MGIC Investment Corporation – 2020 Proxy Statement │ Appendix B - 1
APPENDIX B — RECONCILIATION OF NON-GAAP MEASURES
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Non-GAAP reconciliations
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Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income:
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Years Ended December 31,
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2019
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2018
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2017
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(in thousands)
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Pre-tax
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Tax Effect
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Net
(after-tax)
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Pre-tax
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Tax Effect
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Net
(after-tax)
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Pre-tax
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Tax Effect
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Net
(after-tax)
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Income before tax / Net income
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$
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847,977
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$
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174,214
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$
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673,763
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844,150
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174,053
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670,097
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784,496
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428,735
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355,761
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Adjustments:
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Additional income tax provision related to the rate decrease included in the Tax Act
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—
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—
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—
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—
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—
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—
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—
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(132,999
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)
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132,999
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Additional income tax benefit (provision) related to IRS litigation
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—
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—
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—
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—
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2,462
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(2,462
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)
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—
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(29,039
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)
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29,039
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Net realized investment (gains) losses
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(5,108
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)
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(1,073
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)
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(4,035
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)
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1,353
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284
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1,069
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(231
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)
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(81
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)
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(150
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)
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Loss on debt extinguishment
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—
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—
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—
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—
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—
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—
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65
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23
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42
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Adjusted pre-tax operating income / Adjusted net operating income
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$
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842,869
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$
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173,141
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$
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669,728
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$
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845,503
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$
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176,799
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$
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668,704
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$
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784,330
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$
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266,639
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$
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517,691
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Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share:
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Weighted average diluted shares outstanding
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373,924
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386,078
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394,766
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Net income per diluted share
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$
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1.85
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$
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1.78
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$
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0.95
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Additional income tax provision related to the rate decrease included in the Tax Act
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—
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—
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0.34
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Additional income tax benefit (provision) related to IRS litigation
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—
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(0.01
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)
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0.07
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Net realized investment (gains) losses
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(0.01
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)
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—
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—
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Loss on debt extinguishment
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—
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—
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—
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Adjusted net operating income per diluted share (1)
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$
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1.84
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$
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1.78
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$
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1.36
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(1)
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For the Year Ended December 31, 2018, the Reconciliation of Net income per diluted share to Adjusted net operating income per diluted share does not foot due to rounding of the adjustments.
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Appendix B - 2 │ MGIC Investment Corporation – 2020 Proxy Statement
APPENDIX B — RECONCILIATION OF NON-GAAP MEASURES
Reconciliation of Book Value per Share to Adjusted Book Value ("ABV") per Share
Following is the reconciliation of book value per share to ABV per share used in determining vesting of each of the 2019, 2018 and 2017 equity awards.
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Reconciliation of Book Value per Share to Adjusted Book Value per Share for
2019 Equity Awards
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(In thousands, except per share amounts)
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2019
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2018
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Shareholders' Equity (Book Value)
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$
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4,309,234
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$
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3,581,891
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Divided by Shares Outstanding
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347,308
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355,371
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Book Value per Share
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$
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12.41
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$
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10.08
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Adjusted Book Value for 2019 Equity Awards (from below)
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$
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4,411,605
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$
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3,706,105
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Divided by Shares Outstanding (from below)
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355,992
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355,371
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Adjusted Book Value per Share for 2019 Equity Awards
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$
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12.39
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$
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10.43
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Shareholders' Equity (Book Value)
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$
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4,309,234
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$
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3,581,891
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Litigation Accruals
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18,565
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—
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Common Stock Repurchases
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114,126
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—
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Accumulated Other Comprehensive (Income) Loss
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(72,707
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)
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124,214
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Initiation of Dividends
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42,387
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—
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Adjusted Book Value for 2019 Equity Awards
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$
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4,411,605
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$
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3,706,105
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Shares Outstanding
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347,308
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355,371
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Common Stock Repurchases
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8,684
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—
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Adjusted Shares Outstanding
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355,992
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355,371
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The grant documents and the Omnibus Incentive Plan for the 2019 equity awards provide for certain specific eliminations in arriving at adjusted book value per share, as follows:
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•
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Accumulated Other Comprehensive Income (Loss)
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•
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Certain Litigation Settlements / Judgments
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•
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Repurchases of Common Stock
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•
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Repurchases of Convertible Debt
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•
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Adjustments for Changes in Tax Laws
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•
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Adjustments for Changes in Accounting Principle
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In addition, the Omnibus Incentive Plan allows the Committee to revise the performance metrics if significant events occur during a performance period that the Committee expects will have a substantial effect on the performance metrics.
In the second half of 2019, the Company began to pay quarterly dividends to shareholders, after ceasing such dividends for more than ten years. When the 2019 Cliff BV Awards were approved in January 2019, neither the Company’s forecast nor the adjusted book value per share growth metric assumed any dividends would be paid to shareholders. The Committee determined that resumption of dividends to shareholders would have substantial effect on the performance metric for the 2019 Cliff BV Awards and that they should be eliminated in arriving at adjusted book value per share for purposes of determining the vesting percentage.
