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MTS Systems Corporation 14000 Technology Drive Eden Prairie, MN 55344-2290 Telephone 952-937-4000 Fax: 952-937-4515 Info@mts.com www.mts.com | |
December 30, 2014 | |
Dear MTS Shareholder: | |
MTS is holding a Virtual Annual Meeting of Shareholders this year on Tuesday, February 10, 2015, at 11:45 a.m. Central Standard Time. You may attend the Annual Meeting, vote, and submit a question during the Annual Meeting by visiting www.virtualshareholdermeeting.com/MTSC2015. You will need to provide your 12-digit control number that is on your Notice of Internet Availability of Proxy Materials or on your proxy card if you receive materials by mail. | |
Your vote is important to us. Last year, approximately 94% of the Company’s shares were voted at the Annual Meeting, and we thank our shareholders for their response. We urge you to cast your vote, as instructed in the Notice of Internet Availability of Proxy Materials, over the Internet or by telephone as promptly as possible. You may also request a paper proxy card to submit your vote by mail, if you prefer. And, as indicated above, you may vote during the Annual Meeting online at www.virtualshareholdermeeting.com/MTSC2015. Please help us to achieve another high response rate for the meeting on February 10, 2015. | |
I encourage you to attend our Virtual Annual Meeting of Shareholders on February 10, 2015, at 11:45 a.m. Central Standard Time by visiting www.virtualshareholdermeeting.com/MTSC2015. |
1. | To elect nine directors to hold office until the next annual meeting of shareholders or until their successors are duly elected; |
2. | To ratify the appointment of KPMG LLP as the Company’s independent registered public accounting firm for fiscal 2015; |
3. | To hold a non-binding, advisory vote to approve the compensation of the Company’s named executive officers; |
4. | To approve the MTS Systems Corporation Executive Variable Compensation Plan; and |
5. | To transact such other business as may properly come before the meeting or any adjournments or postponements thereof. |
For the Board of Directors, | ||
Steven G. Mahon | ||
Secretary |
All shareholders are cordially invited to attend the virtual annual meeting of shareholders at www.virtualshareholdermeeting.com/MTSC2015. Whether or not you expect to attend, please vote over the Internet at www.proxyvote.com or by telephone at 1-800-690-6903. Alternatively, you may request a paper proxy card, which you may complete, sign and return by mail. The proxy is solicited by the Board of Directors and may be revoked or withdrawn by you at any time before it is exercised. |
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1 |
David J. Anderson – Age 67 Director since 2009 Chair since 2011 | Director of Modine Manufacturing Company (developer and manufacturer of thermal management systems and components) since 2010 and a member of its Corporate Governance and Nominating Committee, Compensation Committee and Audit Committee; Director of Schnitzer Steel Industries, Inc. (metals recycler and steel manufacturer) since 2009 and Chair of its Nominating and Corporate Governance Committee and Audit Committee member; Co-Vice Chairman of Sauer-Danfoss, Inc. (developer and manufacturer of fluid power and electronic components and systems for mobile equipment applications) from 2008 until June 2009; President, Chief Executive Officer and Director of Sauer-Danfoss Inc. from 2002 until he retired in 2009; held various senior management positions with Sauer-Danfoss Inc. from 1984 to 2008; prior to 1984, held various positions in sales, marketing and applications engineering within several manufacturing and distribution businesses. Mr. Anderson served on the boards of directors of the National Fluid Power Association and the National Fluid Power Association Education and Technology Foundation, chairing each in 2008 and 2009. Mr. Anderson’s qualifications to serve on our Board and to serve as the Chair of the Board include his more than 40 years of international, industrial business experience and his chief executive officer and operations experience. He also has technology and engineering experience, the ability to formulate and execute strategy and financial expertise. | |
Jeffrey A. Graves – Age 53 Director since 2012 | President and Chief Executive Officer of the Company since May 2012; President, Chief Executive Officer and a director of C&D Technologies, Inc. (a manufacturer, marketer and distributer of electrical power storage systems for the standby power storage market) from July 2005 until May 2012; various executive positions at Kemet Electronics Corporation (a manufacturer of high-performance capacitor solutions) from 2001 to 2005, including Chief Executive Officer; various leadership positions with General Electric Company’s Power Systems Division and Corporate Research & Development Center from 1995 to 2001; prior to 1995, held various positions of increasing responsibility at Rockwell International Corporation and Howmet Corporation. Mr. Graves has served as a director of Teleflex Incorporated and Hexcel Corporation since 2007, and he served on the board of Technitrol, Inc. from January 2006 through May 2007. As the only member of management serving on our Board, Mr. Graves contributes an in-depth understanding of the opportunities and challenges facing our Company. His experience in both executive and board positions at various technology companies gives him insight into strategic, financial and personnel matters, as well as the considerations particular to public companies. | |
David D. Johnson – Age 58 Director since 2013 | Executive Vice President, Treasurer and Chief Financial Officer of Molex Incorporated (manufacturer of electronic connectors) since 2005; Vice President, Treasurer and Chief Financial Officer of Sypris Solutions, Inc., from 1996 to 2005; served as Regional Controller for Molex’s Far East Region; Financial Director for New Ventures and Acquisitions; and Financial Director for the Far East South Region from 1984 to 1996. Mr. Johnson’s qualifications to serve on our Board include his chief financial officer experience for a global industrial company. Mr. Johnson has had executive-level responsibility for financial and accounting matters in a number of settings, including international contexts. |
2 |
Emily M. Liggett – Age 59 Director since 2010 | President and Chief Executive Officer of NovaTorque, Inc. (manufacturer of high-efficiency electric motor systems) since 2009; President and Chief Executive Officer of Apexon, Inc. (provider of supply chain optimization software solutions for global manufacturers) from 2004 to 2007; President and Chief Executive Officer of Capstone Turbine Corporation (provider of microturbine systems for clean, continuous distributed energy generation) from 2002 to 2003; and various management and executive roles at Raychem Corporation (manufacturer of materials, electronics, telecom and energy products acquired by Tyco International in 1999) from 1984 to 2001, including Corporate Vice President of Raychem and Managing Director of Tyco Ventures. Ms. Liggett currently serves on the board of directors of UCT Corporation, a public company, and the Advisory Board of the Purdue University College of Engineering. She has served on the board of directors of Immersion Corporation, a public company, within the last five years. Ms. Liggett’s qualifications to serve on our Board include her chief executive officer and management experience in a variety of technical industrial companies. She has managed worldwide businesses, partnerships, and international joint ventures. She also has public company and private company operating and board experience, and expertise in strategy, operations, new product development, sales, marketing, and business development for highly technical businesses. | |
Randy J. Martinez – Age 59 Director since 2014 | Group Vice President, Aviation Services, and President and Chief Executive Officer, AAR Airlift Group, a subsidiary of AAR Corp from 2009 to present. Prior to his current role, Mr. Martinez held other leadership roles within AAR Corporation, including Group Vice President, Government and Defense Services, and Senior Vice President, Government and Defense Programs. Before joining AAR in 2009, Mr. Martinez was the Chief Executive Officer at World Air Holdings, Inc. (NASDAQ). As a graduate of the United States Air Force Academy, Mr. Martinez served with distinction in the U.S. Air Force for over 21 years, holding a wide variety of leadership roles, including both line command and senior staff positions. Mr. Martinez currently serves on the Board of the National Defense Transportation Association (NDTA), serving as Chair for the Aviation Sector. Mr. Martinez’s qualifications to serve on our Board include his experience as a chief executive officer at a public company and his particular knowledge of the aviation and defense industries. His diverse industry experience assists in helping to understand our customers who are also diverse by industry and geography. |
3 |
Barb J. Samardzich – Age 56 Director since 2001 | Chief Operating Officer of Ford of Europe for Ford Motor Company (car and truck manufacturer) since November 2013; Vice President, Product Development of Ford Motor Company from September 2011 to November 2013; Vice President of Global Product Programs of Ford Motor Company from January 2011 to September 2011; Vice President of Powertrain Engineering of Ford Motor Company from 2005 to 2010; Executive Director - Small FWD and RWD Vehicles of Ford Motor Company from 2002 to 2005; Chief Engineer for the Automatic Transmission Engineering Operations of Ford Motor Company from 2000 to 2002; Quality Director for the Small and Medium Vehicle Center of the European operations of Ford Motor Company from 1999 to 2000; Chief Program Engineer for F650/F750 Ford trucks of Ford Motor Company from 1998 to 1999; previously held various positions in the Powertrain division of Ford Motor Company from 1990 to 1998; and various engineering, sales and marketing positions in the Commercial Nuclear Fuel Division of Westinghouse Electric Corporation from 1981 to 1990. Ms. Samardzich’s qualifications to serve on our Board include her extensive management and operations experience at a worldwide automotive manufacturing company. She has significant engineering experience, value creation and profit and loss responsibilities. | |
