COMPENSATION PROGRAM OBJECTIVES
COMPENSATION OBJECTIVES, PRINCIPLES AND APPROACHES
The Vectrus compensation program objectives, principles and approaches reflect the Company's business needs and strategy, as detailed below:
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OBJECTIVE
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GENERAL PRINCIPLE
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APPROACH
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Attract, incentivize and retain talented and experienced leaders.
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Design an executive compensation program to attract, incentivize and retain high performing executives.
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Target total direct compensation approximating the 50th percentile of competitive practice. Review current competitive market compensation to structure movement of NEO compensation toward the competitive median of general industry companies in the CDB, as adjusted for revenue size.
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Align at-risk compensation with corporate and individual performance.
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Align the measures of performance in our compensation programs with measures key to the success of our business. If our business succeeds, our shareholders will benefit.
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Provide incentive opportunities based on corporate and individual performance to drive shareholder value.
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Align at-risk compensation with levels of executive responsibility.
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As executives advance in the Company, the leverage of at-risk pay relative to fixed pay increases.
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Structure NEO compensation so that a substantial portion of compensation is at risk for executives with greater levels of responsibility.
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PRIMARY COMPENSATION COMPONENTS
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NEO COMPENSATION
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=
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BASE SALARY
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+
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ANNUAL INCENTIVE
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+
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LONG-TERM INCENTIVES
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BASE SALARY – Base salary comprises the fixed component of total compensation for Mr. Prow and the other NEOs. Salary is a competitive component of pay that is aligned with the NEO's position, experience and criticality of the required competencies. It is not a risk-based element of compensation.
ANNUAL INCENTIVE PLAN (AIP) AWARDS – The Compensation Committee determined that the four corporate metrics noted below would be most closely predictive of optimal operating performance in 2019 for Vectrus. For 2019, 80% of the awards were based on the achievement of these corporate metrics and 20% of the awards were based on the achievement of individual strategic goals.
EARNINGS PER SHARE (EPS): This is a market-based metric recognized as a standard by investors and analysts. For 2019 the Compensation Committee used a metric of Adjusted Diluted Earnings per Share, as discussed below.
TOTAL REVENUE: Revenue reflects successful recognition of contracted revenue, recompetes and emphasis on growth through new revenue streams. Revenue is defined as adjusted revenue as discussed below.
NEW BUSINESS WINS: Winning new business is a critical focus for our Company. New Business Wins includes any new business contract award notification during the calendar year, recompetes, contract extensions and add-on work to existing contracts.
DAYS SALES OUTSTANDING (DSO): DSO is an important operating efficiency metric that measures the number of days it takes to turn accounts receivable into cash. DSO is calculated using a five (5) point average of the DSO for Q4 of the prior year and each of the four quarters of the performance year. DSO is defined as adjusted DSO, as discussed below.
INDIVIDUAL STRATEGIC GOALS: The Compensation Committee approved individual strategic goals for each of the NEOs, except for Mr. Noon, for the 2019 AIP. The use of individual goals balances the executive's shared responsibility to achieve corporate goals with the desire to motivate the executives to achieve goals within the individual's specific area of responsibility. The individual goals also reinforce the importance of certain key objectives within the individual's specific area of responsibility and allow the Compensation Committee to differentiate compensation among these executives based on their individual performance. It also strengthens the executive's accountability. See "Individual Strategic Goals and Results for 2019" below.
The Compensation Committee was responsible for the administration of the AIP for 2019. The Compensation Committee approved an annual incentive plan design for the business as described below.
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2019 AIP METRICS
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PERFORMANCE PERCENTAGE
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Adjusted Diluted Earnings Per Share (EPS)
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30%
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Adjusted Revenue
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10%
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New Business Wins (NBW)
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20%
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Adjusted Days Sales Outstanding (DSO)
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20%
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Individual Strategic Goals *
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20%
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(*) The Compensation Committee did not assign a specific weighting to any of the individual goals, but reviewed each executive's performance against his or her individual goals in the aggregate. For Mr. Noon, although he was not assigned specific individual goals during his tenure as Acting CFO, 20% of his AIP award was based on an assessment of his individual performance and contributions.