MGIC Investment Corporation – 2020 Proxy Statement │ Appendix B - 3
APPENDIX B — RECONCILIATION OF NON-GAAP MEASURES
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Reconciliation of Book Value per Share to Adjusted Book Value per Share for
2018 Equity Awards
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(In thousands, except per share amounts)
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2019
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2018
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2017
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Shareholders' Equity (Book Value)
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$
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4,309,234
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$
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3,581,891
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$
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3,154,526
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Divided by Shares Outstanding
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347,308
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355,371
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370,567
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Book Value per Share
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$
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12.41
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$
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10.08
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$
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8.51
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Adjusted Book Value for 2018 Equity Awards (from below)
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$
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4,541,797
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$
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3,878,684
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$
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3,198,309
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Divided by Shares Outstanding (from below)
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371,973
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371,353
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370,567
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Adjusted Book Value per Share for 2018 Equity Awards
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$
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12.21
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$
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10.44
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$
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8.63
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Shareholders' Equity (Book Value)
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$
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4,309,234
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$
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3,581,891
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$
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3,154,526
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Common Stock Repurchases
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289,185
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|
175,059
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|
|
—
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Litigation Accruals
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|
16,103
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|
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(2,462
|
)
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—
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Accumulated Other Comprehensive (Income) Loss
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(72,707
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)
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|
124,214
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|
|
43,783
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Tax Law and Change in Accounting Principle
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|
(18
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)
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|
(18
|
)
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—
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Adjusted Book Value for 2018 Equity Awards
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$
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4,541,797
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|
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$
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3,878,684
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$
|
3,198,309
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|
|
|
|
|
|
|
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Shares Outstanding
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|
347,308
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|
|
355,371
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|
|
370,567
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Common Stock Repurchases
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|
24,665
|
|
|
15,982
|
|
|
—
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|
Adjusted Shares Outstanding
|
|
371,973
|
|
|
371,353
|
|
|
370,567
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Book Value per Share to Adjusted Book Value per Share for
2017 Equity Awards
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|
|
|
|
|
|
|
|
|
(In thousands, except per share amounts)
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|
2019
|
|
2018
|
|
2017
|
|
2016
|
Shareholders' Equity (Book Value)
|
|
$
|
4,309,234
|
|
|
$
|
3,581,891
|
|
|
$
|
3,154,526
|
|
|
$
|
2,548,842
|
|
Divided by Shares Outstanding
|
|
347,308
|
|
|
355,371
|
|
|
370,567
|
|
|
340,663
|
|
Book Value per Share
|
|
$
|
12.41
|
|
|
$
|
10.08
|
|
|
$
|
8.51
|
|
|
$
|
7.48
|
|
|
|
|
|
|
|
|
|
|
Adjusted Book Value for 2017 Equity Awards (from below)
|
|
$
|
4,449,276
|
|
|
$
|
3,908,741
|
|
|
$
|
3,349,765
|
|
|
$
|
2,623,942
|
|
Divided by Adjusted Shares Outstanding (from below)
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|
371,973
|
|
|
371,353
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|
|
370,567
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|
|
340,663
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|
Adjusted Book Value per Share for 2017 Equity Awards
|
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$
|
11.96
|
|
|
$
|
10.53
|
|
|
$
|
9.04
|
|
|
$
|
7.70
|
|
|
|
|
|
|
|
|
|
|
Shareholders' Equity (Book Value)
|
|
$
|
4,309,234
|
|
|
$
|
3,581,891
|
|
|
$
|
3,154,526
|
|
|
$
|
2,548,842
|
|
Change in Tax Rate
|
|
(243,977
|
)
|
|
(121,399
|
)
|
|
—
|
|
|
—
|
|
Litigation Accruals
|
|
45,142
|
|
|
26,577
|
|
|
29,039
|
|
|
—
|
|
Convertible Debt and Stock Repurchases
|
|
289,227
|
|
|
175,101
|
|
|
42
|
|
|
—
|
|
Accumulated Other Comprehensive (Income) Loss
|
|
(83,129
|
)
|
|
113,792
|
|
|
33,361
|
|
|
75,100
|
|
Tax Law and Change in Accounting Principle
|
|
132,779
|
|
|
132,779
|
|
|
132,797
|
|
|
—
|
|
Adjusted Book Value for 2017 Equity Awards
|
|
$
|
4,449,276
|
|
|
$
|
3,908,741
|
|
|
$
|
3,349,765
|
|
|
$
|
2,623,942
|
|
|
|
|
|
|
|
|
|
|
Shares Outstanding
|
|
347,308
|
|
|
355,371
|
|
|
370,567
|
|
|
340,663
|
|
Conversion of Convertible Debt
|
|
24,665
|
|
|
15,982
|
|
|
—
|
|
|
—
|
|
Adjusted Shares Outstanding
|
|
371,973
|
|
|
371,353
|
|
|
370,567
|
|
|
340,663
|
|
Appendix B - 4 │ MGIC Investment Corporation – 2020 Proxy Statement
APPENDIX C — 2020 OMNIBUS INCENTIVE PLAN
MGIC INVESTMENT CORPORATION
2020 OMNIBUS INCENTIVE PLAN
SECTION 1. GENERAL
1.1 Purpose. The MGIC Investment Corporation 2020 Omnibus Incentive Plan (the “Plan”) has been established by MGIC Investment Corporation (the “Company”) to motivate and incent performance by, to obtain the services of, and/or to retain the services of, key employees of the Company and its Subsidiaries and Non-Employee Directors of the Company through the receipt of Awards under the Plan.
1.2 Participation. Subject to the terms and conditions of the Plan, the Committee shall determine and designate, from time to time, from among the Eligible Individuals, those persons who will be granted one or more Awards under the Plan, and thereby become “Participants” in the Plan.
1.3 Effective Date; Effect on Prior Plan. Subject to the approval of the shareholders of the Company at the Company’s 2020 annual meeting of shareholders, the Plan shall be effective as of the date of such meeting (the “Effective Date”). Prior to the Effective Date, the Company had in effect the MGIC Investment Corporation 2015 Omnibus Incentive Plan (the “Prior Plan”). On and after the Effective Date, the Prior Plan shall terminate such that no new awards may be granted under the Prior Plan, although awards previously granted under the Prior Plan and still outstanding shall continue to be subject to all terms and conditions of the Prior Plan.
1.4 Definitions. Capitalized terms in the Plan are defined as set forth in the Plan (including the definition provisions of subsection 10.1 of the Plan).
SECTION 2. OPTIONS AND SARS
2.1 Definitions.
(a) The grant of an “Option” entitles the Participant to purchase shares of Stock at an Exercise Price established by the Committee. Any Option granted under the Plan may be either (i) an incentive stock option that is granted not later than April 23, 2030 and that is intended to satisfy the requirements applicable to an “incentive stock option” described in Section 422(b) of the Code (an “ISO”); or (ii) an Option that is not intended to be an ISO (a non-qualified option, or “NQO”). If an Option that is intended to be an ISO fails to meet the requirements thereof, the Option shall automatically be treated as an NSO to the extent of such failure.
(b) A stock appreciation right (an “SAR”) entitles the Participant to receive, in cash or Stock (as determined in accordance with subsection 5.7), value equal to (or otherwise based on) the excess of: (a) the Fair Market Value of a specified number of shares of Stock at the time of exercise; over (b) an Exercise Price established by the Committee.
(c) The Committee may not approve the grant of an Option or an SAR with a grant date that is effective prior to the date the Committee takes action to approve such grant.
2.2 Exercise Price. The “Exercise Price” of each Option and SAR granted under the Plan shall be established by the Committee or shall be determined by a method established by the Committee at the time the Option or SAR is granted, except that the Exercise Price shall not be less than 100% of the Fair Market Value of a share of Stock on the date of grant, and the Exercise Price of an ISO granted to an employee Participant who, as of the date an ISO is granted to such individual, owns more than ten percent (10%) of the total combined voting power of all classes of Stock then issued by the Company or a Subsidiary (a “10% Shareholder”) must have an exercise price not less than 110% of the Fair Market Value of a share of Stock on the date of grant.
2.3 Exercise. An Option and an SAR shall be exercisable in accordance with such terms, conditions, restrictions
MGIC Investment Corporation – 2020 Proxy Statement │ Appendix C - 1
APPENDIX C — 2020 OMNIBUS INCENTIVE PLAN
and contingencies, including those governing the period(s) during which such Awards may be exercised, as the Committee shall determine, except that the term of an Option and an SAR may not exceed ten years or, in the case of an ISO granted to a 10% Shareholder, five years.
2.4 Payment of Exercise Price. Except as otherwise determined by the Committee, the entire Exercise Price for shares of Stock being purchased under an Option shall be paid at the time of exercise of such Option. The method and form of payment of the Exercise Price shall be determined by the Committee (and, in the case of an ISO and to the extent required by applicable law, shall be determined at the time of grant) and may include (a) cash; (b) check; (c) to the extent permitted under applicable law, delivery of a promissory note with such recourse, interest, security and redemption provisions as the Committee determines to be appropriate; (d) surrender of previously owned shares of Stock, or delivery of a properly executed form of attestation (as determined by the Committee) of ownership of shares of Stock, that have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the shares of Stock to which the Option is exercised; (e) a program approved by the Committee in which payment of the Exercise Price may be satisfied, in whole or in part, with shares subject to the Option, including by delivery of an irrevocable direction to a securities broker (on a form prescribed by the Committee) to sell shares of Stock and to deliver all or part of the sale proceeds to the Company in payment of the aggregate Exercise Price; (f) such other consideration and method of payment permitted under applicable laws; or (g) any combination of the foregoing methods of payment. In making its determination as to the type of method and form of payment to accept, the Committee may, in its sole discretion, refuse to accept a particular form of consideration at the time of any Option exercise.
2.5 Repricing Prohibited Without Shareholder Approval. Without the approval of the Company’s shareholders, except in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares), (a) the terms of outstanding Options or SARs may not be amended to reduce the exercise price of outstanding Options or SARs; (b) outstanding Options or SARs may not be canceled in exchange for Options or SARs with an exercise price that is less than the exercise price of the original Options or SARs; and (c) outstanding Options or SARs with an Exercise Price above the then-current Fair Market Value of a share of Stock may not be canceled in exchange for cash or other securities.
SECTION 3. RESTRICTED STOCK AND RESTRICTED STOCK UNIT AWARDS
3.1 Definitions. A “Restricted Stock” Award is a grant of shares of Stock, and a “Restricted Stock Unit” Award is the grant of a right to receive shares of Stock (or a cash payment based upon the Fair Market Value of a share of Stock) in the future.
3.2 Restrictions on Awards. Except as otherwise provided by the Committee in the Award Agreement, each Restricted Stock Award and Restricted Stock Unit Award shall be subject to such conditions, restrictions and contingencies as the Committee shall determine, including but not limited to a risk of forfeiture or other restrictions that will lapse upon the achievement of one or more goals relating to completion of service by the Participant, or achievement of Performance Goals or other objectives, or the satisfaction of conditions that must be satisfied prior to the grant of the Award, including but not limited to a condition that an Incentive Award must have become payable and the Participant must have previously elected to receive a portion of such Award in the form of a Restricted Stock Award or a Restricted Stock Unit Award (such Award referred to as a “Base Award”).