Michael V. Schrock – Age 61 Director since 2014 | Advisor for Oak Hill Capital Partners, a private equity investment firm since March 2014; President and Chief Operating Officer from 2006 until his retirement in December 2013 for Pentair LLC, a global water, fluid, thermal management, and equipment protection company based in Schaffhausen, Switzerland. Prior to that role, Mr. Schrock held several leadership positions at Pentair over his 16-year career, including President of Water Technologies Americas, President of the Pump and Pool Group and President/COO of Pentair Technical Products. Before joining Pentair, Mr. Schrock held numerous senior leadership roles in both the US and Europe at Honeywell International Inc. Mr. Schrock is currently on the boards of Plexus Corporation, Berlin Packaging and The National MS Society, as well as serving on the Board of Governors of the St. Thomas School of Engineering. Mr. Schrock’s experience includes more than 35 years in senior roles at major industrial companies. His deep management and operating experience both domestically and internationally and strong track record leading and integrating strategic acquisitions gives our Board valuable insight into global business and acquisition matters. |
4 |
Gail P. Steinel – Age 57 Director since 2009 | Owner of Executive Advisors (provider of leadership development services and strategic/profit improvement consulting) since 2007; Executive Vice President, Consumer, Industrial & Technology business unit at BearingPoint (a global technology and management consulting company) from 2002 to 2007; and progressive management experience at Arthur Andersen (provider of audit, tax and consulting services), where her final position was Global Managing Partner of the Business Consulting Division, from 1979 to 2002. Ms. Steinel serves on several boards, including the Board of Trustees of Federal Realty Investment Trust and is Chairperson of its Audit Committee. Ms. Steinel’s qualifications to serve on our Board include her global managing partner experience running a large global business, more than 30 years of business management consulting providing global strategy, policy development, complex problem solving and operations consulting services, as well as her financial expertise and experience as a certified public accountant. | |
Chun Hung (Kenneth) Yu – Age 65 Director since 2013 | Retired; Vice President, Global Channel Services, International Operations for 3M Company (diversified manufacturer of consumer, industrial and health products) from May 2013 to December 2013; President, China Region and 3M China from 2000 to May 2013; President, 3M Taiwan from 1999 to 2000; served in several Director and leadership roles within the 3M organization from 1969 to 1999, located in St. Paul, Minnesota, and the Asian-Pacific region. Mr. Yu’s qualifications to serve on our Board include his extensive operations experience in the Asian-Pacific region, a market we have identified as a growth opportunity for our Company’s products and services. Mr. Yu also contributes significant leadership, planning and management skills developed during his long tenure with a successful and growing global manufacturing company. |
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Role | Annual Cash Retainer | |||
Chairman of the Board | $ | 110,000 | ||
All other non-employee directors | $ | 45,000 | ||
Additional retainers for committee participation | ||||
Audit Committee | ||||
Chair | $ | 18,000 | ||
All other committee members | $ | 8,000 | ||
Compensation Committee | ||||
Chair | $ | 10,000 | ||
All other committee members | $ | 4,000 | ||
Governance and Nominating Committee | ||||
Chair | $ | 11,000 | ||
All other committee members | $ | 5,000 |
9 |
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) (1)(2) | All Other Compensation ($) (3) | Total ($) | |||||||||
David J. Anderson | 118,000 | 134,051 | 5,644 | 257,695 | |||||||||
Jean-Lou Chameau | 54,000 | 95,063 | 3,985 | 153,048 | |||||||||
Brendan C. Hegarty (4) | 13,500 | — | 945 | 14,445 | |||||||||
David D. Johnson | 55,000 | 95,063 | 2,173 | 152,236 | |||||||||
Emily M. Liggett | 56,000 | 95,063 | 3,985 | 155,048 | |||||||||
Randy J. Martinez | 34,081 | 82,510 | 772 | 117,363 | |||||||||
William V. Murray (4) | 25,000 | — | 1,552 | 26,552 | |||||||||
Barb J. Samardzich | 55,000 | 95,063 | 3,985 | 154,048 | |||||||||
Michael V. Schrock | 32,081 | 82,510 | 772 | 115,363 | |||||||||
Gail P. Steinel | 67,000 | 95,063 | 3,986 | 166,049 | |||||||||
Kenneth Yu | 50,000 | 95,063 | 1,191 | 146,254 |
(1) | Amounts represent aggregate grant date fair value during fiscal 2014 under FASB ASC Topic 718, based on the valuation and utilizing the assumptions discussed in Note 2 to our Notes to Consolidated Financial Statements for the fiscal year ended September 27, 2014. On the date of our annual meeting of shareholders held in February 2014, Mr. Anderson was awarded 1,867 restricted stock units and each of Mr. Chameau, Mr. Johnson, Ms. Liggett, Ms. Samardzich, Ms. Steinel and Mr. Yu was awarded 1,324 restricted stock units with a grant date fair value of $71.80 per share. Mr. Martinez and Mr. Schrock were each awarded 1,286 restricted stock units with a grant date fair value of $64.16 per share on April 15, 2014, representing a prorated amount based upon the time served on the board during fiscal year 2014. |
10 |
(2) | As of September 27, 2014, the directors held the following number of restricted stock or restricted stock units: Mr. Anderson – 4,061 (including 1,867 restricted stock units granted in fiscal 2014); Mr. Chameau – 2,829 (including 1,324 restricted stock units granted in fiscal 2014); Mr. Johnson – 1,869 (including 1,324 restricted stock units granted in fiscal 2014); Ms. Liggett – 2,829 (including 1,324 restricted stock units granted in fiscal 2014); Mr. Martinez – 1,286 (including 1,286 restricted stock units granted in fiscal 2014); Ms. Samardzich – 2,829 (including 1,324 restricted stock units granted in fiscal 2014); Mr. Schrock – 1,286 (including 1,286 restricted stock units granted in fiscal 2014); Ms. Steinel – 2,829 (including 1,324 restricted stock units granted in fiscal 2014); and Mr. Yu – 1,869 (including 1,324 restricted stock units granted in fiscal 2014). Prior to the grants made in fiscal 2014, all directors received restricted stock instead of restricted stock units. |
(3) | Reflects cash dividends paid on unvested restricted stock unit awards in fiscal 2014. |
(4) | Messrs. Hegarty and Murray only served for a portion of the fiscal year as Mr. Murray did not stand for re-election at last year’s Annual Meeting and Mr. Hegarty retired effective November 19, 2013. |
11 |
Fiscal Year ($000’s) | |||||||
2013 | 2014 | ||||||
Audit Fees(1) | $ | 1,478 | $ | 1,637 | |||
Audit-Related Fees(2) | 15 | 58 | |||||
Tax Fees(3) | 27 | 266 | |||||
All Other Fees(4) | – | – | |||||
Total fees | $ | 1,520 | $ | 1,961 |
(1) | Includes annual audit of consolidated financial statements, certain statutory audits, Sarbanes-Oxley Section 404 attestation services, and other filings with the Securities and Exchange Commission. |
(2) | Audit-related fees consist of fees for audits of our employee benefit plan and assistance with due diligence related to an acquisition. |
(3) | Tax fees consist of fees for tax compliance and tax consultation services. |
(4) | There were no other fees in fiscal 2013 or fiscal 2014. |
12 |
Gail P. Steinel (Chair) | David J. Anderson | David D. Johnson | Randy J. Martinez |
13 |
● | Compensation Overview for Fiscal 2014. During fiscal 2014, the components of our executive compensation program remained consistent with our previous practices. As further described below, while the Committee continues to evaluate and adjust the Company’s compensation practices as it deems appropriate, the Committee did not make substantial changes in fiscal 2014 given the overwhelming approval of the non-binding advisory vote to approve the compensation of our named executive officers at last year’s annual meeting of shareholders with a “for” vote of more than 99% of the votes cast. However, due to the fact that the Company changed the timing of its annual long-term incentive awards from early July to December in order to evaluate all elements of direct pay (base salary, short-term cash incentives and long-term equity incentives) at the same time each year, we effectively skipped a year of granting long-term equity incentive awards in fiscal 2013 and adjusted the value of the awards made in December 2013 by 140% to make the participants whole for the delayed grant. As a result of this, overall compensation levels increased in fiscal 2014 from fiscal 2013 mainly because of this timing issue related to the grant of long-term equity incentive awards. |
● | Strong Performance-Based Compensation Awards and Payouts. Our executive compensation is tightly linked with performance. |
● | As with past years, we adopted an Executive Variable Compensation (“EVC”) Plan through which the named executive officers were eligible to earn cash incentive compensation based upon achievement of specific financial objectives for fiscal 2014, recommended by the Committee and approved by the Board, that are designed to challenge the named executive officers to high performance. |
● | The Committee actively considers the impact of unusual or one-time events on our financial performance in setting the performance goals under the EVC Plan. |
● | As named executive officers assume greater responsibility, a larger portion of their total cash compensation is risk based and dependent on Company and business segment performance. |
● | The Committee targets annual base salaries around the median base salaries of salary survey data, with the EVC Plan designed to allow the named executive officer to earn above-target compensation only when the named executive officer delivers and, as a Company, we deliver performance that is also above target. |
14 |