AIP OPERATIONAL OBJECTIVES
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Adjusted Diluted Earnings Per Share (EPS)*
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Adjusted Revenue*
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New Business Wins*
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Adjusted Days Sales Outstanding (DSO)*
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Individual Strategic Goals**
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thres-hold
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target
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maxi-mum
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thres-hold
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target
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maxi-mum
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thres-hold
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target
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maxi-mum
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thres-hold
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target
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maxi-mum
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thres-hold
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target
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maxi-mum
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Performance Percentage of Target
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85%
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100%
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150%
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90%
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100%
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130%
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21%
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100%
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150%
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95.21%
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100%
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107%
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0%
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100%
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200%
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Payout Percentage of Target
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50%
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90%
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200%
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50%
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90%
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200%
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1%
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100%
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200%
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25%
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100%
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200%
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0%
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20%
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40%
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(*) For performance results between the minimum and maximum thresholds, the performance percentage achieved for that metric is calculated on a non-linear slope pre-approved by the Compensation Committee for the performance year. Actual results may range from zero to 200% of target.
(**) For Mr. Noon, see note under "Primary Compensation Components" above.
2019 AIP AWARDS PAID IN 2020 – On February 26, 2020, the 2019 AIP awards for the NEOs were approved by the Compensation Committee for payment on or about March 13, 2020. Mr. Prow conducted a detailed assessment of each of the other NEO's performance against their individual goals. Based on the financial results and achievement of individual goals, Mr. Prow recommended the AIP awards for those NEOs. In the case of Mr. Noon, who was not assigned individual goals, his overall individual performance and contributions were considered in Mr. Prow's assessment and recommendation. In addition, Mr. Prow provided a detailed self-assessment to the Committee with regard to his own performance against his individual goals. The approved 2019 AIP awards for NEOs are included in the Summary Compensation Table in the “Non-Equity Incentive Plan Compensation” column.
The performance and payout percentages for each component of the AIP were as follows:
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Metric (all $ amounts in millions, except per share data and DSO)
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Performance Target at 100.0% Payment and Weighting (1)
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2019 Performance
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Performance Percentage of Target
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Payout Percentage of Target (1)
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Weighted Attainment
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Adjusted Diluted Earnings Per Share
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$3.58
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30.0%
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$3.19
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89.1%
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60.9%
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18.3%
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Adjusted Revenue
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$1,336.0
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10.0%
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$1,357.7
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101.6%
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94.8%
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9.5%
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New Business Wins
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$191.2
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20.0%
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$355.0
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185.6%
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200.0%
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40.0%
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Adjusted Days Sales Outstanding
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60.5
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20.0%
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63.5
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95.0%
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0.0%
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0.0%
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Individual Strategic Goals (discussed below)
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20.0%
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(1) Attainment of all of the 2019 AIP performance goals would result in a payout of 96.0% of target.
“Adjusted Net Income” is defined as net income, adjusted to exclude items that may include, but not limited to, other income, significant charges or credits that impact the current results that are not related to our ongoing operations and unusual and infrequent non-operating items or adjustments, such as excluding the impact of acquisitions in the year of the acquisition, if unplanned and the exclusion of Merger and Acquisition costs, integration costs, and LOGCAP V pre-operational legal costs.
“Adjusted Revenue” is defined as GAAP Revenue, adjusted to exclude the impact of acquisitions in the year of the acquisition, if unplanned.
"Adjusted Days Sales Outstanding" is defined as reported DSO, adjusted to exclude the impact of acquisitions in the year of the acquisition, if unplanned.