SECTION 4. CASH INCENTIVE AWARDS
4.1 Incentive Award. An “Incentive Award” is a grant of a right to receive a cash payment, pursuant to one or more underlying bonus plans, to the extent Performance Goals are achieved, all as established by the Committee, except that such a bonus plan may provide for the grant of Restricted Stock or Restricted Stock Units in conjunction with bonuses payable under such plan. Such a bonus plan may be intended to provide performance-based compensation under
Appendix C - 2 │ MGIC Investment Corporation – 2020 Proxy Statement
APPENDIX C — 2020 OMNIBUS INCENTIVE PLAN
Section 162(m) of the Code as in effect prior to the enactment of the Tax Cuts and Jobs Act for purposes of any state laws that incorporate, refer to or are based on such provisions (together, “Code Section 162(m)”) and may cover one or more key employees who are not “covered employees” under Code Section 162(m).
4.2 Terms and Conditions of Incentive Awards. Subject to the terms of the Plan, the Committee will determine all terms and conditions of Incentive Awards, including but not limited to the Performance Goals that must be achieved or partially achieved, the performance period, the potential amount payable and the timing of payment.
SECTION 5. OPERATION AND ADMINISTRATION
5.1 Duration. The Plan shall remain in effect as long as any Awards are outstanding. Except for Awards granted pursuant to commitments entered into prior to the ten-year anniversary of the Effective Date, no Awards may be granted after such ten-year anniversary.
5.2 Shares Subject to Plan; Award Limitations; Adjustments. Awards granted under the Plan shall be subject to the following:
(a) The shares of Stock may be authorized but unissued shares or treasury shares. As used herein, the term “issued” and similar terms include treasury shares delivered under an Award. Subject to the following provisions of this subsection 5.2, the maximum number of shares of Stock that may be covered by Awards to Participants and their beneficiaries under the Plan, and the number of shares of Stock reserved under the Plan, shall be 11,000,000 (such number, as it may be adjusted as provided herein, is the "Maximum Limit"). An Award shall be considered to cover, and shall deplete the shares reserved under the Plan by, the maximum number of shares of Stock, if any, with respect to which such Award is granted, determined on the date of grant. The maximum number of shares that may be covered by Awards under Options intended to be ISOs shall be the Maximum Limit.
(b) The maximum number of shares of Stock subject to (i) Awards under this Plan, and (ii) Annual Grants under, and as defined in, the Company’s Deferred Compensation Plan for Non-Employee Directors (or any successor plan thereto), granted during a single fiscal year to any Non-Employee Director, shall not exceed $600,000 in total value (calculating the value of any such Awards based on the grant date fair value of such Awards for financial reporting purposes). For the avoidance of doubt, such limit shall not apply to share units credited to an account for a Non-Employee Director upon the election by such director to defer cash compensation and to have such cash compensation converted into share units.
(c) Subject to subsection 5.2(f), the following additional limits shall apply to any Awards granted under the Plan that are intended to qualify as performance-based compensation under Code Section 162(m).
(i) The maximum number of shares that may be covered by Awards granted to any one Participant in any fiscal year (excluding any additional Restricted Stock Award or Restricted Stock Unit Award granted in connection with a Base Award (collectively, a “Matching Award”) that is intended to constitute performance-based compensation for purposes of Code Section 162(m)) shall be 1,000,000 shares.
(ii) In no event, may the amounts paid with respect to any fiscal year of the Company under all Incentive Awards to any one Participant that are intended to constitute performance-based compensation for purposes of Code Section 162(m), including any additional Matching Award, exceed $7,500,000.
(iii) In all cases, determinations under this subsection 5.2(c) will be made, in the case of an Award that is intended to constitute performance-based compensation under Code Section 162(m), in a manner that is consistent with the exemption for performance-based compensation provided by Code Section 162(m).
(d) To the extent any shares of Stock covered by an Award are not delivered to a Participant or beneficiary
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because the Award is forfeited, canceled, or expires, or if the shares are delivered but subsequently forfeited, or if an Award is settled in cash rather than in shares of Stock, such shares shall not be deemed to have been covered by an Award for purposes of determining the maximum number of shares of Stock available or the ISO limit under subsection 5.2(a), but shall, to the extent the Award was intended to qualify as performance-based compensation under Code Section 162(m), be counted for purposes of applying the limit of subsection 5.2(c)(i). For the avoidance of doubt, in no event shall the following shares of Stock be recredited to the Plan’s reserve under this Section 5.2(d): (i) shares purchased by the Company using proceeds from Option exercises; (ii) shares tendered or withheld in payment of the exercise price of an Option or as a result of the net settlement of an outstanding SAR; or (iii) shares tendered or withheld to satisfy federal, state or local tax withholding obligations.
(e) After the Effective Date, if any shares of Stock subject to awards granted under the Prior Plan would again become available for new grants under the terms of the Prior Plan if the Prior Plan were still in effect (taking into account the Prior Plan’s provisions concerning termination or expiration, if any), then those shares will be available for the purpose of granting Awards under this Plan, thereby increasing the number of shares available for issuance under the Maximum Limit; provided that no shares subject to awards granted under the Prior Plan shall be available for purposes of granting Awards under this Plan to the extent they are (i) shares purchased by the Company using proceeds from Option exercises, (ii) shares tendered or withheld in payment of the exercise price of an Option or as a result of the net settlement of an outstanding SAR, or (iii) shares tendered or withheld to satisfy federal, state or local tax withholding obligations.
(f) The following adjustments shall or may be made under the Plan:
(i) If (A) the Company shall at any time be involved in a merger or other transaction in which the Stock is changed or exchanged; (B) the Company shall subdivide or combine the Stock or the Company shall declare a dividend payable in shares of Stock, other securities or other property; (C) the Company shall effect a cash dividend the amount of which, on a per share basis, exceeds 10% of the trading price of the Stock at the time the dividend is declared, or the Company shall effect any other dividend or other distribution on the Stock in the form of cash, or a repurchase of Stock, that the Board determines by resolution is special or extraordinary in nature or that is in connection with a transaction that the Company characterizes publicly as a recapitalization or reorganization involving the Stock; or (D) any other event shall occur which, in the case of this clause (D), in the judgment of the Committee necessitates an adjustment to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (1) the number of shares and type of Stock subject to the Plan and which may after the event be made the subject of Awards under the Plan and any limitation on the number of shares so available for Awards under the Plan or for a particular type of Award under the Plan, including ISOs, (2) the number of shares and type of Stock subject to outstanding Awards, (3) the grant, purchase, or exercise price with respect to any Award, and (4) to the extent such discretion does not cause an Award that is intended to qualify as performance-based compensation under Code Section 162(m) to lose its status as such, the Performance Goals of an Award. In the case of clause (D), the Committee may also (or in lieu of the foregoing) make provision for a cash payment to the holder of an outstanding Award in exchange for the cancellation of all or a portion of the Award (without the consent of the holder of an Award) in an amount determined by the Committee effective at such time as the Committee specifies (which may be the time such transaction or event is effective). However, in each case, with respect to Awards of ISOs, no such adjustment may be authorized to the extent that such authority would cause the Plan to violate Code Section 422(b). Further, the number of shares of Stock subject to any Award payable or denominated in shares of Stock must always be a whole number. In any event, previously granted Options or SARs are subject to only such adjustments as are necessary to maintain the relative proportionate interest the Options and SARs represented immediately prior to any such event and to preserve, without increasing, the value of such Options or SARs. Without limitation, in the event of any such merger or similar transaction, subdivision or combination of Shares, dividend or other event described above (other than any such transaction in which the Company is the continuing corporation and in which the outstanding Stock is not being converted into or exchanged for different securities, cash or other property, or any combination thereof), the Committee shall substitute, on an equitable basis as the Committee determines, for each share of Stock then subject to an Award, the number and kind of shares of stock, other securities, cash or other property to which holders of Stock are or will be entitled in respect of each share of Stock pursuant to the transaction. Notwithstanding the foregoing, if the Company shall subdivide the Stock or the Company shall declare a dividend payable in shares of
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Stock, and if no action is taken by the Board or the Committee, then the adjustments contemplated by this subsection 5.2(f) that are proportionate shall nevertheless automatically be made as of the date of such subdivision of the Stock or dividend in shares of Stock.
