993 | — | | — |
Michelle M. McCarthy | | 2/15/23 | (6) | 3,882 | | 134,278 | 35,091 | — | | — |
| | 12/15/22 | (6) | 2,714 | | 93,877 | | — | | — |
| | 2/15/22 | (6) | 5,863 | | 202,801 | | — | | — |
| | 8/16/21 | (6) | 2,624 | | 90,764 | | — | | — |
| | 8/17/20 | (6) | 1,757 | | 60,775 | | — | | — |
| | 8/15/19 | (6) | 708 | | 24,490 | | — | | — |
Christine F. Harbison | | 3/15/23 | (7) | 15,172 | | 524,799 | | 45,516 | | 1,574,398 |
James M. Stevison | | 2/15/22 | (7) | 9,648 | | 333,724 | | 14,473 | | 500,621 |
| | 11/15/21 | (7) | — | | — | | 15,393 | | 532,444 |
| | 10/15/21 | (7) | 11,235 | | 388,619 | | — | | — |
Charles R. Wells, IV | | 2/15/22 | (7) | 10,060 | | 347,975 | | 15,091 | | 521,998 |
| | 11/15/21 | (7) | 10,262 | | 354,963 | | 15,393 | | 532,444 |
Former Employees: | | | | | | | | | | |
Mark Aslett(8) | | — | | — | | — | | — | | — |
Michael D. Ruppert(8) | | — | | — | | — | | — | | — |
(1)Represents RSAs, which vest in equal annual increments during the vesting period, commencing on the first anniversary following the grant date. For a further discussion of the vesting periods for each award, see Notes 4-7 below. 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 76.
(2)The market value of each award is based on the closing price of our common stock as reported on the NASDAQ Global Select Market on the dateJune 30, 2023 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 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% |
The grant date fair value of the restricted stock award has been calculated$34.59, multiplied by multiplying the number of shares granted byreported for the closing priceaward.
(3)Reflects a number of shares of our common stock as reportedissuable under PSAs based on our level of performance to date through the NASDAQ Global Select Marketend of fiscal 2023. In the case of Ms. Harbison, the shares and related value that appear in this table for her PSAs reflect the Maximum level of performance because our performance through the end of fiscal 2023 exceeded the Target level of performance under her awards (which are based on performance over the datethree fiscal years ending in 2025). In the case of grant.Messrs. Stevison and Wells, the shares and related values that appear in this table for their PSAs reflect the Target level of performance because our actual performance through the end of fiscal 2023 was between the Threshold and Target levels of performance under their respective awards (which are based on performance over the three fiscal years ending in 2024). For a further discussion of our PSAs, see "Compensation Discussion and Analysis – Elements of Fiscal 2023 Target Pay – Long-Term Incentives – Performance Stock Awards" beginning on page 62. 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 76.
| |
(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(4)Represents RSAs granted to Mr. Ballhaus in the tables below butconnection with the commencement of his service as a non-employee director, which vest over the two-year period following performance periods and weightings: (i)the grant date.
(5)Represents annual RSA awards granted to non-employee directors, which vest over the one-year period following the grant date.
(6)RSA awards issued to recipients who do not serve as executive officers in a ratio of adjusted EBITDApermanent capacity vest over a four-year period following the grant date.
(7)RSA awards issued to revenue forpermanent executive officers vest over the three-year period endingfollowing the grant date.
(8)Messrs. Aslett and Ruppert forfeited all their outstanding and unvested LTI awards by virtue of their resignations effective June 30, 2019, percentile ranked relative to our peer group (75% weighting);24, 2023 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 “CompensationFebruary 17, 2023, respectively. For a further discussion, see "Compensation Discussion and Analysis.”
Our total compensation program consists —Resignations 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.
The potential payouts under our executive bonus program are set forth in 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 portion of the executive bonus program for fiscal 2017 were met, and corporate financial performance bonuses were paid under the terms of the program. 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.