● | Long-Term Incentive Awards that Provide Value to the Shareholders as Well as the Executive. Annually, the Committee reviews the mix of equity awards delivered to executive officers and structures awards in the way it believes will most effectively drive long-term growth objectives. For the fiscal 2014 grant made in December 2013, the Committee continued with its practice of granting equity awards to the executive officers in an even mix of stock options and restricted stock units because it believes that this award structure provides balanced growth-oriented incentives aligned with our shareholders’ interests. During fiscal 2014, the Committee discussed performance metrics to be used in its long-term incentive awards and reviewed performance measures used by the Company’s peers and by a general industry group in long-term incentive plans as provided by Towers Watson. The Committee has decided that, on a go-forward basis, it will no longer grant time-vested restricted stock units and instead will grant performance restricted stock units using return on invested capital (“ROIC”) as a performance metric. The Committee believes that measuring ROIC over a three-year period is an appropriate performance measure for such performance restricted stock unit awards given its emphasis on profitability with a longer term view. For fiscal 2015, the Committee continued to maintain an even mix of stock options and performance restricted stock units over a three year period. In order to transition to a three-year period, stub cycles of one and two years in length and associated performance targets for the initial awards granted in fiscal 2015 were established to address the transition from the current time-vested restricted stock units. ROIC is a non-GAAP financial measure calculated by dividing adjusted net income by average invested capital. Adjusted net income is calculated by excluding after-tax interest expense from reported net income. Average invested capital is defined as the aggregate of average interest-bearing debt and average shareholders’ investment and is calculated as the sum of current and prior year ending amounts divided by two. |
● | Appropriate Comparisons. As part of our salary structure analysis, we compare market data, adjusted for revenue size, to current base salaries. As in past years, the Committee conducted a proxy review based on compensation peer companies and then had Towers Watson review management’s processes for setting base salary and long-term incentive ranges for our named executive officers. |
● | Stock Ownership Expectations. Our compensation programs encourage employees to build and maintain an ownership interest in the Company. We have established specific stock ownership guidelines for executive officers, which are reviewed annually by the Committee. In September 2014, the Committee, together with the Governance and Nominating Committee, approved revisions to our Executive and Independent Director Stock Ownership Policy that, among other things, increased the target ownership levels for certain of our executive officers at a salary grade level of E4 (including all of our named executive officers currently with the Company), added a non-compliance penalty and modified the holding requirements for equity acquired through our equity compensation plans by providing that a minimum of 75% of the net proceeds (net of taxes) must be held until ownership levels are met. |
● | Emphasis on Quality Compensation Practices. We renewed our commitment to several significant compensation practices that we believe contribute to good governance. |
● | Our EVC Plan and 2011 Stock Incentive Plan each contain a recoupment, or “clawback,” provision. These clawback provisions require a named executive officer to forfeit and allow us to recoup any payments or benefits received by the named executive officer under the EVC Plan or the 2011 Stock Incentive Plan under certain circumstances, such as certain restatements of our financial statements, termination of employment for cause, and breach of an agreement between us and the named executive officer. |
● | The compensation consultant is retained directly by and reports to the Committee. The compensation consultant does not provide any services to management personally and had no prior relationship with any of our named executive officers. |
● | Change in Control and Severance Arrangements. In order to promote consistent, transparent and market-competitive treatment across the whole executive team, as well as increasing the Company’s flexibility in being able to change the terms of such arrangements, we adopted an Executive Severance Plan and an Executive Change in Control Severance Plan on September 30, 2013 that came into effect in fiscal 2014. These plans are used now instead of individual agreements. |
● | Jeffrey A. Graves, Chief Executive Officer; |
● | Susan E. Knight, Senior Vice President and Chief Financial Officer; |
15 |
● | William E. Bachrach, Senior Vice President, Sensors; |
● | Michael B. Jost, Senior Vice President, Test; and |
● | Steven G. Mahon, Senior Vice President, General Counsel and Chief Compliance Officer. |
● | establish and maintain a systematic compensation program whereby executives are compensated in relation to their level of responsibility and work performance; |
● | maintain a compensation program that will enable us to attract and retain qualified and competent executives; |
● | provide flexibility within the compensation program to meet changing competitive and economic conditions; |
● | maintain equitable and consistent relationships between positions within the Company; |
● | ensure that compensation policies and practices are consistent with effective risk management; and |
● | align executive and shareholder interests. |
16 |
Actuant Corporation | Graco, Inc. | |
Arctic Cat Inc. | Hurco Companies Inc. | |
Axcelis Technologies Inc. | Measurement Specialties Inc. | |
Badger Meter Inc. | Methode Electronics, Inc. | |
Brooks Automation Inc. | Mettler-Toledo International Inc. | |
Cabot Microelectronics Corporation | MKS Instruments Inc. | |
Cognex Corporation | Moog Inc. | |
Cohu Inc. | National Instruments Corporation | |
CTS Corporation | Perceptron Inc. | |
ESCO Technologies Inc. | Symmetricom Inc. | |
FARO Technologies Inc. | Tennant Company | |
FEI Company | Teradyne Inc. |
17 |
● | Why we choose to pay each component; |
● | The basis for payment of each component or what each component is designed to reward; and |
● | How we determine the amount for each component. |
18 |
Element of Compensation | Why Component Is Paid & Basis for Component | How Component Is Determined for Named Executive Officers | ||||
Base Salary | To provide a fixed level of competitive income, based on: | Within range of competitive pay, targeted to median of market data | ||||
● | the individual’s scope of responsibility | |||||
● | the individual’s level of performance and experience | |||||
Short-Term Cash Incentive | To provide focus and rewards for achievement of fiscal year financial goals: | Performance based | ||||
● | EVC Plan, with Committee-determined performance goals and minimum/target/maximum levels of achievement for each named executive officer | |||||
● | Performance goals for Corporate and Test for fiscal 2014: | |||||
— | Earnings Per Share (“EPS”) weighted at 30% | |||||
— | Earnings Before Interest and Taxes (“EBIT”) weighted at 30% | |||||
— | Revenue weighted at 25% | |||||
— | Orders weighted at 15% | |||||
● | Performance goals for Sensors for fiscal 2014: | |||||
— | EPS weighted at 30% | |||||
— | EBIT weighted at 30% | |||||
— | Revenue weighted at 40% | |||||
Long-Term Equity Incentive | To provide an incentive for delivering long-term shareholder value, to align interests of executives and shareholders, and to retain executives | Value of equity awards designed to be within the range of competitive pay, targeted to median of market data; award values aligned with individual and company performance during the fiscal year | ||||
● | Value of awards determined with reference to grant guideline ranges | |||||
● | Value based on recipient’s responsibilities, individual performance, previous awards granted and progress toward satisfying the stock ownership guidelines | |||||
● | Delivered through a combination of stock options and restricted stock units (“RSUs”), each vesting in equal installments over a 3-year period for the grants made in December 2013 for fiscal 2014 | |||||
● | The performance RSUs that were granted in December 2014 for fiscal 2015 will vest based on the performance measure of ROIC instead of time-based vesting |
19 |
Element of Compensation | Why Component Is Paid & Basis for Component | How Component Is Determined for Named Executive Officers | ||||
Benefits | To provide competitive retirement and health benefits | Based upon competitive market | ||||
U.S.-based named executive officers participate in most of the same benefit plans made available to our other U.S.-based salaried employees. They include: | ||||||
● | Retirement savings plan with a Company match | |||||
● | Disability and life insurance | |||||
● | Health and welfare (medical, vision and dental) | |||||
U.S.-based named executive officers also are eligible to participate in our non-qualified Executive Deferred Compensation Plan, which allows us to provide non-qualified benefits that are identical to the tax-qualified plan benefits but on income above the allowable level of the qualified plans. | ||||||
Perquisites | To provide limited executive perquisites | Based upon competitive market and, in the case of the physical examinations, to promote vitality and succession in the executive team | ||||
● | All of our named executive officers receive a car allowance | |||||
● | Any named executive officer who receives an executive physical examination can be reimbursed for amounts not covered by insurance up to $3,000 |
20 |
Named Executive Officer | Fiscal 2014 Annualized Base Salary | Fiscal 2014 Annualized Base Salary as a Percent of Median of Base Salary Comparable |
Jeffrey A. Graves | $637,000 | 102% |
Susan E. Knight | $361,000 | 103% |
William E. Bachrach | $309,000 | 124% |
Michael B. Jost | $330,000 | 110% |
Steven G. Mahon | $345,000 | 110% |
Goal | Description | Weight for Messrs. Graves, Jost and Mahon and Ms. Knight | Weight for Mr. Bachrach |