(ii) Notwithstanding any other provision of the Plan, and without affecting the number of shares of Stock otherwise reserved or available under the Plan, in connection with any merger, consolidation, acquisition of property or stock, or reorganization, the Committee may authorize the issuance of awards under the Plan, or the assumption under the Plan of awards of another person, in each case, upon such terms and conditions as it may deem appropriate.
5.3 General Restrictions. Delivery of shares of Stock or other amounts under the Plan shall be subject to the following:
(a) Notwithstanding any other provision of the Plan, the Company shall have no liability to deliver any shares of Stock or make any other distribution of benefits unless such delivery or distribution would comply with all applicable laws (including, without limitation, the requirements of the Securities Act of 1933, as amended), and the applicable requirements of the Applicable Exchange.
(b) To the extent that the Plan provides for issuance of stock certificates to reflect the issuance of shares of Stock, the issuance may be effected on a non-certificated basis, to the extent not prohibited by applicable law or the applicable requirements of the Applicable Exchange.
(c) All Awards granted pursuant to the Plan to employees, and any Stock issued or cash paid pursuant to an Award to an employee, shall be subject to any recoupment or clawback policy applicable to employees that is adopted by, or any recoupment or similar requirement otherwise made applicable by law, regulation or listing standards to, the Company from time to time.
5.4 Tax Withholding; No Guarantee of Tax Treatment. Delivery of shares of Stock or other amounts under the Plan is subject to withholding of all applicable taxes, and the Committee may condition the delivery of any shares of Stock or other amounts under the Plan on satisfaction of the applicable withholding obligations by the Participant in a manner satisfactory to the Committee (which may include, without limitation, such rules and requirements as the Committee may determine to be necessary or appropriate to avoid adverse accounting treatment with respect to any Award) and, if such obligations are not satisfied in such manner, the Committee may cancel the Award to which the withholding obligations relate. The Committee, in its discretion, and subject to such requirements as the Committee may impose prior to the occurrence of such withholding, may satisfy such withholding obligations by deducting cash from any payments of any kind otherwise due to the Participant, including under the Award, or may permit such withholding obligations to be satisfied through cash payment by the Participant, through the surrender of shares of Stock which the Participant already owns, or through the surrender of shares of Stock to which the Participant is otherwise entitled under the Plan; provided that, in the event the obligations are satisfied by the surrender of shares of Stock to which the Participant is otherwise entitled under the Plan, the amount so withheld may not exceed the total maximum statutory tax withholding obligations to the extent such a limitation is needed for the Company to avoid an accounting charge. Notwithstanding any provision of the Plan to the contrary, the Company does not guarantee to any Participant or any other person(s) with an interest in an Award that (i) any Award intended to be exempt from Code Section 409A shall be so exempt, (ii) any Award intended to comply with Code Section 409A or Code Section 422 shall so comply, or (iii) any Award shall otherwise receive a specific tax treatment under any other applicable tax law, nor in any such case will the Company or any other person be required to indemnify, defend or hold harmless any individual with respect to the tax consequences of any Award.
5.5 Grant and Use of Awards. In the discretion of the Committee, a Participant may be granted any Award permitted under the provisions of the Plan, and more than one Award may be granted to a Participant; provided that no ISO nor any Incentive Award may be granted to any person who at the time of the grant is not an employee of the Company or a Subsidiary. Subject to the limits of Section 2.5, Awards may be granted as alternatives to or replacement of Awards granted or outstanding under the Plan, or any other plan or arrangement of the Company or a Subsidiary
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(including a plan or arrangement of a business or entity, all or a portion of which is acquired by the Company or a Subsidiary). Subject to the overall limitation on the number of shares of Stock that may be covered by Awards under the Plan, and subject to the limitations of Section 8.3, the Committee may use available shares of Stock as the form of payment for compensation, grants or rights earned or due under any other compensation plans or arrangements of the Company or a Subsidiary, including the plans and arrangements of the Company or a Subsidiary assumed in business combinations.
5.6 Dividends and Dividend Equivalents. The following rules shall apply with respect to dividends or dividend equivalents on outstanding Awards:
(a) A Participant shall not be entitled to dividends or dividend equivalents with respect to an Option or an SAR.
(b) A Restricted Stock Unit Award or a Restricted Stock Award may provide that the Participant is entitled to receive payment of the same amount that the Participant would have received as cash dividends if, on each record date during the performance or vesting period relating to such Award, the Participant had been the holder of record of a number of shares of Stock equal to the number of Restricted Stock Units or shares of Restricted Stock actually earned by the Participant or in which the Participant has become vested based upon, to the extent the Award is subject to Performance Goals, the achievement of such Performance Goals or, to the extent the Award is subject to time-vesting, the completion of the applicable vesting period; provided that payment of any such dividend equivalent shall be deferred until the date that the final award is determined, earned and vested, and shall only be paid to the extent that (i) the Restricted Stock Units or shares of Restricted Stock, as applicable, underlying the final award have been earned by the Participant based upon achievement of the Performance Goals, or (ii) the Participant has become vested in the Restricted Stock Units or Restricted Stock, as applicable. Such dividend equivalents may be settled in cash or Stock, as determined by the Committee. Any such settlements, and any such crediting of dividends or dividend equivalents, may be subject to such conditions, restrictions and contingencies as the Committee shall establish at the time of grant, including the reinvestment of such credited amounts in Stock equivalents or additional shares of Stock.
5.7 Settlement of Awards. The obligation to make payments and distributions with respect to Awards may be satisfied through cash payments, the delivery of shares of Stock, or combination thereof as the Committee shall determine. Satisfaction of any such obligations under an Award, which is sometimes referred to as “Settlement” of the Award, may be subject to such conditions, restrictions and contingencies as the Committee shall determine. The Committee may permit or require the deferral of any Award Settlement, subject to such rules and procedures as it may establish, which may include provisions for the payment or crediting of interest or dividend equivalents, and may include converting such credits into deferred Stock equivalents. Each Subsidiary shall be liable for payment of cash due under the Plan with respect to any Participant to the extent that such benefits are attributable to the services rendered for that Subsidiary by the Participant. Any disputes relating to liability of a Subsidiary for cash payments shall be resolved by the Committee.
5.8 Transferability. Options are not transferable except: (i) as designated by the Participant by will or by the laws of descent and distribution, or (ii) by gift, provided that all restrictions contained in this Plan continue to apply to such Option as if such gift had not occurred and provided the Committee has approved such transfer by gift. Except as otherwise provided by the Committee, other Awards under the Plan are not transferable except as designated by the Participant by will or by the laws of descent and distribution.
5.9 Form and Time of Elections. Unless otherwise specified herein, each election required or permitted to be made by any Participant or other person entitled to benefits under the Plan, and any permitted modification, or revocation thereof, shall be filed with the Committee or its delegate at such times, in such form (which may include a requirement of a written election or a requirement to use an electronic or on-line system), and subject to such restrictions and limitations, not inconsistent with the terms of the Plan, as the Committee shall require.
5.10 Agreement With Company. An Award under the Plan shall be subject to such terms and conditions, not inconsistent with the Plan, as the Committee shall, in its sole discretion, prescribe. The terms and conditions of any
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Award to any Participant shall be reflected in such form of document as is determined by the Committee (and which may be written or otherwise be set forth or delivered electronically). A copy of such document shall be provided, or otherwise made available, to the Participant, and the Committee may, but need not, require that the Participant sign a copy of such document or otherwise acknowledge receipt and acceptance in the manner acceptable to the Committee. Such document is referred to in the Plan as an “Award Agreement” regardless of whether any Participant signature (or acknowledgement or acceptance) is required.