Outstanding Equity Awards at 2017Named Executive Officers During Fiscal Year-End
The following table shows information2023" on all outstanding stock options and unvested restricted stock awards held by the named executive officers at the end of the last fiscal year. 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 Awardspage 63.
|
| | | |
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 showsprovides information regarding the vesting of RSAs and PSAs held by our named executive officers during fiscal 2023. No stock option exercisesoptions were held by any of the named executive officers during fiscal 2023.
| | | | | | | | | | | | | | |
| | Stock Awards |
Name | | Number of Shares Acquired on Vesting(1) (#) | | Value Realized on Vesting(2) ($) |
Current Employees: | | | | |
William L. Ballhaus | | 1,884 | | 65,695 |
Michelle M. McCarthy | | 5,927 | | 312,764 |
Christine F. Harbison | | — | | — |
James M. Stevison | | 10,443 | | 498,599 |
Charles R. Wells, IV | | 10,162 | | 532,260 |
Former Employees: | | | | |
Mark Aslett | | 111,603 | | 5,879,031 |
Michael D. Ruppert | | 35,693 | | 1,878,760 |
(1)The amounts reported in this column represent 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 thegross number of shares of restrictedour common stock held byacquired upon the named executive officers that vested duringvesting of RSAs and PSAs without taking into account shares sold on behalf of the last fiscal year, includingrecipient to satisfy applicable tax withholding obligations.
(2)The amounts reported in this column are calculated based on 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 market price of our common stock on the NASDAQ Global Select Market on such date.
Option Exercises and Stock Vested—Fiscal 2017
date of vesting.
|
| | | | | | | | | | | | | |
| 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 Benefits
The following table shows the actuarial present value of the pension benefit for the named executive officers as 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.
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) | The actuarial present value 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. |
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, we entered into an employment agreement with Mr. Aslett, a descriptionSeverance Arrangements; Effect of which can be found under the heading “Agreements with Named Executive Officers” below. Mr. Aslett’s 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.”
“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.
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| | | | | | | | | | | | | |
| 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 |
|
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(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. |
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(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” or by the executive for “good reason.”
“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 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.
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| | | | | | | | | | | | | | | | |
| 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 |
|
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(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 ControlLong-Term Incentive Awards
We have entered into change in control severance agreements with our CEOexecutive officers that provide certain benefits in the event of a termination of employment by us without cause or by the executive officer for good reason. The terms of these agreements are described below other than with respect to Messrs. Aslett or Ruppert, who resigned from the Company during fiscal 2023, and certainMr. Ballhaus, who did not enter into an agreement with us providing for such benefits until August 15, 2023 (in fiscal 2024). For a further discussion of ourthe resignations of Messrs. Aslett and Ruppert, see "Compensation Discussion and Analysis – Resignations of Named Executive Officers During Fiscal 2023" on page 63.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Benefit | | Standard Severance(1)
| | Change in Control Severance(1)(2) |
Qualifying Termination | |
Termination by Company without cause or by executive officer for good reason | |
Termination by Company without cause or by executive officer for good reason within 18 months following a Change in Control or during a protected period triggered by a potential change in control event.(3) |
Cash Severance | |
•12 months of base salary continuation
•Lump-sum payment of target bonus | |
Lump-sum payment equal to one and one-half times (1.5x) of the sum of:
•annual base salary; and
•target bonus
Prorated target bonus for the fiscal year in which termination occurs |
Outplacement | | Up to $30,000 in services | | Up to $45,000 in services |
Subsidized medical benefits at same cost as similarly situated active employees | | Up to 12 months of coverage | | Up to 18 months of coverage |
Accelerated Equity Vesting | | N/A | |
•Full acceleration of outstanding long-term incentive awards
•PSA payouts will be based on the greater of target or actual performance through the date of the change of control. |
(1)Ms. McCarthy's severance benefits are slightly different than those of the other executive officers. Forofficers in light of the interim nature of her executive officer role during fiscal 2017, we had such agreements2023. Under the Company's policies in effectwhich she participates, standard severance is payable only in connection with a termination by the following named executive officers: Mr. Aslett; Mr. Cambria; Mr. Haines; Mr. Speicher;Company without cause (and not based on a termination for good reason). In that event, based on her job level, the Company's severance policy would provide for cash severance of 52 weeks of base pay, outplacement services by the Company's designated outplacement firm, up to 52 weeks of healthcare benefits continuation at active employee rates and, Mr. Thibaud.if the termination is part of a qualified reduction in force, a lump sum payment of her target bonus, prorated to the last day of the most recently completed fiscal quarter. In the case of severance in connection with a change in control, Ms. McCarthy is a party to an agreement providing benefits that are similar to those set forth in the table, except that a qualifying termination outside of a protection period must occur within 12 months after than change of control (instead of within 18 months), the lump sum payment of base salary and bonus
will be at a multiple of 1.25x of compensation (instead of 1.5x) and outplacement services are with a firm designated by the Company (not subject to $30,000 in individual reimbursements).