EPS | Earnings per share for fiscal 2014 | 30% | 30% |
EBIT | Earnings before interest and taxes for fiscal 2014 | 30% | 30% |
Revenue | Revenue for fiscal 2014 | 25% | 40% |
Orders | The total contractual intentions to sell products and services in fiscal 2014 | 15% | — |
21 |
Named Executive Officer | % of Fiscal 2014 Base Salary at Target Achievement | % of Fiscal 2014 Base Salary at Maximum Achievement |
Jeffrey A. Graves | 75% | 150% |
Susan E. Knight | 50% | 100% |
William E. Bachrach | 50% | 100% |
Michael B. Jost | 50% | 100% |
Steven G. Mahon | 50% | 100% |
22 |
Corporate Goal (1) | Threshold(2) | Target | Maximum | Result | Percent of Target Performance Achieved |
EPS | $3.09 | $3.63 | $4.36 | $3.01 | 0% |
EBIT (in 000) | $72,335 | $85,100 | $102,120 | $65,471 | 0% |
Revenue (in 000) | $505,580 | $594,800 | $713,760 | $564,328 | 83% |
Orders (in 000) | $500,650 | $589,000 | $706,800 | $615,586 | 123% |
(1) | Specific performance goals for the Test and Sensors segments and their corresponding minimum, target and maximum amounts are not disclosed due to the competitive harm of such disclosure. For fiscal 2014, the Committee followed the same pattern in setting segment-specific performance levels as for setting the corporate performance levels: minimum is equal to 85% of the expected results under the applicable segment’s annual plan, target is equal to expected results, and maximum is equal to 120% of expected results. |
(2) | Represents the hurdle performance required at which 50% payout begins. |
Named Executive Officer and Payout Attributable to Performance Goal | ||||||||||||||||||||||||
Performance Goal | Percent of Target Payout Achieved | Jeffrey A. Graves | Susan E. Knight | William E. Bachrach(2) | Michael B. Jost(1) (2) | Steven G. Mahon | ||||||||||||||||||
EPS | 0% | — | — | — | — | — | ||||||||||||||||||
EBIT | 0% | — | — | $50,248 | — | — | ||||||||||||||||||
Revenue | 83% | $98,243 | $37,111 | $67,724 | $18,522 | $35,481 | ||||||||||||||||||
Orders | 123% | $87,153 | $32,922 | — | $17,550 | $31,476 | ||||||||||||||||||
Total | $185,396 | $70,033 | $117,972 | $36,072 | $66,957 | |||||||||||||||||||
Total as % of Target | 39% | 39% | 77% | 38% | 39% |
(1) | Mr. Jost’s Letter Agreement provided for a guaranteed minimum payout of 50% of base salary paid for fiscal 2014, which resulted in a payout of $47,595, as reflected in the Summary Compensation Table. |
(2) | Achievement of the performance goals relating to EBIT and Revenue for corporate performance for fiscal 2014 does not apply to Mr. Bachrach or Mr. Jost. Amounts attributable to each of these measures represent amounts attributable to actual achievement in fiscal 2014 by the Sensor segment and Test segment of the performance goal noted. |
23 |
Named Executive Officer | Number of Shares Underlying Stock Options | Number of Restricted Stock Units | Aggregate Value of Awards |
Jeffrey A. Graves | 68,241 | 10,462 | $1,358,000 |
Susan E. Knight | 16,884 | 2,589 | $336,000 |
William E. Bachrach | 12,312 | 1,888 | $245,000 |
Steven G. Mahon | 16,181 | 2,481 | $322,000 |
24 |
Named Executive Officer | Number of Shares Underlying Stock Options | Number of Performance Restricted Stock Units at Target | Aggregate Value of Awards |
Jeffrey A. Graves | 32,854 | 8,010 | $1,073,000 |
William E. Bachrach | 8,420 | 2,053 | $275,000 |
Steven G. Mahon | 8,114 | 1,978 | $265,000 |
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Barb J. Samardzich (Chair) | David D. Johnson | Michael V. Schrock | Gail P. Steinel |
● | Our use of different types of compensation provides a balance of short-term and long-term incentives with fixed and variable components; | |
● | Our compensation plan design and the governance processes work together to minimize exposure to excessive risk, while creating a focus on operational activities that contribute to long-term shareholder value creation; | |
● | The metrics used to determine the amount of a participant’s bonus under our short-term incentive plans focus on a combination of Company-wide metrics and business unit performance using a balance of top and bottom line growth measures; | |
● | Our bonus plans impose threshold and maximum payout levels on bonus awards to ensure that we are rewarding desired performance and limiting windfalls; | |
● | Commission-based plans are aligned to drive business growth and support achievement of short- and long-term strategic objectives; | |
● | Incentive programs for executive officers include clawback provisions and allow the use of negative discretion; |
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● | Our stock ownership guidelines encourage a prudent contribution to shareholder value and discourage excessive risk taking; and | |
● | Our system of internal controls places a strong focus on avoiding undue financial risk through rigorous review processes. |
Name and Principal Position | Year | Salary ($) | Bonus(1) ($) | Stock Awards(2) ($) | Option Awards(2) ($) | Non- Equity Incentive Plan Compen- sation(3) ($) | All Other Compensation(4) ($) | Total ($) | ||||||||
Jeffrey A. Graves President and Chief Executive Officer | 2014 2013 2012 | 631,887 612,467 230,768 | — — 461,538 | 678,984 — 689,074 | 953,320 — 236,605 | 185,396 232,112 — | 17,161 27,723 130,122 | 2,466,748 872,302 1,748,107 | ||||||||
Susan E. Knight Senior Vice President, Chief Financial Officer | 2014 2013 2012 | 358,042 346,930 337,963 | — — — | 168,026 — 144,525 | 235,868 — 90,400 | 70,033 93,914 156,496 | 16,176 27,723 27,359 | 848,145 468,567 756,743 | ||||||||
William E. Bachrach Senior Vice President, Sensors | 2014 2013 | 306,580 161,538 | — 100,769 | 122,531 123,233 | 171,997 68,375 | 117,972 — | 16,176 15,167 | 735,256 469,082 | ||||||||
Michael B. Jost Senior Vice President, Test | 2014 | 190,380 | 107,595 | 127,531 | 134,997 | — | 7,283 | 567,786 | ||||||||
Steven G. Mahon Senior Vice President, General Counsel and Chief Compliance Officer | 2014 2013 2012 | 342,316 331,926 315,000 | — 50,000 100,000 | 161,017 — 231,563 | 226,045 — 198,458 | 66,957 89,853 145,863 | 58,483 27,723 21,324 | 854,818 499,502 1,012,208 |
(1) | Amounts for Mr. Graves include an inducement cash bonus ($300,000) plus the guaranteed minimum EVC Plan payout of 70% of base salary paid for fiscal 2012 ($161,538). Amounts for Mr. Jost include an inducement cash bonus ($60,000) plus the guaranteed minimum EVC Plan payout of 50% of base salary paid for fiscal 2014 ($47,595). Amounts for Mr. Mahon represent inducement cash bonuses, which were paid over two fiscal years. Amount for Mr. Bachrach includes an inducement cash bonus ($20,000) plus the guaranteed minimum EVC Plan payout of 50% of base salary paid for fiscal 2013 ($80,769). |
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(2) | Amounts represent the aggregate grant date fair value of restricted stock units and stock options that were granted in each fiscal year as computed in accordance with FASB ASC Topic 718 utilizing the assumptions discussed in Note 2 to our Notes to Consolidated Financial Statements for the fiscal year ended September 27, 2014. Annual long-term equity incentive awards were not made during fiscal 2013 because of the shift in timing from July to December grants in order to align the grant with the timing of annual performance reviews. The annual long-term equity incentive award value made in fiscal 2014 represents a 1.4 times increase in the typical annual grant size to account for the shift in timing of the grant. |
(3) | Represents amounts awarded for fiscal 2014 performance under the EVC Plan and paid out in the first quarter of fiscal 2015. |
(4) | The table below describes the amounts in the “All Other Compensation” column above. In fiscal 2014, Mr. Mahon spent approximately six months stationed in China working on behalf of the Company. The amounts reported in the table above under “Spousal Travel”, “Relocation and Temporary Living Expenses” and “Tax Gross-Up” relate to this overseas assignment. |
Retirement Plan | ||||||||
Name | Match $ | Fiscal Year Contribution(1) $ | Car $ | Life Insurance Premiums, Executive Physical and Health Saving Account Contributions $ | Spousal Travel $ | Relocation & Temp. Living Expenses $ | Tax Gross-Up $ | Total $ |
Jeffrey A. Graves | 7,650 | — | 8,040 | 1,471 | — | — | — | 17,161 |
Susan E. Knight | 7,650 | — | 8,040 | 486 | — | — | — | 16,176 |
William E. Bachrach | 7,650 | — | 8,040 | 486 | — | — | — | 16,176 |
Michael B. Jost | 2,285 | — | 4,690 | 308 | — | — | — | 7,283 |
Steven G. Mahon | 7,650 | — | 8,040 | 755 | 14,906 | 19,135 | 7,997 | 58,483 |
(1) | No discretionary Fiscal Year Contribution was made in fiscal 2014 given overall company performance, but the column is included for comparative purposes to prior fiscal years. |
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Estimated Future Payouts Under Non-Equity Incentive Plan Awards(2) | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Options Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Options Awards ($/Sh)(4) | Grant Date Fair Value of Stock and Option Awards ($)(5) | ||||||||||||
Name | Grant Date | Approval Date | Award Type(1) | Threshold(3) ($) | Target ($) | Maximum ($) | ||||||||||
Jeffrey A. Graves | Cash | 36,700 | 489,327 | 978,654 | — | — | — | — | ||||||||
12/04/2013 | 11/18/2013 | Options | — | — | — | — | 68,241 | 64.90 | 953,320 | |||||||
12/04/2013 | 11/18/2013 | RSUs | — | — | — | 10,462 | — | — | 678,984 | |||||||
Susan E. Knight | Cash | 13,538 | 180,500 | 361,000 | — | — | — | — | ||||||||
12/04/2013 | 11/18/2013 | Options | — | — | — | — | 16,884 | 64.90 | 235,868 | |||||||
12/04/2013 | 11/18/2013 | RSUs | — | — | — | 2,589 | — | — | 168,026 | |||||||
William E. Bachrach | Cash | 26,650 | 177,664 | 355,328 | — | — | — | — | ||||||||
12/04/2013 | 11/18/2013 | Options | — | — | — | — | 12,312 | 64.90 | 171,997 | |||||||
12/04/2013 | 11/18/2013 | RSUs | — | — | — | 1,888 | — | — | 122,531 | |||||||
Michael B. Jost | Cash | 12,375 | 165,000 | 330,000 | — | — | — | — | ||||||||
03/15/2014 | 01/19/2014 | Options | — | — | — | — | 12,814 | 71.97 | 134,997 | |||||||
03/15/2014 | 01/19/2014 | RSUs | — | — | — | 1,772 | — | — | 127,531 | |||||||
Steven G. Mahon | Cash | 13,251 | 176,680 | 353,360 | — | — | — | — | ||||||||