5.11 Action by Company or Subsidiary. Any action required or permitted to be taken by the Company or any Subsidiary shall be by resolution of its board of directors, or by action of one or more members of the board (including a committee of the board) who are duly authorized to act for the board, or (except to the extent prohibited by applicable law or applicable rules of any stock exchange) by a duly authorized officer of such company.
5.12 Gender and Number. Where the context permits, words in any gender shall include any other gender, words in the singular shall include the plural and the plural shall include the singular.
5.13 Limitation of Implied Rights.
(a) No employee or other person shall have any claim or right to be granted an Award under the Plan. Having received an Award under the Plan shall not give a Participant or any other person any right to receive any other Award under the Plan. A Participant shall have no rights in any Award, except as set forth herein and in the applicable Award Agreement.
(b) Neither a Participant nor any other person shall, by reason of participation in the Plan, acquire any right in or title to any assets, funds or property of the Company or any Subsidiary whatsoever, including, without limitation, any specific funds, assets, or other property which the Company or any Subsidiary, in its sole discretion, may set aside in anticipation of a liability under the Plan. A Participant shall have only a contractual right to the Stock or amounts, if any, payable under the Plan, unsecured by any assets of the Company or any Subsidiary, and nothing contained in the Plan shall constitute a guarantee that the assets of the Company or any Subsidiary shall be sufficient to pay any benefits to any person.
(c) The Plan does not constitute a contract of employment, in the case of a Participant who is an employee, or an agreement to renominate a director as a director, in the case of a Participant who is a Non-Employee Director, and selection as a Participant will not give any participating employee or Non-Employee Director the right to be retained in the employ, or remain a director, of the Company or any Subsidiary, nor any right or claim to any benefit under the Plan, unless such right or claim has specifically accrued under the terms of the Plan. Except as otherwise provided in the Plan, no Award under the Plan shall confer upon the holder thereof any rights as a shareholder of the Company prior to the date on which the Participant fulfills all conditions for Settlement of such rights.
5.14 Evidence and Manner of Action. Evidence required of anyone under the Plan may be by certificate, affidavit, document or other information which the person acting on it considers pertinent and reliable, and signed, made or presented by the proper party or parties. Board and Committee actions and authorizations with respect to the Plan and Awards granted thereunder are not required to take any specific form. For example, and without limiting the generality of the foregoing, any action or authorization by the Board or the Committee that is not described as an amendment, but that would be inconsistent with the Plan or an Award agreement as then in effect, shall be given the same effect as a formal amendment thereto (provided that such amendment is otherwise permitted by the Plan).
SECTION 6. CHANGE IN CONTROL
6.1 Subject to Section 6.4, upon the occurrence of a Change in Control:
(a) All outstanding Options (regardless of whether in tandem with SARs) shall become fully vested and
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exercisable.
(b) All outstanding SARs (regardless of whether in tandem with Options) shall become fully vested and exercisable.
(c) All outstanding Awards of Restricted Stock and Restricted Stock Units:
(i) that vest without reference to the extent to which one or more Performance Goals are attained shall become fully vested (for the avoidance of doubt, if an Award provides that a Performance Goal must be attained for Stock to vest, and if the Goal is attained, the number of shares of Stock that vest does not depend on the extent to which the Goal was attained, such Award is an Award that vests without reference to the extent to which the Goal was attained);
(ii) that vest with reference to the extent to which one or more Performance Goals are attained shall become vested in an amount calculated by assuming that the Performance Goal(s) have been satisfied at the target level specified in the Participant’s Award Agreement or, if greater, otherwise specified by the Committee at or after grant.
(d) All Incentive Awards shall be treated as determined by the Committee.
6.2 Without limiting the foregoing provisions of Section 6.1, but subject to the provisions of Section 6.4, in the event of a Change in Control the Committee may, in its discretion, provide any of the following either absolutely or subject to the election of such Participants:
(a) Each Option and SAR shall be surrendered, canceled or exercised for an immediate lump sum cash amount, subject to withholding, equal to the excess of the aggregate Fair Market Value of the shares of Stock subject to such Option or SAR determined as of the date prior to the Change in Control over the aggregate Exercise Price of such shares; provided that, to the extent such Fair Market Value does not exceed such Exercise Price, the Option or SAR may be canceled for no consideration upon the Change in Control;
(b) Each Restricted Stock Award or Restricted Stock Unit shall be exchanged for an immediate lump sum cash amount, subject to withholding, equal to the number of shares of Stock subject to such Restricted Stock Award or Restricted Stock Unit multiplied by the Fair Market Value of a share of Stock on the date prior to the Change in Control, or if greater, the value of a share of Stock as indicated by the transaction underlying the Change in Control.
6.3 The provisions of Section 6.1 and Section 6.2 notwithstanding, no distribution or payment shall be made upon or in connection with the occurrence of a Change in Control with respect to any Award that the Committee shall determine does not qualify for any applicable exemption from the application of Section 409A of the Code (such as by reason of being a stock right or qualifying as a short-term deferral), unless the Change in Control qualifies as a permissible distribution event under Section 409A of the Code with respect to such Award and the Award provides for such distribution. To the extent that, pursuant to the immediately preceding sentence, an Award is not distributable or payable upon the occurrence of a Change in Control, distribution or payment of such Award shall be made at the time otherwise specified under the Plan or the Award Documents without regard to the occurrence of a Change in Control (including any six month delay in payment applicable to a “specified employee,” as determined in accordance with Section 409A of the Code). Without limiting the generality of the foregoing, nothing in this Section 6.3 shall be construed to prevent any Participant’s rights in respect of any Award from becoming non-forfeitable upon the occurrence of a Change in Control.
6.4 The provisions of Section 6.1 notwithstanding, no acceleration of exercisability, vesting, issuance of shares, cash Settlement or other payment shall occur under Section 6.1 with respect to any Equity Award granted to a Participant if the Committee reasonably determines in good faith prior to the occurrence of a Change in Control that such Equity Award shall be honored or assumed, or new rights substituted therefor (such honored, assumed or substituted award hereinafter called an “Alternative Award”) by the Participant’s employer (or the parent or a subsidiary of such employer) immediately following the Change in Control, provided that any such Alternative Award must:
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(a) relate to a class of equity that is (or will be within 5 business days following the Change in Control) listed to trade on a recognized securities market;
(b) provide the Participant with rights and entitlements substantially equivalent to or better than the rights and entitlements applicable under such Equity Award, including, but not limited to, an identical or better exercise or vesting schedule and identical or better timing and methods of payment, including all provisions applicable in respect of such Equity Award that provide for accelerated vesting (with respect to Equity Awards that vest upon the attainment of one or more Performance Goals, if the Change in Control occurs during the course of a performance period applicable to the Equity Award, then (A) the Performance Goals shall be deemed to have been satisfied at the target level specified in the Participant’s Award agreement or, if greater, otherwise specified by the Committee at or after grant, and (B) any Alternative Award shall not include a performance objective, unless otherwise determined by the Committee);
(c) have substantially equivalent economic value to the Equity Award (as determined by the Committee as constituted immediately prior to the Change in Control); and
(d) have terms and conditions which provide that if the Participant’s employment is terminated upon or within three years following such Change in Control by the Participant’s employer other than for Cause or by the Participant for Good Reason, a Participant’s rights under each such Alternative Award shall become fully vested and exercisable (for purposes of this clause (d), Good Reason and Cause shall be as defined in the Company’s Key Executive Employment and Severance Agreement (“KEESA”) applicable to the Participant prior to the occurrence of the Change in Control and if no KEESA is applicable to the Participant, then as such terms are defined in the form of KEESA most recently filed with the Securities and Exchange Commission; provided, however, that with respect to any Equity Award that does not qualify for any applicable exemption from the application of Section 409A of the Code, the payment or distribution of the Alternative Award shall only be made at the time otherwise specified under the Plan or the Award Agreement without regard to the occurrence of the Change in Control (including any six month delay in payment applicable to a “specified employee,” as determined in accordance with Section 409A of the Code).