(2)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. If
(3)In the event of a tender offer or exchange offer is made for more than 30% of our outstanding common stock, the executive has agreed not to leave our employ, except in 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 (orQualifying Termination during a potential change in control period, provided thatthe enhanced cash severance, outplacement and subsidized medical benefits are contingent upon the actual occurrence of 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, conviction 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 addition to the payment 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 (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 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-based 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 changethe date of termination (or within 12 months after termination in controlthe case of Mercury (or during a potential change in control period provided that a change in control takes place within 18 months thereafter),Ms. McCarthy).
In the executive’s employment is terminated (1) by us other than for “cause”event of an executive officer's death or disability, any unvested portion of a long-term incentive award previously granted to the executive officer will immediately vest, with achievements under performance stock awards being assessed based on actual performance through the end of the most recently completed fiscal quarter prior to the date of death or (2)disability. In the event of any other termination not otherwise described above, any unvested LTI awards held by the executive for “good reason.” “Cause” is definedofficer at 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 LTI awards that would be made by us to, or on behalf of, our named executive officers assuming the triggering event occurredtermination of their employment, under the circumstances described in the table, on June 30, 2017,2023, which is the last business day of our 2023 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. No amounts are qualified in the table below for Messrs. Aslett or Ruppert, who resigned from the Company before the end of the fiscal year. For a further discussion, see "Compensation Discussion and Analysis – Resignations of Named Executive Officers During Fiscal 2023" on page 63.
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| | | | Circumstances of Termination |
Name | | Benefit(1) | | By Mercury Without Cause | | By Executive for Good Reason | | In Connection With Change in Control(2) | | Death/Disability |
William L. Ballhaus(3) | | Accelerated Equity Vesting(4) | | $ | — | | | $ | — | | | $ | 202,663 | | | $ | 202,663 | |
| | | | | | | | | | |
Michelle M. McCarthy | | Cash Severance(5) | | 340,000 | | | — | | | 807,500 | | | — | |
| | Outplacement(6) | | 1,000 | | | — | | | 1,000 | | | — | |
| | Medical Benefits(7) | | 20,825 | | | — | | | 31,238 | | | — | |
| | Accelerated Equity Vesting(4) | | — | | | — | | | 606,985 | | | 606,985 | |
| | Total | | 361,825 | | | — | | | 1,446,723 | | | 606,985 | |
| | | | | | | | | | |
Christine F. Harbison | | Cash Severance(5) | | 830,000 | | | 830,000 | | | 1,660,000 | | | — | |
| | Outplacement(6) | | 30,000 | | | 30,000 | | | 45,000 | | | — | |
| | Medical Benefits(7) | | 20,825 | | | 20,825 | | | 31,238 | | | — | |
| | Accelerated Equity Vesting(4) | | — | | | — | | | 1,049,599 | | | 1,049,599 | |
| | Total | | 880,825 | | | 880,825 | | | 2,785,837 | | | 1,049,599 | |
| | | | | | | | | | |
James M. Stevison | | Cash Severance(5) | | 850,000 | | | 850,000 | | | 1,700,000 | | | — | |
| | Outplacement(6) | | 30,000 | | | 30,000 | | | 45,000 | | | — | |
| | Medical Benefits(7) | | 10,069 | | | 10,069 | | | 15,103 | | | — | |
| | Accelerated Equity Vesting(4) | | — | | | — | | | 1,755,408 | | | 1,755,408 | |
| | Total | | 890,069 | | | 890,069 | | | 3,515,511 | | | 1,755,408 | |
| | | | | | | | | | |
Charles R. Wells, IV | | Cash Severance(5) | | 830,000 | | | 830,000 | | | 1,660,000 | | | — | |
| | Outplacement(6) | | 30,000 | | | 30,000 | | | 45,000 | | | — | |
| | Medical Benefits(7) | | 20,685 | | | 20,685 | | | 31,027 | | | — | |
| | Accelerated Equity Vesting(4) | | — | | | — | | | 1,757,380 | | | 1,757,380 | |
| | Total | | 880,685 | | | 880,685 | | | 3,493,407 | | | 1,757,380 | |
| | | | | | | | | | |
(1) Receipt of the benefits set forth in this table, other than in the event of the executive officer's death or disability, is conditioned upon the executive officer'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 officer's employment is terminated by the Company without cause, or by the executive officer for good reason, within a specified time period in respect of each executive’sa potential change in control severance agreement as described above:
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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 76. 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 PaymentsPSAs through the date of the change in control (which 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) No benefits are reported for Mr. Ballhaus other than for accelerated equity vesting because we did not enter into an individual agreement with him regarding severance matters until August 15, 2023, which was after the end of fiscal 2023. The accelerated equity vesting amount that is disclosed for him as a consequence of a termination in connection with a change in control is applicable under the general terms of our broad-based stock incentive plan, and requires that a qualified termination of employment occur within six months after the change in control.