12/04/2013 | 11/18/2013 | Options | — | — | — | — | 16,181 | 64.90 | 226,045 | |||||||
12/04/2013 | 11/18/2013 | RSUs | — | — | — | 2,481 | — | — | 161,017 |
(1) | The cash awards were made pursuant to the EVC Plan, and the grants of stock options and RSUs were made pursuant to the 2011 Stock Incentive Plan. |
(2) | The EVC Plan performance goals for fiscal 2014 are described under “Compensation Discussion and Analysis – Design of EVC Plan and Review of Fiscal 2014 Performance.” |
(3) | Threshold amounts can be calculated for each individual performance measure, and in each case are equal to 50% of the target amount payable with respect to that measure. The amounts reported as threshold amounts in the table represent the payout that would have been made if threshold performance were achieved for the performance measure assigned the lowest weight for the respective named executive officer, assuming that threshold performance was not achieved for any other performance measure. |
(4) | Equal to the closing market value of shares on the grant date. |
(5) | The grant date fair value of options is calculated using a multiple option form of the Black-Scholes option valuation model with assumptions for interest rate, expected life, share price volatility and dividend yield. The grant date fair value of RSUs is calculated with reference to the fair market value of the underlying shares (the closing market value of shares on the grant date). See Note 2 to our Notes to Consolidated Financial Statements for the fiscal year ended September 27, 2014. |
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Option Awards | Stock Awards | |||||||||||
Number of Securities Underlying Unexercised Options (1) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock Held That Have Not Vested (#) | Market Value of Shares or Units of Stock Held That Have Not Vested ($)(2) | ||||||||
Name | Exercisable (#) | Un- Exercisable (#) | ||||||||||
Jeffrey A. Graves | 19,194 | 9,596 | 39.38 | 07/02/2017 | ||||||||
0 | 68,241 | 64.90 | 12/04/2020 | |||||||||
16,395 | 1,126,992 | |||||||||||
Susan E. Knight | 0 | 3,666 | 39.38 | 07/02/2017 | ||||||||
0 | 16,884 | 64.90 | 12/04/2020 | |||||||||
3,812 | 262,037 | |||||||||||
William E. Bachrach | 2,250 | 4,500 | 54.77 | 04/15/2018 | ||||||||
0 | 12,312 | 64.90 | 12/04/2020 | |||||||||
3,388 | 232,891 | |||||||||||
Michael B. Jost | 0 | 12,814 | 71.97 | 03/15/2021 | ||||||||
1,772 | 121,807 | |||||||||||
Steven G. Mahon | 5,600 | 5,600 | 36.94 | 11/15/2016 | ||||||||
6,667 | 3,333 | 39.38 | 07/02/2017 | |||||||||
0 | 16,181 | 64.90 | 12/04/2020 | |||||||||
4,496 | 309,055 |
(1) | Stock options granted with a five-year term, exercisable in three equal installments each year beginning on the first anniversary of the grant date. |
(2) | The market value of unvested restricted stock units equals the closing price of our Common Stock on the NASDAQ Stock Market at fiscal year end ($68.74) multiplied by the number of shares or units. The restricted stock units vest in three equal annual installments beginning on the first anniversary of the grant date. |
Option Awards | Stock Awards | ||||||||
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vest(1) (#) | Value Realized on Vest(2) ($) | |||||
Jeffrey A. Graves | — | — | 3,938 | 269,533 | |||||
Susan E. Knight | 23,334 | 616,154 | 812 | 56,661 | |||||
William E. Bachrach | — | — | 491 | 31,503 | |||||
Michael B. Jost | — | — | — | — | |||||
Steven G. Mahon | 5,600 | 193,984 | 1,338 | 91,449 |
(1) | For Mr. Graves, Ms. Knight, Mr. Bachrach and Mr. Mahon, the number of shares acquired equals the difference between the number of restricted stock units vested and the number of such units withheld by the Company to cover tax withholding requirements. The number of restricted stock units that vested before the withholding was 5,933 for Mr. Graves, 1,223 for Ms. Knight, 750 for Mr. Bachrach and 2,016 for Mr. Mahon. |
(2) | The value realized on the vesting of the restricted stock units is the fair market value of our Common Stock at the time of vesting. |
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Name | Executive Contributions in Last FY ($)(1) | Registrant Contributions in Last FY ($) | Aggregate Earnings in Last FY ($)(2) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at Last FYE ($) | |||||
William E. Bachrach | 15,329 | — | 428 | — | 15,757 |
(1) | Contributions were included in the amount reported in the “Salary” column of the Summary Compensation Table. | |
(2) | Earnings are determined on a calendar-year basis; earnings were 3.0% for 2014. This amount was not reported in the Summary Compensation Table because it does not represent above-market or preferential earnings. |
31 |
Termination of Employment in Conjunction with a Change in Control | Change in Control (without Termination of Employment) | Termination (without Change in Control) | ||||||||||||||
Name | Cash Payment ($)(1) | Accelerated Vesting ($)(2) | Benefits ($)(3) | Total Value ($) | Accelerated Vesting ($)(2) | Cash Payment ($)(4) | Benefits ($)(5) | Total Value ($) | ||||||||
Jeffrey A. Graves | 1,707,589 | 1,670,776 | 23,416 | 3,401,781 | 1,670,776 | 637,000 | 15,029 | 652,029 | ||||||||
Susan E. Knight | 951,709 | 434,505 | 17,514 | 1,403,728 | 434,505 | 361,000 | 11,094 | 372,094 | ||||||||
William E. Bachrach | 870,024 | 343,034 | 23,416 | 1,236,474 | 343,034 | 309,000 | 15,029 | 324,029 | ||||||||
Michael B. Jost | 669,380 | 121,807 | 23,416 | 814,603 | 121,807 | 330,000 | 15,029 | 345,029 | ||||||||
Steven G. Mahon | 908,076 | 647,127 | 43,559 | 1,598,762 | 647,127 | 345,000 | 432 | 345,432 |
(1) | Pursuant to the named executive officer’s Change in Control Agreement, represents two times his or her annual compensation (consisting of annual base salary; the average of the cash incentive payment made pursuant to the EVC Plan for each of the prior three fiscal years, excluding any payments made with respect to a partial fiscal year; and other non-plan based payments during the previous 12-month period prior to the date of termination). |
32 |
(2) | Represents the aggregate value of stock options and restricted stock units held by each named executive officer that were not vested as of September 27, 2014 but whose vesting and exercisability would have been accelerated under the terms of the 2011 Stock Incentive Plan (assuming that the awards were not assumed or substituted by an acquiring entity). The value of accelerating each unvested stock option is equal to the difference between the Stock Price and the exercise price of such option. The value of accelerating each unvested restricted stock unit is equal in each case to the Stock Price. |
(3) | Pursuant to the named executive officer’s Change in Control Agreement, represents payments made for life, disability, and accident and health insurance benefits for 18 months following termination. For Mr. Mahon, this amount includes spousal travel and relocation and temporary living expenses of $42,038 related to his overseas assignment received in fiscal 2014. |
(4) | Pursuant to the named executive officer’s Severance Agreement, represents annual base salary plus the target annualized cash incentive payment under the EVC Plan. |
(5) | Pursuant to the Executive Severance Plan, represents payments made for life, accident and health insurance benefits for 12 months following termination. |
33 |
34 |
35 |
36 |
Number of Shares | Percent | ||||||
Name and Address of Beneficial Owner | Beneficially Owned | Note | of Class | ||||
Mairs and Power, Inc. 332 Minnesota Street, Suite W-1520 Saint Paul, MN 55101 | 1,823,382 | (1) | 12.10 | % | |||
BlackRock, Inc. 40 East 52nd St. New York, New York 10022 | 1,353,756 | (2) | 9.90 | % | |||
Ariel Investments, LLC 200 E. Randolph Drive, Suite 2900 Chicago, IL 60601 | 1,003,574 | (3) | 6.66 | % | |||
Royce & Associates, LLC 745 Fifth Avenue New York, NY 10151 | 937,948 | (4) | 6.22 | % | |||
The Vanguard Group, Inc. 100 Vanguard Blvd. Malvem, PA 19355 | 937,353 | (5) | 6.22 | % | |||
NewSouth Capital Management, Inc. 999 S. Shady Rd., Suite 501 Memphis, TN 38120 | 758,183 | (6) | 5.03 | % | |||
Jeffrey A. Graves | 52,134 | (7) | * | ||||
Susan E. Knight | 35,541 | (7) (8) | * | ||||
William E. Bachrach | 7,371 | (7) | * | ||||
Michael B. Jost | 0 | (7) (9) | |||||
Steven G. Mahon | 22,006 | (7) | * | ||||
David J. Anderson | 14,756 | (7) | * | ||||
Jean-Lou Chameau | 11,759 | (7) | * | ||||
David D. Johnson | 7,142 | * | |||||
Emily M. Liggett | 9,290 | (7) | * | ||||
Randy J. Martinez | 1,286 | (7) | * | ||||
Barb J. Samardzich | 23,609 | (7) | * | ||||
Michael V. Schrock | 1,286 | (7) | * | ||||
Gail P. Steinel | 10,414 | (7) | * | ||||
Kenneth Yu | 3,142 | (7) | * | ||||
All directors and executive officers as a group (15 persons) | 217,843 | (10) | 1.44 | % |
* Less than 1%. |
(1) | According to the Schedule 13G/A filed on February 6, 2014 with the SEC. Includes 1,446,980 shares over which Mairs and Power, Inc. has sole voting power and 1,823,382 shares over which Mairs and Power, Inc. has sole dispositive power. |
(2) | According to the Schedule 13G/A filed on January 30, 2014 with the SEC. Includes 1,298,096 shares over which BlackRock, Inc. has sole voting power and 1,353,756 shares over which BlackRock, Inc. has sole dispositive power. |
(3) | According to the Schedule 13G filed on February 14, 2014 with the SEC. Includes 881,214 shares over which Ariel Investments, LLC has sole voting power and 1,003,574 shares over which Ariel Investments, LLC has sole dispositive power. |
(4) | According to the Schedule 13G/A filed on January 13, 2014 with the SEC. Includes 937,948 shares over which Royce & Associates, LLC has sole voting power and sole dispositive power. |
(5) | According to the Schedule 13G/A filed on February 11, 2014 with the SEC. Includes 22,546 shares over which The Vanguard Group, Inc. has sole voting power, 914,807 shares over which The Vanguard Group, Inc. has sole dispositive power and 22,546 shares over which The Vanguard Group, Inc. has shared dispositive power. |
37 |
(6) | According to the Schedule 13G filed on February 7, 2014 with the SEC. Includes 620,838 shares over which NewSouth Capital Management, Inc. has sole voting power and 758,183 shares over which NewSouth Capital Management, Inc. has sole dispositive power. |