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Year Ended December 31, 2019
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(in millions)
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Adjusted Revenue
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Reported GAAP Revenue
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$
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1,382.6
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Adjustments for the impact of:
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- Acquisitions
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(24.9
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)
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Comparable Non-GAAP Adjusted Revenue
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$
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1,357.7
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Year Ended December 31, 2019
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(in millions, except per share data)
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Adjusted Diluted Earnings Per Share
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Reported GAAP Net Income
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$
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34.70
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Adjustments for the impact of, net of tax:
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- Acquisitions
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(0.2
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- Merger and Acquisitions and Integration Costs
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1.6
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- LOGCAP V pre-operational legal costs
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0.9
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Comparable Non-GAAP Adjusted Net Income
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$
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37.06
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Reported GAAP Diluted Earnings Per Share
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$
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2.99
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Comparable Non-GAAP Adjusted Diluted Earnings Per Share
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$
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3.19
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Weighted average common shares outstanding - diluted
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11.6
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The following table illustrates the calculation of the 2019 AIP awards paid to the NEOs in 2020. (Sum of components may differ from actual award amounts due to rounding.)
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Named Executive Officer
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Base Salary
(a) ($)
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Annual Incentive Target as a Percent of Base Salary
(b) (1)
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Adjusted Diluted Earnings Per Share Percent Achieved
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Adjusted Revenue Percent Achieved
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New Business Wins Percent Achieved
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Adjusted Days Sales Outstanding Percent Achieved
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Individual Goals/Performance Percent Achieved
(2)
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Approved Total Performance Percent Payout
(d)
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Actual 2019 AIP Awards (a)x(b)x(d) ($) (3)
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Charles L. Prow
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700,003
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105
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89.1
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101.6
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185.6
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95.0
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100.0
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87.8
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645,300
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Susan D. Lynch
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430,019
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65
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89.1
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101.6
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185.6
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95.0
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60.0
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79.8
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93,000
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David A. Hathaway
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374,150
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55
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89.1
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101.6
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185.6
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95.0
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80.0
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83.8
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172,500
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Susan L. Deagle
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370,032
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55
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89.1
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101.6
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185.6
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95.0
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140.0
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95.8
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195,000
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Kevin T. Boyle
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365,019
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55
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89.1
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101.6
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185.6
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95.0
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120.0
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91.8
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184,300
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William B. Noon
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300,019
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40
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89.1
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101.6
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185.6
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95.0
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100.0
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87.8
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105,400
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Matthew M. Klein
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384,384
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65
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89.1
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101.6
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185.6
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95.0
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n/a
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n/a
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n/a
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(1) This column reflects the target percent of base salary approved for each NEO for his or her 2019 annual incentive award. For performance year 2019, Mr. Prow's annual incentive target as a percent of base salary was increased from 100% to 105% to position his target cash compensation to be more competitive with the market. The approved annual incentive plan formula for 2019 was based on performance measures and goals that would pay 96% of target for 100% achievement of the approved goals. Mr. Klein resigned as SVP and Chief Financial Officer effective April 15, 2019 and therefore did not receive a bonus for 2019. Mr. Noon served as Acting Chief Financial Officer from April 15, 2019 until Ms. Lynch was appointed SVP and Chief Financial Officer effective August 7, 2019.
(2) The Compensation Committee evaluated the extent to which Messrs. Prow, Hathaway and Boyle and Mses. Deagle and Lynch achieved their individual strategic goals and assessed Mr. Noon's individual performance and contributions. See tables below.
(3) Ms. Lynch's award was prorated, based on five months of service in 2019.
Individual Strategic Goals and Results for 2019
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Charles L. Prow
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Goal Description
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Drive the strategic execution of our Growth, Programs and Enterprise Vectrus initiatives.
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Fully develop and harden Enterprise Vectrus to optimize cost structure, supply chain and operational excellence across the enterprise.
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Improve personal and corporate visibility in both the investment and M&A-related growth objectives.
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Develop executive strength and succession planning throughout the organization, paying special attention to increasing diversity.