(4) The value reported 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 June 30, 2023; and
(b) the number of shares underlying the awards were adjusted to reflect the target level of performance under the awards.
(5) As discussed in "— Severance Arrangements; Effect of Termination of Employment upon TerminationLong-Term Incentive Awards" beginning on page 76, 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 as applicable. Cash severance also includes, as applicable, a prorated target bonus payment for the year in which the termination occurs (which is quantified in this table as the full amount of the target bonus, because the termination is assumed to occur on the last day of the fiscal year).
(6) 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.
(7) Medical benefits are based on the applicable multiple of the premiums paid by the Company in calendar 2023 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.
CEO Pay Ratio
We are providing the following information about the ratio for fiscal 2023 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 reasonable good faith estimate, calculated in a manner consistent with SEC rules, based on our payroll and employment records and the methodology described below.
We identified our median employee using our employee population as of April 3, 2023. As permitted by the SEC's pay ratio rules, we used the same median employee to calculate our fiscal 2023 pay ratio that we used to calculate our fiscal 2022 pay ratio, as we believe that there have been no changes in our employee population or Changeemployee compensation arrangements that would result in Control—Potential Paymentsa significant change to our pay ratio disclosure. See our 2022 proxy statement for information regarding the process we utilized to identify our "median employee."
As of the date we used to identify our median employee for fiscal 2023, our former CEO, Mark Aslett, was then serving as our principal executive officer. Accordingly, we are calculating the CEO Pay Ratio for fiscal 2023 by reference to our former CEO's compensation for fiscal 2023.
–Our former CEO's total annual compensation for fiscal 2023, calculated pursuant to SEC rules, was $835,533.
–Our median employee's total annual compensation for fiscal 2023, calculated pursuant to SEC rules, was $111,257.
–The resulting CEO pay ratio for fiscal 2023 is approximately 7.5:1.
The SEC rules for identifying the median compensated employee and calculating the CEO 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, the 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 compensation practices and may utilize different methodologies, exclusions, estimates and assumptions in calculating their own CEO pay ratios.
Pay Versus Performance
As required by Item 402(v) of Regulation S-K (the "PVP Rules"), the following sets forth information regarding an amount referred to as "compensation actually paid" (or "CAP") to our current CEO, William L. Ballhaus, and to our former CEO, Mark Aslett, who collectively served as our principal executive officers (or "PEOs") during our three most recently completed fiscal years, and to our named executive officers other than the PEOs during this this period (our "Other NEOs") whose compensation is reported either in our Summary Compensation Table beginning on page 68, or in the Summary Compensation Tables that appear in our prior proxy statements that report on executive compensation during the covered period.
Our Summary Compensation Tables disclose the total compensation paid to our PEOs and Other NEOs during the reported fiscal years in accordance with SEC rules, including the grant date fair value of stock-based awards granted during each fiscal year. As detailed further below, CAP for our PEOs and Other NEOs is calculated by replacing the value of stock-based awards that appear in our Summary Compensation Tables with amounts that reflect annual changes in the fair value of the stock awards granted to or held by the covered officers, including for each covered fiscal year:
◦Grants of LTI Awards:the year-end fair value of the awards granted in the covered fiscal year that remain outstanding and unvested as of the end of the year;
•Vestings of LTI Awards: the change in fair value from the end of the prior fiscal year to the vesting date with respect to any awards granted in prior years that vested in the covered fiscal year;
◦Forfeitures of LTI Awards: the loss in fair value as of the end of the prior fiscal year with respect to any awards granted in prior years that were forfeited in the covered fiscal year; and
•Prior LTI Awards that Remain Outstanding: the change in fair value from the end of the prior fiscal year to the end of the covered fiscal year with respect to any awards granted in prior years that are outstanding and unvested as of the end of the covered fiscal year.
Accordingly, a substantial portion of the amounts reported as CAP for the fiscal years indicated relate to unvested awards that are contingent upon unsatisfied service and performance requirements and that remain subject to stock price fluctuation. For a discussion of the amounts actually realized by our named executive officers upon the vesting of stock awards during fiscal 2023, see "— Options Exercised and Stock Vested" beginning on page 75.