(7) | Includes the following number of shares which could be purchased under stock options exercisable within 60 days of December 16, 2014: Mr. Graves – 41,941 shares; Ms. Knight – 5,628 shares; Mr. Bachrach – 6,354; Mr. Mahon – 17,661 shares; Mr. Anderson – 3,274 shares; Mr. Chameau – 2,348 shares; Mr. Johnson – 1,324 shares; Ms. Liggett – 2,348 shares; Mr. Martinez – 1,286 shares; Ms. Samardzich – 2,348 shares; Mr. Schrock – 1,286 shares; Ms. Steinel – 2,348 shares; and Mr. Yu – 1,324 shares. |
(8) | Includes 10,000 shares owned jointly with Ms. Knight’s spouse. Voting and investment power over those shares are shared accordingly. |
(9) | Mr. Jost is no longer an officer of the Company as of October 16, 2014. As a result, the number of shares beneficially owned by Mr. Jost is current as of his Form 4 filing on March 17, 2014. |
(10) | Includes 18,107 shares held by executive officers not listed in this table of which 15,829 shares could be purchased under stock options exercisable within 60 days of December 16, 2014. |
Plan Category | Securities to Be Issued Upon Exercise of Outstanding Options, Warrants and Rights (1) (#)(in thousands) | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights (2) ($) | Securities Remaining Available for Future Issuance Under Equity Compensation Plans (3) (#)(in thousands) | ||||||
Equity Compensation Plans Approved by Securityholders | 707 | 40.36 | 1,288 | ||||||
Equity Compensation Plans Not Approved by Securityholders | – | – | – | ||||||
Total | 707 | 40.36 | 1,288 |
(1) | Reflects securities to be issued upon the exercise of vested stock options and the vesting of restricted stock units under our 2006 Stock Incentive Plan and 2011 Stock Incentive Plan. |
(2) | The weighted-average exercise price set forth in this column is calculated excluding outstanding restricted stock and restricted stock unit awards, since recipients are not required to pay an exercise price to receive the shares subject to these awards. |
(3) | Includes securities available for future issuance under the 2011 Stock Incentive Plan other than those listed in the first column, and approximately 720,000 shares available for issuance under the 2012 Employee Stock Purchase Plan. |
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40 |
● | By Internet before the Annual Meeting: You may access the website at www.proxyvote.com to cast your vote 24 hours a day, 7 days a week. You will need your control number found in the Notice of Internet Availability. Follow the instructions provided to obtain your records and create an electronic ballot. |
● | By telephone: If you reside in the United States or Canada, you may call 1-800-690-6903 by using any touch-tone telephone, 24 hours a day, 7 days a week. Have your Notice of Internet Availability in hand when you call and follow the voice prompts to cast your vote. |
● | By mail: If you request a paper proxy card, mark, sign and date each proxy card you receive and return it in the postage-paid envelope provided or to the location indicated on the proxy card. |
● | At the Annual Meeting: If you are a shareholder of record, you may attend the Annual Meeting and vote your shares at www.virtualshareholdermeeting.com/ MTSC2015 during the meeting. You will need your control number found in the Notice of Internet Availability. Follow the instructions provided to vote. |
● | Returning a later-dated proxy by Internet, telephone or mail; |
● | Delivering a written notice of revocation to our Corporate Secretary at 14000 Technology Drive, Eden Prairie, Minnesota 55344; or |
● | Attending the virtual Annual Meeting and voting. Your attendance at the Annual Meeting will not by itself revoke a proxy that you have previously submitted. |
● | FOR the election of each of the nominated directors (see Proposal 1 on page 1); |
● | FOR the ratification of the appointment of KPMG LLP as our independent registered public accounting firm for fiscal 2015 (see Proposal 2 on page 12); |
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● | FOR the non-binding, advisory vote to approve the compensation of the Company’s named executive officers (see Proposal 3 on page 33); and |
● | FOR the approval of the MTS Systems Corporation Executive Variable Compensation Plan (see Proposal 4 on page 34). |
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MTS Systems Corporation | |
Executive Variable Compensation (EVC) Plan |
i |
Section | Page | |||
Section 1. | Establishment and General Purpose of the Plan | 1 | ||
Section 2. | Definitions | 1 | ||
Section 3. | Administration | 2 | ||
Section 4. | Eligibility and Participation | 3 | ||
Section 5. | Performance Goals and Performance Periods | 3 | ||
Section 6. | Qualified Performance-Based Compensation | 4 | ||
Section 7. | Payment of Bonus Awards; Recoupment | 4 | ||
Section 8. | Amendment and Termination | 5 | ||
Section 9. | Miscellaneous | 6 |
ii |
Section 1. | Establishment and General Purpose of the Plan |
1.1 | Establishment. On November 18, 2014, the Board of Directors of MTS Systems Corporation, upon recommendation by the Compensation Committee of the Company’s Board of Directors, approved a restated incentive plan for executives as described herein. The name of this plan is the “MTS Systems Executive Variable Compensation (EVC) Plan” (the “Plan”). The material terms of the Plan shall be submitted for approval by the shareholders of the Company at the Company’s 2015 Annual Meeting of Shareholders. The Plan shall be effective beginning with the Company’s fiscal year 2015, subject to its approval by the shareholders of the Company, and shall replace the EVC Plan approved by shareholders in 2010. No payments shall be made pursuant to the Plan unless and until the shareholders of the Company have approved the Plan. |
1.2 | Purpose. The purpose of the Plan is to focus efforts on achievement of near term financial objectives that are critical to the success of the Company; to reward accomplishments when performance meets or exceeds established targets or business plan objectives; and to more closely tie total compensation (salary plus EVC) to the financial results of the Company. It is intended that, unless otherwise designated by the Committee at the time of the award, the “Performance-Based Awards” under this Plan shall be exempt from the limitation on the deductibility of compensation under §162(m) of the Code. |
Section 2. | Definitions |
2.1 | “Affiliate” means any person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the Company. |
2.2 | “Bonus Award” means the grant of the right to receive a cash bonus payable by the Company upon achievement of the Performance Goals as of the end of the Performance Period as designated by the Committee in accordance with the terms of the Plan, and shall include any Performance-Based Award. |
2.3 | “Code” means the Internal Revenue Code of 1986, as amended. |
2.4 | “Company” means MTS Systems Corporation, a corporation organized under the laws of the State of Minnesota (or any successor corporation). |
2.5 | “Committee” means the Compensation Committee of the Board of Directors. In the absence of the appointment of the Committee, references in the Plan to the Committee shall refer to the Board of Directors. |
2.6 | “Employee” means a person who performs services for the Company and who is regularly paid through the payroll of the Company, whether or not an officer or member of the Board, but excluding any temporary employee and any person serving the Company only in the capacity of a member of the Board of Directors. |
2.7 | “Named Executive” means, as of the last day of the Company’s fiscal year in which the Performance Period ends, the persons serving as the Company’s Chief Executive Officer and the three highest paid officers of the Company other than the Chief Executive Officer and the Chief Financial Officer of the Company. |
2.8 | “Outside Director” means a Director of the Company who: (a) is not a current employee of the Company or Affiliate; (b) is not a former employee of the Company or Affiliate who receives compensation for prior services (other than benefits under a tax-qualified retirement plan) during the taxable year; (c) has not been an officer of the Company; (d) does not receive remuneration (including any payment in exchange for goods or services) from the Company, either directly or indirectly, in any capacity other than as a director, except as otherwise permitted under §162(m) of the Code and regulations thereunder. |
1 |
2.9 | “Participant” means an Employee who is eligible and is selected by the Committee to participate in the Plan. |
2.10 | “Performance Goals” means the level(s) of achievement of one or more Performance Measures that will determine whether any Bonus Award is earned and the amount of the Bonus Award. |
2.11 | “Performance-Based Award” is defined in Section 6.1 of the Plan. |
2.12 | “Performance Measures” is defined in Section 5.1 of the Plan. |
2.13 | “Performance Period” means the measuring period of time determined by the Committee, consisting of a period of any length, over which the Performance Goals established by the Committee must be achieved to earn a Bonus Award under the Plan. |
2.14 | “Plan” means the MTS Systems Corporation Executive Variable Compensation (EVC) Plan. |
Section 3. | Administration |
3.1 | Composition of the Committee. The Compensation Committee of the Board of Directors shall administer the Plan, except that, with respect to any Bonus Award to any Named Executive that constitutes a Performance-Based Award, the Committee administering the Plan, or a subcommittee thereof, shall be composed solely of two or more persons who are Outside Directors. |
3.2 | Power and Authority of the Committee. The Committee is authorized to make all decisions as required in the administration of the Plan and to exercise its discretion to establish, amend, suspend, terminate, define, interpret, construe, apply, approve, withdraw and make any exceptions to the terms of the Plan it deems necessary or advisable for the proper administration of the Plan not inconsistent with the terms of the Plan. The Committee shall have the power and authority to grant Bonus Awards, including Performance-Based Awards, to Participants, including Named Executives, pursuant to the terms of the Plan. In particular, the Committee shall have the authority: |