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Continue to evolve our culture in support of our values.
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Individual Performance Assessment. In evaluating Mr. Prow's performance, the Compensation Committee considered the following key factors:
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•
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Successfully led and executed the growth and strategy initiatives.
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Effective oversight and continued focus on long-term growth strategy and targets.
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•
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Met and substantially exceeded new business target.
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•
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Substantially improved the Investor Relations process and the Company's investor messaging.
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•
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Leadership role in achieving the goals related to strengthening talent and increasing diversity.
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Following a review of Mr. Prow's achievements against his individual goals, the Compensation Committee determined that Mr. Prow earned 100% of the individual portion of his 2019 AIP award.
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Susan D. Lynch
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Goal Description
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Advance the finance team to become a premier organization.
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Fully execute the Company's Enterprise Vectrus - Supply Chain and Global Service Delivery initiatives.
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Fully deploy the Company's Management System and have the Vectrus Improvement Project - Enterprise Vectrus (VIPER) operationally ready according to the agreed upon schedule and cost plan
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With the Growth and Service Lines create an approach to capital acquisitions that will lower program costs and maximize salvage values.
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Continue to evolve our culture in support of our values.
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Individual Performance Assessment. In evaluating Ms. Lynch's performance, the Compensation Committee considered the following key factors:
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•
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Began the process of assessing, developing and adding talent to the finance team.
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•
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Successfully achieved substantial cost reductions in the Supply Chain and Global Service Delivery initiatives during 2019.
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•
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Completed Phase One of the Company's Management System.
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•
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Began development of the approach to capital acquisitions.
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•
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Achieved the goals related to culture overall.
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Following a review of Ms. Lynch's achievements against her individual goals and based on a recommendation by Mr. Prow, the Compensation Committee determined that Ms. Lynch earned 60% of the individual portion of her 2019 AIP award.
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David A. Hathaway
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Goal Description
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Achieve financial goals relating to the Programs.
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Fully develop functional model and other initiatives of the Enterprise Vectrus Delivery Method.
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Fully develop the Enterprise Vectrus - Delivery Excellence initiative.
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In collaboration with the Growth initiative, continue the evolution of the labor staffing model and create and maintain a performance map of each program.
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Continue to evolve our culture in support of our values.
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Individual Performance Assessment. In evaluating Mr. Hathaway's performance, the Compensation Committee considered the following key factors:
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•
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Substantially met the financial goals relating to the Programs.
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•
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Continues to work to improve results for profit expansion.
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•
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Exceeded contract add-on and base expansion goals.
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•
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Completed phase-in hardening.
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•
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Satisfactorily completed the functional model of the Enterprise Vectrus Delivery Method.
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•
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Mostly met the goals related to the labor staffing model and is continuing work to refine the model.
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•
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Achieved the goals related to culture overall.
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Following a review of Mr. Hathaway's achievements against his goals and based on a recommendation by Mr. Prow, the Compensation Committee determined that Mr. Hathaway earned 80% of the individual portion of his 2019 AIP award.
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Susan L. Deagle
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Goal Description
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Achieve financial goals relating to Growth.
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Achieve demonstrable progress in building and progressing pipeline in all federal campaigns. Achieve at least one net new significant intelligence community win. Gain access to the ALLIANT Indefinite Delivery/Indefinite Quantity ("IDIQ")vehicle.
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Develop robust pipeline of acquisition targets for both our core business and solutions initiatives with at least one acquisition closing in 2019.
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In collaboration with the Service Lines and Finance, manage, maintain and evolve the labor staffing model to be a foundational data source and tool for core process.
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Continue to evolve our culture in support of our values.
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Individual Performance Assessment. In evaluating Ms. Deagle's performance, the Compensation Committee considered the following key factors:
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•
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Met and substantially exceeded new business target.
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•
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Won recompetes, except a minor task order.
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•
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Successfully closed the acquisition of Advantor, but was unsuccessful in gaining access to the ALLIANT IDIQ vehicle.