The "Compensation Discussion and Analysis" section of this proxy statement beginning on page 45 sets forth the factors considered by Committee (and with respect to our current CEO and our former CEO, the Board) when reviewing and setting the compensation of our named executive officers for fiscal 2023. The amounts reported below as CAP were not considered as part of this process.
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Fiscal Year | | | | | | | | | | Value of Initial Fixed $100 Investment Based on: | | Net Income(4) | | Adjusted EBITDA(5) |
| Summary Compensation Table Total for Current PEO(1) | | CAP to Current PEO(1)(2) | | Summary Compensation Table Total for Former PEO(1) | | CAP to Former PEO(1)(2) | | Average Summary Compensation Table Total for Other NEOs(1) | | Average CAP to Other NEOs(1)(2) | | Company Total Shareholder Return(3) | | Spade Defense Index Total Shareholder Return(3) | |
2023 | | $ | 255,967 | | $ | 92,270 | | $ | 836,533 | | $ | (22,242,077) | | $ | 813,657 | | $ | (1,656,080) | | $ | 43.06 | $ 152.99 | $ | 152.99 | | $ | (28.30) | | $ | 132.30 |
2022 | | — | | — | | 18,859,871 | | 22,797,417 | | 4,959,848 | | 7,195,351 | | 79.73 | 128.13 | 128.13 | | $ | 11.30 | | $ | 200.50 |
2021 | | — | | — | | 4,949,119 | | 1,559,821 | | 1,709,461 | | 597,369 | | 82.20 | 136.60 | 136.60 | | $ | 62.00 | | $ | 201.90 |
(1) The PEOs and Other NEOs whose compensation is reported in the table above include the current and former officers disclosed in the table below.
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Covered Officer or Group | | Fiscal Year(s) | | Name | | Title |
Current PEO | | 2023 | | William L. Ballhaus(a) | | President and Chief Executive Officer |
Former PEO | | 2021-2023 | | Mark Aslett(a) | | Former President and Chief Executive Officer |
Other NEOs | | 2023 | | Michele M. McCarthy(a) | | SVP, Chief Accounting Officer and Former Interim Chief Financial Officer and Treasurer |
| 2023 | | Christine F. Harbison(a) | | EVP, Chief Growth Officer |
| 2022-2023 | | James M. Stevison | | EVP, President of Mission Systems |
| 2022-2023 | | Charles R. Wells | | EVP, President of Microelectronics |
| 2021-2023 | | Michael D. Ruppert(a) | | Former EVP, Chief Financial Officer and Treasurer |
| 2022 | | Thomas Huber | | Former EVP, Chief Transformation Officer |
| 2021 | | Christopher C. Cambria | | EVP, General Counsel and Secretary |
| 2021 | | Didier M.C. Thibaud | | Former EVP, Chief Operating Officer |
(a) For a discussion of changes in employment, roles and responsibilities during fiscal 2023, see the Notes to the Summary Compensation Table beginning on page 68.
(2) CAP reflects the total compensation reported in the Summary Compensation Table for the applicable fiscal year, as adjusted in accordance with the table below.
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Covered Officer or Group | | Fiscal Year | | Summary Compensation Table Total | | Deduction of Stock Awards Included in Summary Compensation Table Total | | Year End Fair Value of Outstanding and Unvested Equity Awards Granted in Covered Fiscal Year(a) | | Year-Over-Year Change in Fair Value of Outstanding and Unvested Equity Awards Granted in Prior Fiscal Year | | Fair Value at End of Prior Fiscal Year of Equity Awards Forfeited in Covered Fiscal Year(b) | | Year-over-Year Change in Fair Value of Equity Awards Granted in Prior Years that Vested in the Covered Fiscal Year | | Compensation Actually Paid |
Current PEO | | 2023 | | $ | 255,967 | |
| $ | (190,967) | | (c) | $ | 137,530 | | | $ | (55,394) | | | $ | — | | | $ | (54,866) | | | $ | 92,270 | |
| | | | | | | | | | | | | | | | |
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Former PEO | | 2023 | | 836,533 | | | — | | | — | | | — | | | (21,075,879) | | | (2,002,731) | | | (22,242,077) | |
| | 2022 | | 18,859,871 | | | (16,981,781) | | | 21,054,950 | | | 671,932 | | | — | | | (807,555) | | | 22,797,417 | |
| | 2021 | | 4,949,119 | | | (3,732,297) | | | 4,049,633 | | | (3,677,514) | | | — | | | (29,120) | | | 1,559,821 | |
Other NEOs (group average) | | 2023 | | 813,657 | | | (361,958) | | | 277,383 | | | (875,095) | | | (1,313,428) | | | (196,639) | | | (1,656,080) | |
| 2022 | | 4,959,848 | | | (2,745,023) | | | 4,992,208 | | | 54,101 | | | — | | | (65,783) | | | 7,195,351 | |
| 2021 | | 1,709,461 | | | (1,078,205) | | | 665,928 | | | (693,131) | | | — | | | (6,684) | | | 597,369 | |
(a) No LTI awards issued in any of the covered fiscal years vested within the same year.