6.5 Anything in this Plan to the contrary notwithstanding, if a Change in Control occurs and if the Participant’s employment is terminated (other than a termination due to the Participant’s death or as a result of the Participant’s disability) during the period of 90 days prior to the date on which the Change in Control of the Company occurs, and if it is reasonably demonstrated by the Participant that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change in Control of the Company or (ii) was by the Participant for Good Reason or was by the employer for other than Cause and otherwise arose in connection with or in anticipation of a Change in Control of the Company, then the date of termination of such Participant’s employment or service shall be deemed for purposes of the Plan to be the day following the date of the Change in Control.
SECTION 7. COMMITTEE
7.1 Administration. The authority to control and manage the operation and administration of the Plan shall be vested in a committee (the “Committee”) in accordance with this Section 7. The Committee shall be selected by the Board, and shall consist of at least two members and shall be appointed from among the members of the Board. Any member of the Committee may resign or be removed by the Board and new members may be appointed by the Board. Additionally, the Committee shall be constituted so as to satisfy at all times the non-employee director requirement of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and, at any time during which Awards that are intended to constitute performance-based compensation for purposes of Code Section 162(m) are outstanding or to be granted, the outside director requirement of Code Section 162(m) and the regulations thereunder. Unless otherwise determined by the Board, the Committee shall be the Management Development, Nominating and Governance Committee. If the Committee does not exist, or for any other reason determined by the Board, the Board may take any action under the Plan that would otherwise be the responsibility of the Committee.
7.2 Powers of Committee. The Committee’s administration of the Plan shall be subject to the following:
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(a) Subject to the provisions of the Plan, the Committee will have the authority and discretion to select from among the Eligible Individuals those persons who shall receive Awards, to determine the time or times of receipt, to determine the types of Awards and the number of shares covered by the Awards, to establish the terms, conditions, performance criteria, restrictions, and other provisions of such Awards, and (subject to the restrictions imposed by Section 8) to cancel or suspend Awards.
(b) To the extent that the Committee determines that the restrictions imposed by the Plan preclude the achievement of the material purposes of the Awards in jurisdictions outside the United States, the Committee will have the authority and discretion to modify those restrictions as the Committee determines to be necessary or appropriate to conform to applicable requirements or practices of jurisdictions outside of the United States.
(c) The Committee will have the authority and discretion to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the Plan, to determine the terms and provisions of any Award Agreement made pursuant to the Plan, and to make all other determinations that may be necessary or advisable for the administration of the Plan.
(d) Any interpretation of the Plan by the Committee and any decision made by it under the Plan, including an adjustment under subsection 5.2(f), is final and binding on all persons. Except to the extent precluded by applicable law, decisions made by the Committee under the Plan need not be uniform with respect to Participants notwithstanding that Participants are similarly situated.
(e) No member of the Board or the Committee, and no member of a sub-committee or other person to whom a delegation under Section 7.3 has been made, will be liable for any act done, or determination made, by the individual in good faith with respect to this Plan or any Award. The Company will indemnify and hold harmless each member of the Board and the Committee, and each member of a sub-committee or other person to whom a delegation under Section 7.3 has been made, as to any acts or omissions with respect to this Plan or any Award to the maximum extent that the law, the Company’s by-laws, articles of incorporation and any indemnification agreement between such member and the Company or an affiliate permit.
7.3 Delegation by Committee. Except to the extent prohibited by applicable law or the applicable rules of a stock exchange, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and powers to any sub-committee or person or persons selected by it. If the Committee has made a permitted allocation or delegation, then all references to the Committee in the Plan include such sub-committee or person or persons with respect to whom the allocation or delegation is made to the extent of such allocation or delegation. Any such allocation or delegation may be revoked by the Committee at any time.
7.4 Information to be Furnished to Committee. The Company and Subsidiaries shall furnish the Committee with such data and information as it determines may be required for it to discharge its duties. The records of the Company and Subsidiaries as to an employee’s or Participant’s employment, termination of employment, leave of absence, reemployment and compensation shall be conclusive on all persons unless determined to be incorrect. Participants and other persons entitled to benefits under the Plan must furnish the Committee such evidence, data or information as the Committee considers desirable to carry out the terms of the Plan.
SECTION 8. AMENDMENT AND SUSPENSION OF GRANTING AWARDS
8.1 Amendment of Plan and Suspension of Granting Awards. The Board or the Committee may, at any time, amend the Plan, except that the Board may amend the Plan to prohibit or restrict the Committee’s power to amend the Plan after the time at which such amendment is adopted by the Board, and any such amendment by the Board shall not be subject to change by the Committee. Notwithstanding the foregoing sentence, (i) subject to subsection 8.2, no
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amendment may, in the absence of written consent to the change by the affected Participant (or, if the Participant is not then living, the affected beneficiary of the former Participant), adversely affect the rights of any Participant or beneficiary under any Award made prior to the date such amendment is adopted; (ii) no amendment may increase the limitations set forth in subsections 5.2(a), 5.2(b) and 5.2(c), decrease the minimum Option or SAR Exercise Price set forth in subsection 2.2, increase the maximum term of an Option or SAR from the maximum term set forth in subsection 2.3 or amend subsections 2.4 or 2.5 unless any such amendment is approved by the Company’s shareholders; and (iii) shareholders must approve any amendment of the Plan to the extent the Company determines such approval is required by: (A) Section 16 of the Exchange Act, (B) the Code, or (C) the listing requirements of the Applicable Exchange. Adjustments pursuant to subsection 5.2(f) shall not be subject to the foregoing limitations of this Section 8. The Committee or the Board may at any time suspend, temporarily or permanently, granting Awards under the Plan.
8.2 Amendment, Modification or Cancellation of Awards. Except as provided in subsection 2.5 and subject to the requirements of the Plan, the Committee may modify or amend any Award, or waive any restrictions or conditions applicable to any Award or the exercise of the Award, or amend, modify or cancel any terms and conditions applicable to any Award, in each case by mutual agreement between the Committee and the Participant or any other person(s) as may then have an interest in the Award, so long as any such action does not increase the number of shares of Stock issuable under the Plan (except as permitted by subsection 5.2(f)), but the Committee need not obtain Participant (or other interested party) consent for any such action that is permitted by the provisions of subsection 5.2(f) or for any such action: (i) to the extent the action is deemed necessary by the Committee to comply with any applicable law or the listing requirements of the Applicable Exchange; (ii) to the extent the action is deemed necessary by the Committee to preserve favorable accounting or tax treatment of any Award for the Company; or (iii) to the extent the Committee determines that such action does not materially and adversely affect the value of an Award or that such action is in the best interest of the affected Participant or any other person(s) as may then have an interest in the Award. The foregoing notwithstanding, the Committee may not waive or accelerate the vesting period of any Equity Award except in the case of death, disability, retirement, or, subject to Section 6, a Change in Control.
SECTION 9. INTERNAL REVENUE CODE SECTION 409A
Unless determined otherwise by the Committee, the Plan shall be administered in a manner that will enable an Award that is intended to be exempt from Code Section 409A to continue to be so exempt, or to enable an Award that is intended to comply with Code Section 409A to continue to so comply. For purposes of any Award that is subject to Code Section 409A and with respect to which the terms and conditions of the Award Agreement, as determined by the Committee (or if applicable, elected by the Participant) at the time of grant provide for distribution or Settlement of the Award upon the Participant’s termination of employment, the Participant will be deemed to have terminated employment on the date on which the Participant incurs a “separation from service”, within the meaning of Code Section 409A, and to the extent required in order to comply with Code Section 409A, no distribution or Settlement of the Award shall be made until the date that is six months and one day following the date of the Participant’s “separation from service”. A Participant’s “separation from service” shall occur when the Company reasonably anticipates that no further services will be performed by the Participant for the Company after a certain date or that the level of bona fide services the Participant will perform after such date will permanently decrease to no more than twenty percent (20%) of the average level of bona fide services performed by the Participant (whether as an employee or independent contractor) for the Company over the immediately preceding thirty-six (36) month period (or such lesser period of actual service). For purposes of this definition, the term “Company” includes each other corporation, trade or business that, with MGIC Investment Corporation, constitutes a controlled group of corporations or group of trades or businesses under common control within the meaning of Code Sections 414(b) or (c). For this purpose, Code Sections 414(b) and (c) shall be applied by substituting “at least 50 percent” for “at least 80 percent” each place it appears therein or in the regulations promulgated thereunder. A Participant is not considered to have incurred a “separation from service” if the Participant is absent from active employment due to military leave, sick leave or other bona fide leave of absence if the period of such leave does not exceed the greater of (i) six (6) months, or (ii) the period during which the Participant’s right to reemployment by the Company or controlled group member is provided either by statute or by contract; provided that if the leave of absence is due to a medically determinable physical or mental impairment that can be expected to result in death or last for a continuous period of not
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APPENDIX C — 2020 OMNIBUS INCENTIVE PLAN
less than six (6) months, where such impairment causes the Participant to be unable to perform the duties of his or her position of employment or any substantially similar position of employment, the leave may be extended for up to twenty-nine (29) months without causing a “separation from service”.