a. | to select eligible Employees to whom Bonus Awards may from time to time be granted hereunder; |
b. | to determine the Performance Period, the Performance Measures, Performance Goals, and the criteria to determine the amount due under the Bonus Award (including, but not limited to, the degree to which the Performance Goals are met, the base salary or other compensation on which the Bonus Award is paid), and with respect to Participants who are not Named Executives, any other criteria or factors on which part or all of the Bonus Award will be based; |
c. | to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Bonus Award granted hereunder (including, but not limited to, any restriction on, forfeiture of, or repayment of any Bonus Award); and |
d. | to make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. |
3.3 | Delegation of Authority. Except to the extent prohibited by applicable law or the applicable rules of a stock exchange, the Committee may delegate to the Chief Executive Officer of the Company the authority to exercise the powers specified in Section 3.2; provided, however, that no such authority shall be delegated to the Chief Executive Officer with respect to any Bonus Award that constitutes a Performance-Based Award to a Named Executive. |
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3.4 | Rule Making and Interpretations. The Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall, from time to time, deem advisable; to interpret the terms and provisions of the Plan and any Bonus Award granted under the Plan (and any agreements relating thereto); and to otherwise supervise the administration of the Plan. |
Section 4. | Eligibility and Participation |
4.1 | Eligibility. The Company maintains the Plan primarily for Employees who are executive officers or senior management employees. The Committee shall select, from among the executive officers and senior management employees those Employees who will be eligible to participate in the Plan from time to time, in its sole discretion. Employees eligible for other variable compensation (i.e. commissions) are not eligible to participate in the Plan. |
4.2 | Participation. The Committee shall determine the date as of which each eligible Employee shall commence to participate in the Plan and the Bonus Award to which the Employee is then eligible. Selection as an eligible Employee to be a Participant in the Plan with respect to any designated Performance Period does not guarantee that the Employee will be selected to be a Participant in any other Bonus Award under the Plan, and the Committee shall not have any obligation for uniformity of treatment among eligible Employees. |
4.3 | Effect on Employment. In the absence of any specific agreement to the contrary, no Participant’s eligibility for a Bonus Award under the Plan shall affect any right of the Company or any Affiliate, to terminate, with or without cause, the Participant’s employment with the Company or any Affiliate at any time. Neither the establishment of the Plan, nor the granting of any Bonus Award hereunder, shall give any Participant (a) any rights to remain employed by the Company or any Affiliate; (b) any benefits not specifically provided for herein or in any Bonus Award granted hereunder; or (c) any rights to prevent the Company or any Affiliate from modifying, amending or terminating any of its other benefit plans of any nature whatsoever. |
Section 5. | Performance Measures, Performance Goals and Performance Periods |
5.1 | Performance Measures. Unless and until the Board proposes for shareholder vote and shareholders approve a change in the general Performance Measures set forth in this Section, the Performance Measure(s) to be used by the Committee for purposes of setting Performance Goals under the Plan shall be chosen from among the following: (a) earnings per share; (b) net income (before or after taxes); (c) return measures (including, but not limited to, return on assets, equity or sales); (d) cash flow return on investments (net cash flows divided by owners equity); (e) earnings before or after taxes, depreciation and/or amortization; (f) revenues and or sales (gross or net); (g) operating income (before or after taxes); (h) total shareholder return; (i) corporate performance indicators (indices based on the level of certain services provided to customers); (j) cash generation, working capital, profit and/or revenue targets; (k) growth measures, such as revenue or sales growth; (l) ratios, such as expenses or market share; and/or (m) share price (including, but not limited to, growth measures and total shareholder return). |
5.2 | Performance Goals. In setting Bonus Awards based on Performance Measures set forth in Section 5.1, the Committee may establish Performance Goals on an absolute basis, rate basis, or relative to a peer group performance or other benchmark, and the Performance Goals may contain a threshold, target and maximum in determining the range of a Bonus Award. The determination of a Performance Goal may exclude the effect of changes in accounting standards and non-recurring unusual events specified by the Committee, such as write-offs, capital gains and losses and acquisitions and dispositions of businesses, subject to the limitations under Section 6. |
5.3 | Performance Period. The Committee shall establish the Performance Period over which the Performance Goals shall be achieved in order to earn the Bonus Award. The Performance Periods may run concurrently and may contain interim dates during the Performance Period on which the achievement of the Performance Goals will be determined. A Performance Period may be of any length, and must be established prior to the start of such period or within the first ninety (90) days of such period (provided that the performance criteria are not in any event set after 25% or more of such period has elapsed or after the achievement has become substantially certain). |
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5.4 | Modifications to Performance Goals. The Committee shall have the discretion to adjust the determinations of the degree of attainment of the Performance Goals, subject to the limitations under Section 6. |
Section 6. | Qualified Performance-Based Compensation |
6.1 | Compliance With Code Section 162(m). Unless the Committee irrevocably designates otherwise at the time the Bonus Award is granted, each Bonus Award to a Named Executive shall constitute “qualified performance-based compensation” within the meaning of §162(m) of the Code and regulations and other guidance promulgated thereunder (hereinafter referred to as a “Performance-Based Award”). Each of the provisions of Sections 6.2 to 6.7, and all of the other terms and conditions of the Plan as applied to any Performance-Based Award, shall be interpreted in such a fashion so as to qualify as “qualified performance-based compensation” within the meaning of §162(m) of the Code. |
6.2 | Shareholder Approval. Any Performance-Based Award shall be null and void and have no effect whatsoever unless the Plan shall have been approved by the shareholders of the Company at the Company’s 2015 Annual Meeting of Shareholders and periodically thereafter as may be required under §162(m) of the Code. |
6.3 | Limit of Performance Goals. The right to receive a Performance-Based Award shall be determined solely on account of the attainment of one or more pre-established, objective Performance Goals based upon one or more Performance Measures included in Section 5.1 of the Plan, as selected by the Committee in connection with the grant of the Performance-Based Award. |
6.4 | Maximum Performance-Based Award. The maximum bonus that may be paid to any Participant pursuant to any Performance-Based Award with respect to any fiscal year shall not exceed $2,000,000. |
6.5 | Timing of Performance-Based Award. The Committee shall, not later than the date set forth in Section 5.3 for each Performance Period: |
a. | designate the Named Executives who will be Participants eligible for such Performance-Based Awards; and |
b. | establish the Performance Goals for each Named Executive for that Performance Period based solely on those Performance Measures set forth in Section 5.1 above. |
6.6 | Certification. No later than 90 days following the end of the Performance Period and prior to payment of any Performance-Based Award to any Named Executive under the Plan, the Committee shall certify in writing as to the attainment of the Performance Goals upon which any Performance-Based Award is based. |
6.7 | Discretionary Reduction. The Committee, in its sole discretion, may reduce, in whole or in part, the payout otherwise payable to any Named Executive under any Performance-Based Award. The Committee shall have no authority or discretion to change any Performance-Based Award with respect to any Named Executive after the establishment of the Performance-Based Award that would result in the increase of any amount payable under the Plan. |
Section 7. | Payment of Bonus Awards; Recoupment |
7.1 | Payouts; Deferral. Payouts of Bonus Awards will be made in cash or other readily-available funds within 90 days of the end of the Performance Period and, with respect to Performance-Based Awards, after the Committee’s certification as provided in Section 6.6, but in no event later than 75 days after the end of the later of the Company’s fiscal year or the Participant’s tax year in which the Bonus Award is earned. To the extent permitted under the terms of any qualified pension or nonqualified deferred compensation plan maintained by the Company and §409A of the Code and regulations promulgated thereunder, the Participant may elect to defer payment of part or all of the Bonus Award, which to the extent deferred, shall thereafter be governed by the terms and conditions of that qualified pension or nonqualified deferred compensation plan. |
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7.2 | Taxes. In order to comply with all applicable federal or state income, social security, payroll, withholding or other tax laws or regulations, the Company may take such action, and may require a Participant to take such action, as it deems appropriate to ensure that all applicable federal or state income, social security, payroll, withholding or other taxes, which are the sole and absolute responsibility of the Participant, are withheld or collected from such Participant. |