(b) Amounts reported in this column represent the fair value of unvested LTI awards forfeited by Messrs. Aslett and Ruppert by virtue of their resignations effective June 24, 2023 and February 17, 2023, respectively. For a further discussion, see "Compensation Discussion and Analysis—Resignations of Named Executive Officers upon TerminationDuring Fiscal 2023" on page 63. No other LTI awards failed to meet applicable vesting conditions during any of Employment followingthe covered fiscal years reported.
(c) Represents a Changededuction for the aggregate grant date fair value of stock awards granted to Mr. Ballhaus in Control.”
his capacity as a non-employee director during fiscal 2023. For a further discussion, see Notes 5 and 6 to the Summary Compensation Table beginning on page 68.
(3) Total shareholder returns ("TSRs") are based on an initial $100 investment, measured on a cumulative basis from the market closing price on July 2, 2020 through the market close on the last trading day of each covered fiscal year in each of Mercury common stock and the Spade Defense Index. We use the Spade Defense Index both as a performance modifier under our PSAs granted in fiscal 2024 and in the stock performance graph required by Item 201(e) of Regulation S-K included in our annual report to shareholders.
REPORT OF THE COMPENSATION COMMITTEE(4) Amounts reported in millions.
(5) We have designated adjusted EBITDA as our Company-Selected Measure under the PVP Rules, which is reported in this table in millions. Adjusted EBITDA is the principal financial measure used under our AIP to align annual payouts with performance. Adjusted EBITDA is a non-GAAP financial measure that excludes the effects of pre-established categories of
items that the Human Capital and Compensation Committee believes are not reflective of operating performance. These categories are identical to the adjustments that we use for the external reporting of our adjusted EBITDA results in our periodic earnings releases. For a further discussion, see "Compensation Discussion and Analysis—Elements of Target Pay—Annual Incentives" beginning on page 59 and "Appendix B: Reconciliation of Non-GAAP Measures to GAAP Measures." The Committee does not consider the calculation of CAP as part of its executive compensation determinations; accordingly, the Committee does not actually use any financial performance measure specifically to link CAP to Company performance.
Most Important Financial Measures Used to Link Compensation with Performance
The Compensation Committee has reviewedtable below provides an unranked list of the financial measures that we consider to have been the most important for fiscal 2023 in linking the compensation of our PEOs and discussedOther NEOs to our performance. For a further discussion of how these measures are used to align payouts with management the Compensationperformance, see "Compensation Discussion and Analysis included in this proxy statement, and basedAnalysis—Elements of Target Pay—Annual Incentives" beginning on such review and discussion, the Compensation Committee recommended to Mercury’s Board that the Compensationpage 59, "Compensation Discussion and Analysis be includedAnalysis—Elements of Target Pay—Long-Term Incentives" beginning on page 61, and "Appendix B: Reconciliation of Non-GAAP Measures to GAAP Measures." The Committee does not consider the calculation of CAP as part of its executive compensation determinations; accordingly, the Committee does not actually use any financial performance measure specifically to link CAP to Company performance.
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Most Important Financial Performance Measures for Fiscal 2023 |
Adjusted EBITDA | Revenue | Adjusted Free Cash Flow |
Three-Year Adjusted EBITDA Margin | Three-Year Revenue Growth | |
Relationships Between CAP and Selected Performance Measures
The following chart illustrates the relationship between the Combined CAP for our PEOs, the Average CAP for Other NEOs and the total shareholder returns set forth in this proxy statementthe Pay Versus Performance Table on page 80 for our three most recently completed fiscal years.
The following chart illustrates the relationship between the Combined CAP for our PEOs, the Average CAP for Other NEOs and be incorporated by reference into Mercury’s annual reportour net income results as set forth in the Pay Versus Performance Table on Form 10-Kpage 80 for our three most recently completed fiscal years.