SECTION 10. DEFINED TERMS AND GOVERNING LAW
10.1 Defined Terms. In addition to the other definitions contained herein, the following definitions shall apply:
(a) “Award” means any award or benefit granted under the Plan, including, without limitation, the grant of Options, SARs, Restricted Stock Awards, Restricted Stock Unit Awards and Incentive Awards.
(b) “Board” means the Board of Directors of the Company.
(c) “CEO” means the Chief Executive Officer of the Company.
(d) “Change in Control” means a change in control of the Company, as defined in the Annex hereto, provided that with respect to an Award that is subject to Code Section 409A, such change in control is also a change in ownership or effective control of a corporation or a change in ownership of a substantial portion of the assets of a corporation pursuant to Treasury Regulations section 1.409A-3(i)(5).
(e) “Code” means the Internal Revenue Code of 1986, as amended. A reference to any provision of the Code shall include reference to any successor provision of the Code and the regulations promulgated under such provision.
(f) “Covered Employee” means any employee of the Company or any Subsidiary who is not the CEO.
(g) “Eligible Individual” means any executive officer or other key employee of the Company or a Subsidiary and any Non-Employee Director. An Award may be granted to an employee, in connection with hiring, retention or otherwise, prior to the date the employee first performs services for the Company or a Subsidiary, provided that such Award shall not become vested prior to the date the employee first performs such services.
(h) “Equity Award” means an Award of Options, SARs, Restricted Stock, Restricted Stock Units or other stock-based Award.
(i) “Fair Market Value” means, per share of Stock on a particular date, a price that is based on (i) the opening, closing, actual, high or low sale price, or the arithmetic mean of selling prices of, a share of Stock on the New York Stock Exchange or such other exchange or automated trading system on which the Stock is then principally traded (the “Applicable Exchange”) on the applicable date, the preceding trading day or the next succeeding trading day, or (ii) the arithmetic mean of selling prices on all trading days over a specified averaging period that is within 30 days before or 30 days after the applicable date, or such arithmetic mean weighted by volume of trading on each trading day in the period, in each case as determined by the Committee in its discretion; provided that, if an arithmetic mean of prices is used to set a grant price or an exercise price for an Option or SAR that is intended to be exempt from Code Section 409A, then the commitment to grant the applicable Award based on such arithmetic mean must be irrevocable before the beginning of the specified averaging period in accordance with United States Treasury Regulations section 1.409A-1(b)(5)(iv)(A). The method of determining Fair Market Value with respect to an Award shall be determined by the Committee and may differ depending on whether Fair Market Value is in reference to the grant, exercise, vesting, Settlement, or payout of an Award; provided that, if the Committee does not specify a different method, the Fair Market Value of a share of Stock as of a given date shall be the last reported per share sale price of the Stock on the day as of which Fair Market Value is to be determined or, if there shall be no such sale on such date, the next preceding day on which such a sale shall have occurred. If the Stock is not traded on an established stock exchange, the Committee shall determine in good faith the Fair Market Value of a share of Stock. Notwithstanding the foregoing, in the case of a sale of shares of Stock on the Applicable Exchange, the actual sale price shall be the Fair Market Value of such shares. The Committee also
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shall establish the Fair Market Value of any other property.
(j) “Non-Employee Director” means a member of the Board who is not an employee of the Company, any Subsidiary or of any person, directly or indirectly, controlling, controlled by or under common control with the Company and is not a member of the Board representing a particular holder of any class of securities of the Company.
(k) “Performance Goal” means, with respect to any Award that is or is not intended to constitute “performance based compensation” under Code Section 162(m), any goal or performance measure the Committee establishes that relates to one or more of the following:
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net income, pre-tax income or earnings before interest, taxes and depreciation and amortization,
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operating earnings, which is net income excluding realized gains and losses,
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cash flow, including operating cash flow, which excludes the same items as are excluded in operating earnings,
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return on assets, capital, investment, invested capital or equity,
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total return to shareholders or another return measure in which the denominator is one objective financial metric derived from the Company's financial statements and the denominator is another one,
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expenses or a ratio related to expenses, such as the ratio of expenses from insurance operations to net premiums written or earned,
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incurred or paid losses or ratios related to those losses, such as the ratio of incurred losses to the net premiums written or earned,
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common stock share price,
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gross or net revenues, and
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In addition, in the case of Awards that are not intended to constitute “performance-based compensation” under Code Section 162(m), the Committee may establish other subjective or objective performance goals not listed above, but which shall be deemed Performance Goals for purposes of this Plan.
Each of the Performance Goals may be combined with other Performance Goals, and may be (i) determined on a Company-wide basis or, where applicable, with respect to one or more Subsidiaries, operating units, divisions, books of business, new insurance written, types of insurance written by the Company, acquired businesses, minority investments, partnerships or joint ventures; (ii) determined on a relative or an absolute basis, or (iii) determined on a per share (either basic or fully diluted) or an aggregate basis. If during the course of a performance period there shall occur significant events which the Committee expects to have a substantial effect on the applicable performance objectives during such period, the Committee may revise such performance objectives.
Unless otherwise determined by the Committee, the measurement of the Performance Goal shall exclude, to the extent applicable under the particular Performance Goal, the effects of (i) charges for reorganizations and restructurings and discontinued operations; (ii) all items of gain, loss or expense determined to be unusual or non-recurring in nature; (iii) all items of gain, loss or expense related to the acquisition or disposal of a business; (iv) all items of gain, loss or expense related to a change in accounting principle as well as the cumulative effect of accounting changes; (v) the establishment or elimination of any valuation reserve; (vi) litigation judgments or settlements, (vii) the effect of changes in tax law or other laws or provisions affecting reported results; and (viii) any item that is included in a determination of other comprehensive income.
The Committee may, in its discretion, determine at any time to adjust the measurement of any Performance Goal, or
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exclude from the measurement of any Performance Goal any items it designates in its discretion; provided that, with respect to Awards that are intended to constitute performance-based compensation for purposes of Code Section 162(m), such adjustments or exclusions must be made or established as part of an objective formula or standard that precludes discretion in accordance with Code Section 162(m).
Where applicable, the Performance Goals may be expressed, without limitation, in terms of attaining a specified level of the particular criterion or the attainment of an increase or decrease (expressed as absolute numbers or a percentage) in the particular criterion or achievement in relation to a peer group or other index. The Performance Goals may include a threshold level of performance below which no payment will be made (or no vesting will occur), levels of performance at which specified payments will be paid (or specified vesting will occur), and a maximum level of performance above which no additional payment will be made (or at which full vesting will occur).
(l) “Stock” means the common stock, $1.00 par value, of the Company.
(m) “Subsidiary” means any company during any period in which it is a “subsidiary corporation” (as that term is defined in Code Section 424(f)) with respect to the Company.