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•
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Exceptional performance in development of a robust business development and acquisition pipeline.
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•
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Substantially improved the Investor Relations process and the Company's investor messaging.
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•
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Solidified and advanced the Company's strategy.
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•
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Mostly met the goals related to the labor staffing model and is continuing work to refine the model.
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•
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Was a key leader in transforming our culture initiatives and in achieving the 2019 culture goals.
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Following a review of Ms. Deagle's achievements against her goals, particularly the strong performance in new business wins and base expansion, and Mr. Prow's recommendation, the Compensation Committee determined that Ms. Deagle earned 140% of the individual portion of her 2019 AIP award.
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Kevin T. Boyle
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Goal Description
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Transform the Contracts function to be a client-facing organization, including base expansion and contracts led base expansion.
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Expedite the business and country registrations.
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Support the Growth initiative to advance the acquisition pipeline with at least one acquisition closing in 2019. Additionally, work with Growth to gain access to the ALLIANT IDIQ vehicle.
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Increase and strengthen the facilities and security functional capabilities in support of existing business and in preparation for the Logistics Civil Augmentation Program ("LOGCAP") V.
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Continue to evolve our culture in support of our values.
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Individual Performance Assessment. In evaluating Mr. Boyle's performance, the Compensation Committee considered the following key factors:
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•
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Significantly enhanced the role of the Contracts function.
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•
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Met and exceeded the base expansion and contracts led base expansion goals.
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•
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Effectively strengthened the security and facilities functions.
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•
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Successfully closed the acquisition of Advantor.
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•
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Exceeded the acquisition goal, but was unsuccessful in gaining access to the ALLIANT IDIQ vehicle.
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•
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Strong performance in supporting the acquisition pipeline for our core business and solution initiatives.
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•
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Leadership of critical contract protest matters.
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•
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Achieved the goals related to culture overall.
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Following a review of Mr. Boyle's achievements against his goals, particularly his leadership on the Advantor acquisition and protest matters, and overall enhancement of the legal and contracts functions, and Mr. Prow's recommendation, the Compensation Committee determined that Mr. Boyle earned 120% of the individual portion of his 2019 AIP award.
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William B. Noon
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Individual Performance Assessment
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In addition to serving as Chief Accounting Officer throughout 2019, Mr. Noon was appointed Acting CFO following the resignation of Mr. Klein in April 2019. He continued in that position until the appointment of Ms. Lynch as CFO in August 2019.
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In evaluating Mr. Noon's performance, the Compensation Committee considered the following key factors:
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•
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Successful oversight and management of the finance team.
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•
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Planning for and leading the implementation of the new lease accounting standard.
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•
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Working on Advantor acquisition matters and contributing to a number of other Company initiatives.
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Following a review of Mr. Noon's performance and contributions in 2019 and Mr. Prow's recommendation, the Compensation Committee determined that Mr. Noon earned 100% of the individual portion of his 2019 AIP award.
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Matthew M. Klein
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Goal Description
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Mr. Klein was initially assigned the same goals that were subsequently assigned to Ms. Lynch, as shown above.
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Mr. Klein was not considered for a 2019 bonus because he resigned from the Company effective April 15, 2019.
LONG-TERM INCENTIVE PROGRAM
2019 LONG-TERM INCENTIVE AWARDS
Long-term incentive awards are intended to directly tie long-term compensation to long-term value creation and shareholder return. The 2019 long-term incentive program provided for a combination of TSR awards and RSUs to comprise the total long-term incentive award for each NEO. These components are incentives for absolute stock price performance and appreciation as well as TSR performance relative to the specific group of companies referenced below. The Compensation Committee set vesting terms for RSUs based on the Compensation Consultant's review and guidance regarding current competitive practice and its assessment of appropriate vesting terms and conditions for Vectrus. In determining the total long-term incentive award for each NEO, the Committee also considered individual performance.