The following chart illustrates the relationship between the Combined CAP for our PEOs, the Average CAP for Other NEOs and our Adjusted EBITDA results as set forth in the Pay Versus Performance Table on page 80 for our three most recently completed fiscal year ended June 30, 2017.years.
By the Compensation Committee of the Board of
Directors of Mercury Systems, Inc.Michael A. Daniels, ChairmanMary 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 during their service on the Committee. Messrs. Nearhos and O'Brien and Mses. Disbrow and Plunkett served on the Committee for the full fiscal year ended June 30, 2023. Mr. Ballhaus served on the Committee from July 1, 2022 until June 24, 2023, at which time he was appointed as the Company's interim President and Chief Executive Officer and at which time he ceased to be a member of the Committee. Mr. Bass served on the Committee from July 1, 2022 until his term on the Board ended at the 2022 Annual Meeting of Shareholders. Mr. DeMuro, an independent director, joined the Committee during July 2023 (fiscal 2024). None of the members of the Audit Committee was an officer or employee of the Company during their service on the Committee, 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 Ms. Plunkett is "financially literate" as such terms are defined under SEC rules. Mr. DeMuro, who joined the Committee in fiscal 2024, is an "audit committee financial expert."
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 oversee 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 June 30, 2023, the overall scope and plans for their audit of the consolidated financial statements for the fiscal year ended June 30, 2023. 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 controls2023 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 June 30, 2023, 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, and28, 2024.
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, Communicationsthe applicable requirements of the PCAOB, 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 adopted bycurrently in effect and discussed with KPMG their independence from management and the Public 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’sauditor'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 June 30, 2023 be included in Mercury’s annual reportthe Annual Report on Form 10-K for the fiscal year ended June 30, 2017.2023.
By the Audit Committee of the Board of
Directors of Mercury Systems, Inc.
William K. O’Brien, ChairmanBarry R. Nearhos, Chair
James K. BassGerard J. DeMuro
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, 2018.28, 2024. KPMG served as our independent registered public accounting firm for the fiscal years ended June 30, 20172023 and 2016.July 1, 2022. A representative of KPMG is expected to be present at the annual meeting2023 Annual Meeting of shareholdersShareholders 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, 20172023 (fiscal 2023) and 2016July 1, 2022 (fiscal 2022) were as follows:
|
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| Fiscal 2017 | | Fiscal 2016 |
Audit | $1,706,500 | | $1,802,000 |
Audit-Related | 180,000 | | 1,007,861 |
Tax | 10,800 | | 149,220 |
All Other | — |
| | — |
|
| $1,897,300 | | $2,959,081 |
| | | | | | | | | | | |
| Fiscal 2023 | | Fiscal 2022 |
Audit Fees | $ | 2,647,454 | | | $ | 2,666,600 | |
Audit-Related Fees | — | | | — | |
Tax Fees | — | | | — | |
All Other Fees | — | | | — | |
| $ | 2,647,454 | | | $ | 2,666,600 | |
Audit fees for fiscal years 20172023 and 2016 were2022 represent the aggregate fees billed for professional services provided by our independent registered public accounting firm 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. Audit fees10-Q, as well as the statutory review of a foreign subsidiary, and for fiscal years 2017 and 2016 also were for consents issued relating to registration statements in each fiscal year and for the auditor comfort letter provided in connection with the Company's underwritten follow-on common stock offerings 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.year.
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
For fiscal years 2023 and 2022, 100% of acceptable services andall 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 judgedwere approved 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. Committee.
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.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 2017, Michael A. Daniels, George K. Muellner, and Vincent Vitto served on the Compensation Committee for the entire fiscal year. No member of the committee 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 service as a director) requiring disclosure in this proxy statement.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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, 2017,2023, 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.satisfied.
The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy materials with respect to two or more shareholders sharing the same address by delivering a single proxy statement and annual report addressed to those shareholders. This process, which is commonly referred to as householding, potentially means extra convenience for shareholders and cost savings for companies. We have not
implemented householding rules with respect to our record holders. However, a number of brokers with account holders who are shareholders may be householding our proxy materials. If a shareholder receives a householding notification from his, her, or its broker, a single proxy statement and annual report will be delivered to multiple shareholders sharing an address unless contrary instructions have been received from an affected shareholder. Once you have received notice from your broker that they will be householding communications to your address, householding will continue until you are notified otherwise.