The following terms are defined where indicated below:
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10% Shareholder
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-- Subsection 2.2
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Alternative Award
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-- Subsection 6.4
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Applicable Exchange
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-- Subsection 10.1(i)
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Award Agreement
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-- Subsection 5.10
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Base Award
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-- Subsection 3.2
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Cause
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-- Subsection 6.4(d)
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Code Section 162(m)
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-- Subsection 4.1
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Committee
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-- Subsection 7.1
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Company
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-- Subsection 1.1
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Effective Date
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-- Subsection 1.3
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Exchange Act
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-- Subsection 7.1
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Exercise Price
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-- Subsection 2.2
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Good Reason
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-- Subsection 6.4(d)
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Incentive Award
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-- Subsection 4.1
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ISO
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-- Subsection 2.1(a)
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KEESA
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-- Subsection 6.4(d)
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Matching Award
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-- Subsection 5.2(c)(i)
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Maximum Limit
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-- Subsection 5.2(a)
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NQO
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-- Subsection 2.1(a)
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Option
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-- Subsection 2.1(a)
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Participant
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-- Subsection 1.2
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Plan
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-- Subsection 1.1
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Prior Plan
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-- Subsection 1.3
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Restricted Stock
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-- Subsection 3.1
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Restricted Stock Unit
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-- Subsection 3.1
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SAR
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-- Subsection 2.1(b)
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Settlement
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-- Subsection 5.7
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10.2 Governing Law. The Plan, and all Award Agreements, shall be construed in accordance with and governed by the laws of the State of Wisconsin, without reference to any conflict of law principles. As a condition of receiving any Award, a Participant agrees, on behalf of the Participant and all persons or entities that may claim through the Participant, that except to the extent otherwise determined by the Company in writing in the case of one or more Participants and communicated to an affected Participant in the same manner by which notices may be given under the Participant’s Award Agreement (a) any legal action or proceeding with respect to the Plan, any Award or any Award Agreement, or for recognition and enforcement of any judgment in respect of the Plan, any Award or any Award Agreement, may be brought and determined only in a state court sitting in the County of Milwaukee, or the Federal District Court for the Eastern District of Wisconsin sitting in the County of Milwaukee, in the State of Wisconsin, and (b) any right to a jury trial is waived. No legal action or other proceeding may be brought by or on behalf of a Participant (or any beneficiary of the Participant) with respect to the Plan or any Plan Award more than one (1) year after the later of (i) the last date on which the act or omission giving rise to the legal action or proceeding occurred, or (ii) the date on which the individual or entity bringing the legal action or proceeding had knowledge (or reasonably should have had knowledge) of the act or omission.
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APPENDIX C — 2020 OMNIBUS INCENTIVE PLAN
ANNEX
Definition of “Change in Control” and Related Terms
1. Change in Control of the Company. A “Change in Control” shall be deemed to have occurred if an event set forth in any one of the following paragraphs shall have occurred:
(i) any Person (other than (A) the Company or any of its subsidiaries, (B) a trustee or other fiduciary holding securities under any employee benefit plan of the Company or any of its subsidiaries, (C) an underwriter temporarily holding securities pursuant to an offering of such securities or (D) an entity owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their ownership of stock in the Company (“Excluded Persons”)) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates after January 1, 2020, pursuant to express authorization by the Board of Directors of the Company (the “Board”) that refers to this exception) representing more than 25% of the total fair market value of the stock of the Company or representing more than 25% of the total voting power of the stock of the Company; or
(ii) during any 12 consecutive month period, the following individuals cease for any reason to constitute a majority of the number of directors of the Company then serving: (A) individuals who, on January 1, 2020, constituted the Board and (B) any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company’s shareholders was approved by a vote of at least a majority of the directors then still in office who either were directors on January 1, 2020, or whose initial appointment, election or nomination for election as a director which occurred after January 1, 2020 was approved by such vote of the directors then still in office at the time of such initial appointment, election or nomination who were themselves either directors on January 1, 2020 or initially appointed, elected or nominated by such majority vote as described above ad infinitum (collectively the “Continuing Directors”); provided, however, that individuals who are appointed to the Board pursuant to or in accordance with the terms of an agreement relating to a merger, consolidation, or share exchange involving the Company (or any direct or indirect subsidiary of the Company) shall not be Continuing Directors for purposes of this Agreement until after such individuals are first nominated for election by a vote of at least a majority of the then Continuing Directors and are thereafter elected as directors by the shareholders of the Company at a meeting of shareholders held following consummation of such merger, consolidation, or share exchange; and, provided further, that in the event the failure of any such persons appointed to the Board to be Continuing Directors results in a Change in Control of the Company, the subsequent qualification of such persons as Continuing Directors shall not alter the fact that a Change in Control of the Company occurred; or
(iii) a merger, consolidation or share exchange of the Company with any other entity is consummated or voting securities of the Company are issued in connection with a merger, consolidation or share exchange of the Company (or any direct or indirect subsidiary of the Company) pursuant to applicable stock exchange requirements, other than (A) a merger, consolidation or share exchange which would result in the voting securities of the Company entitled to vote generally in the election of directors outstanding immediately prior to such merger, consolidation or share exchange continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 50% of the combined voting power of the voting securities of the Company or such surviving entity or any parent thereof entitled to vote generally in the election of directors of such entity or parent outstanding immediately after such merger, consolidation or share exchange, or (B) a merger, consolidation or share exchange effected to implement a recapitalization of the Company (or similar transaction) in which no Person (other than an Excluded Person) is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company or its Affiliates after January 1, 2020, pursuant to express authorization by the Board that refers to this exception) representing at least 25% of the combined voting power of the Company’s then outstanding voting securities entitled to vote generally in the election of directors; or
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(iv) the consummation of a sale or disposition by the Company of all or substantially all of the Company’s assets to a Person (in one transaction or a series of related transactions within any period of 24 consecutive months), other than a sale or disposition by the Company of all or substantially all of the Company’s assets to an Excluded Person or to an entity at least 75% of the total value or voting power of which is owned by Persons in substantially the same proportions as their ownership of the Company immediately prior to such sale. It is understood that in no event shall a sale or disposition of assets be considered to be a sale of substantially all of the assets unless the assets sold or disposed of have a total gross fair market value of at least 40% of the total gross fair market value of all of the Company’s assets immediately prior to such sale or disposition.
2. Related Definitions. For purposes of this Annex, the following terms, when capitalized, shall have the following meanings:
(i) Act. The term “Act” means the Securities Exchange Act of 1934, as amended.
(ii) Affiliate and Associate. The terms “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule l2b-2 of the General Rules and Regulations under the Act.
(iii) Beneficial Owner. A Person shall be deemed to be the “Beneficial Owner” of any securities:
(a) which such Person or any of such Person’s Affiliates or Associates has the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding, or upon the exercise of conversion rights, exchange rights, rights, warrants or options, or otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, securities tendered pursuant to a tender or exchange offer made by or on behalf of such Person or any of such Person’s Affiliates or Associates until such tendered securities are accepted for purchase, or securities issuable upon exercise of rights issued pursuant to the terms of a shareholder rights agreement that may be entered into by the Company from time to time, at any time before the issuance of such securities;
(b) which such Person or any of such Person’s Affiliates or Associates, directly or indirectly, has the right to vote or dispose of or has “beneficial ownership” of (as determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Act), including pursuant to any agreement, arrangement or understanding; provided, however, that a Person shall not be deemed the Beneficial Owner of, or to beneficially own, any security under this subsection 2(iii)(b) as a result of an agreement, arrangement or understanding to vote such security if the agreement, arrangement or understanding: (A) arises solely from a revocable proxy or consent given to such Person in response to a public proxy or consent solicitation made pursuant to, and in accordance with, the applicable rules and regulations under the Act and (B) is not also then reportable on a Schedule 13D under the Act (or any comparable or successor report); or
(c) which are beneficially owned, directly or indirectly, by any other Person with which such Person or any of such Person’s Affiliates or Associates has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting (except pursuant to a revocable proxy as described in subsection 2(iii)(b) above) or disposing of any voting securities of the Company.
(iv) Person. The term “Person” shall mean any individual, firm, partnership, corporation or other entity, including any successor (by merger or otherwise) of such entity, or a group of any of the foregoing acting in concert.
(v) Stock. The term “stock” shall have the meaning contemplated by Treasury Regulation 1.409A-1 et seq.
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