7.3 | Nontransferability. Except as otherwise determined by the Committee, no right under any Bonus Award shall be sold, assigned, transferred, pledged, hypothecated or otherwise disposed of during the time in which the requirement of continued employment or attainment of Performance Goals has not been achieved and prior to the date of actual payout. |
7.4 | Impact of Restatement of Financial Statements. If any of the Company’s financial statements are required to be restated resulting from errors, omissions or fraud, the Committee may (in its sole discretion, but acting in good faith) direct that the Company recover all or a portion of any Bonus Award with respect to any fiscal year of the Company the financial results of which are negatively affected by such restatement. The amount to be recovered from the Participant shall be the amount by which the Bonus Award exceeded the amount that would have been payable to the Participant had the financial statements been initially filed as restated, or any greater or lesser amount (including, but not limited to, the entire award) that the Committee shall determine. The Committee may limit the application of this Section 7.4 to those responsible for the misstatement or to the Named Executives but in no event shall the amount to be recovered by the Company be less than the amount required to be recovered as a matter of law. The Committee shall determine whether the Company shall effect any such recovery (a) by seeking repayment from the Participant, (b) by reducing (subject to applicable law and the terms and conditions of the applicable plan, program or arrangement) the amount that would otherwise be payable to the Participant under any compensatory plan, program or arrangement maintained by the Company or any of its affiliates, (c) by withholding payment of future increases in compensation (including the payment of any discretionary bonus amount) or grants of compensatory awards that would otherwise have been made in accordance with the Company’s otherwise applicable compensation practices, or (d) by any combination of the foregoing. |
7.5 | Forfeiture and Recoupment. Without limiting in any way the generality of the Committee’s power to specify any terms and conditions of a Bonus Award consistent with law, and for greater clarity, the Committee may specify that the Participant’s rights, payments, and benefits with respect to a Bonus Award under the Plan shall be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions. Such events shall include, but shall not be limited to, termination of employment or services under certain or all circumstances, violation of material Company policies, breach of noncompetition, confidentiality, nonsolicitation, noninterference, corporate property protection, or other agreement that may apply to the Participant, or other conduct by the Participant that the Committee determines is detrimental to the business or reputation of the Company and its subsidiaries. |
Section 8. | Amendment and Termination |
8.1 | Term of Plan. The Plan shall continue in operation indefinitely, subject to the right of the Committee to terminate the Plan at any time; provided, however, that no Performance-Based Awards shall be granted after the fiscal year ending in 2020 unless and until the material terms of the Plan have been reapproved by the Company prior to that time. |
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8.2 | Amendments to and Termination of Plan. Except to the extent prohibited by applicable law and unless otherwise expressly provided in the Plan, the Committee may amend, alter, suspend, discontinue or terminate the Plan. |
8.3 | Correction of Defects, Omissions and Inconsistencies. Except to the extent prohibited by applicable law and unless otherwise expressly provided in the Plan, the Committee may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Bonus Award in the manner and to the extent it shall deem desirable to carry the Plan into effect. |
Section 9. | Miscellaneous |
9.1 | Governing Law. Except as otherwise set forth herein the Plan and all of the Participants’ rights thereunder shall be governed by and construed in accordance with the internal laws of the State of Minnesota. |
9.2 | Severability. If any provision of the Plan, or any Bonus Award is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or would disqualify the Plan, or any Bonus Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Committee, materially altering the purpose or intent of the Plan and the Bonus Award, such provision shall be stricken as to such jurisdiction, and the remainder of the Plan, any such Bonus Award shall remain in full force and effect. |
9.3 | No Trust or Fund Created. Neither the Plan nor any obligations to pay a Bonus Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other person. To the extent that any person acquires a right to receive payments from the Company or any Affiliate pursuant to a Bonus Award, such right shall be no greater than the right of any unsecured general creditor of the Company or of any Affiliate. |
9.4 | Nature of Payments. Any and all cash payments pursuant to any Bonus Award granted hereunder shall constitute special incentive payments to the Participant, and, except to the extent that such plan or agreement expressly provides to the contrary, such payments shall not be taken into account in computing the amount of the Participant’s salary or compensation for purposes of determining any pension, retirement, death or other benefits under: |
a. | any pension, retirement, profit sharing, bonus, life insurance or other employee benefit plan of the Company or any Affiliate or |
b. | any agreement between the Company (or any Affiliate) and the Participant |
9.5 | Headings. Headings are given to the Sections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof. |
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14000 TECHNOLOGY DRIVE
EDEN PRAIRIE, MN 55344
VOTE BY INTERNET
Before The Meeting - Go towww.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time on February 9, 2015. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time on February 9, 2015. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
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| M79487-P56923 | KEEP THIS PORTION FOR YOUR RECORDS |
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| DETACH AND RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. | ||
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MTS SYSTEMS CORPORATION |
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| For | Withhold | For All |
| To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. |
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| The Board of Directors recommends you vote |
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| 1. | Election of Directors |
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| 01) David J. Anderson | 06) Barb J. Samardzich |
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| 02) Jeffrey A. Graves | 07) Michael V. Schrock |
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| 03) David D. Johnson | 08) Gail P. Steinel |
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| 04) Emily M. Liggett | 09) Chun Hung (Kenneth) Yu |
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| The Board of Directors recommends you vote FOR proposals 2, 3 and 4: |
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| 2. | To ratify the appointment of KPMG LLP as the Company’s independent registered public accounting firm for fiscal 2015. |
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| 3. | A non-binding, advisory vote to approve the compensation of the Company’s named executive officers. |
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| 4. | To approve the Company’s Executive Variable Compensation Plan. |
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| NOTE: THIS PROXY/VOTING INSTRUCTION, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR ITEMS 1, 2, 3 and 4. DISCRETIONARY AUTHORITY IS HEREBY CONFERRED AS TO ALL OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF. |
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| This proxy should be marked, dated and signed by the shareholder(s) exactly as his, her or their name(s) appear(s) hereon, and returned promptly in the enclosed envelope. Persons signing in a fiduciary capacity should so indicate. Jointly owned shares will be voted as directed unless another owner instructs to the contrary, in which case, the shares will not be voted. |
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| Signature [PLEASE SIGN WITHIN BOX] | Date |
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement, Annual Report and Form 10-K are available at www.proxyvote.com.
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M64857-P43576 |
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| PROXY |
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| MTS SYSTEMS CORPORATION |
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| Proxy for the Annual Meeting of Shareholders |
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| February 10, 2015 |
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| SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS |
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| The undersigned shareholder of MTS Systems Corporation, a Minnesota corporation (the “Company”), hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy Statement and hereby appoints David J. Anderson and Jeffrey A. Graves, each with the power to appoint a substitute, and hereby authorizes them to represent and to vote all the shares of Common Stock of the Company, held of record by the undersigned on December 16, 2014, at the ANNUAL MEETING OF SHAREHOLDERS to be held on February 10, 2015, and any adjournments or postponements thereof. |
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| (If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.) |
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