Shareholders who currently receive multiple copies of the proxy materials at their address and would like to request householding of their communications should contact their broker. In addition, if any shareholder that receives a householding notification wishes to receive a separate annual report and proxy statement at his, her, or its address, such shareholder should also contact his, her, or its broker directly.
SHAREHOLDER PROPOSALS FOR THE 20182024 ANNUAL MEETING
Under regulations adopted by the SEC, any shareholder proposal submitted for inclusion in Mercury’sour proxy statement relating to the 2018 annual meeting2024 Annual Meeting of shareholdersShareholders must be received at our principal executive offices on or before May 23, 2018.24, 2024. Such proposals must meet the requirements of Rule 14a-8 to be eligible for inclusion in our proxy statement. 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 2018 annual meeting,2024 Annual Meeting, notice of them, whether or not they are included in Mercury’sour 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, 2018June 27, 2024 and no later than June 20, 2018.July 27, 2024. 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.
In addition to satisfying the above requirements under our by-laws, to comply with the SEC's universal proxy rules, shareholders who intend to solicit proxies in support of director nominees other than the Company's nominees must provide notice that sets forth the additional information required by Rule 14a-19 no earlier than June 27, 2024 and no later than July 27, 2024. We reserve the right to reject, rule out of order, or take other appropriate action with respect to any proposal that does not comply with these and other applicable requirements.
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, 20172023 (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
21, 2023
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 11,312,000, 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 11,312,000 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 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: October 26, 2022
DATE RESTATEMENT APPROVED BY BOARD OF DIRECTORS: April 26, 2023
DATE RESTATEMENT APPROVED BY BOARD OF DIRECTORS: September 14, 2023
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 2023 |
Net loss | | $ | (28,335) | |
Other non-operating adjustments, net | | (1,589) | |
Interest expense, net | | 24,106 | |
Income tax benefit | | (20,207) | |
Depreciation | | 43,777 | |
Amortization of intangible assets | | 53,552 | |
Restructuring and other charges | | 6,981 | |
Impairment of long-lived assets | | — | |
Acquisition, financing and other third party costs | | 10,019 | |
Fair value adjustments from purchase accounting | | 356 | |
Litigation and settlement expense, net | | 495 | |
COVID related expenses | | 67 | |
Stock-based and other non-cash compensation expense | | 43,031 | |
Adjusted EBITDA | | $ | 132,253 | |
Organic revenue and acquired revenue are non-GAAP measures for reporting financial performance of our business. We believe this information provides investors with insight as to our ongoing business performance. Organic revenue represents total company revenue excluding net revenue from acquired companies for the first four full quarters since the entities' acquisition date (which excludes intercompany transactions). Acquired revenue represents revenue from acquired companies for the first four full quarters since the entities' acquisition date (which excludes intercompany transactions). After the completion of four full fiscal quarters, acquired revenue is treated as organic for current and comparable historical periods.
The following table reconciles the most directly comparable GAAP financial measure to the non-GAAP financial measure:
| | | | | | | | |
(in thousands) | | Fiscal 2023 |
Organic revenue | | $ | 948,814 | |
Acquired revenue | | 25,068 | |
Net revenues | | $ | 973,882 | |
|
| | | |
(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 |
|
Free cash flow, a non-GAAP measure for reporting cash flow, is defined as cash provided by operating activities less
capital expenditures for property and equipment, which includes capitalized software development costs, and,
therefore, has not been calculated in accordance with GAAP. Management believes free cash flow provides investors
with an important perspective on cash available for investment and acquisitions after making capital investments
required to support ongoing business operations and long-term value creation. The Company believes that trends in its
free cash flow are valuable indicators of its operating performance and liquidity.
Free cash flow is a non-GAAP financial measure and should not be considered in isolation or as a substitute for
financial information provided in accordance with GAAP. This non-GAAP financial measure may not be computed in
the same manner as similarly titled measures used by other companies. The Company expects to continue to incur
expenditures similar to the free cash flow financial adjustment described above, and investors should not infer from
the Company's presentation of this non-GAAP financial measure that these expenditures reflect all of the Company's
obligations which require cash.
The following table reconciles the most directly comparable GAAP financial measure to the non-GAAP financial
measure.
| | | | | | | | |
(in thousands) | | Fiscal 2023 |
Net cash used in operating activities | | $ | (21,254) | |
Purchases of property and equipment | | (38,796) | |
Free cash flow | | $ | (60,050) | |