The Compensation Committee weighted the 2019 long-term incentive awards as follows:
The 2019 long-term incentive awards for all NEOs were granted on March 4, 2019. A valuation based on the grant date was used to determine the number of RSUs granted pursuant to this allocation. The number of RSUs granted on March 4, 2019 was based on $27.74, the closing price of Vectrus common stock on the grant date.
The following table sets forth the value of 2019 long-term incentive award amounts for the NEOs granted during 2019, as determined by the Compensation Committee.
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Named Executive Officer
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Restricted Stock Unit
Award Value
($)
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Restricted Stock Unit Awards
(# of Units)
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Relative Total Shareholder Return Target Award
($)
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Represents 50% of total award value
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Represents 50% of total award value
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Charles L. Prow
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$800,000
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28,839
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$800,000
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Susan D. Lynch
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$225,000
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5,176
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$225,000
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David A. Hathaway
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$125,000
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4,506
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$125,000
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Susan L. Deagle
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$125,000
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4,506
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$125,000
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Kevin T. Boyle
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$125,000
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4,506
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$125,000
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William B. Noon
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$75,000
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2,704
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$75,000
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Matthew M. Klein*
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$212,500
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7,660
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$212,500
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*Mr. Klein's awards were forfeited because he resigned from the Company effective April 15, 2019.
RESTRICTED STOCK UNIT COMPONENT
The Compensation Committee reviewed all proposed grants of RSUs to NEOs prior to their award, including awards based on performance, retention-based awards and awards contemplated for new employees as part of employment offers. Grants of RSUs provide executives with stock ownership of unrestricted shares after the restrictions lapse. NEOs were granted RSU awards because, in the judgment of the Compensation Committee and based on management’s recommendations, these individuals were in positions most likely to assist in the achievement of the Company’s long-term value creation goals and to create increased shareholder value over time. RSUs granted in 2019 vest in one-third annual installments on the first, second and third anniversaries of the grant date.
RELATIVE TOTAL SHAREHOLDER RETURN (TSR) AWARD COMPONENT
The TSR performance design for 2019 - 2021 compares the Company’s TSR performance relative to the TSR performance of the Aerospace and Defense companies in the S&P 1500 Index. In designing the program, the Compensation Committee determined that this would be an appropriate index for Vectrus to be measured against for relative total shareholder return performance. The Compensation Committee also determined to measure performance in a balanced manner with the following four performance periods weighted equally at 25%:
January 1, 2019 through December 31, 2019;
January 1, 2020 through December 31, 2020;
January 1, 2021 through December 31, 2021; and
January 1, 2019 through December 31, 2021.
The actual award payout factor will be determined based on the average of the payout factors for each of the four performance periods, determined as follows:
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If the Company’s TSR performance relative to that of the Aerospace and Defense companies in the S&P 1500 Index is:
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The Payout Factor is:
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Less than the 35th percentile
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0%
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At the 35th percentile
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50%
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At the 50th percentile
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100%
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At the 80th percentile
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200%
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Actual results between the 35th percentile and the 80th percentile will be interpolated.
The potential award payout is capped at 200% of the target award as the Compensation Committee believes that having a cap helps mitigate excessive or inappropriate risk-taking.
VECTRUS TOTAL SHAREHOLDER RETURN AWARDS GRANTED IN 2017
The Compensation Committee approved and granted the 2017 TSR awards in March 2017. The awards were subject to a three-year performance period beginning January 1, 2017 through December 31, 2019 and measured in four individual periods, weighted equally, as follows: January 1, 2017 - December 31, 2017; January 1, 2018 - December 31, 2018; January 1, 2019 - December 31, 2019; and January 1, 2017 - December 31, 2019.
Following the end of the three-year performance period, Vectrus TSR performance was calculated for each of the four individual periods, relative to the Aerospace and Defense companies in the S&P 1500. Results are indicated below:
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Individual Performance Period
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Vectrus Percentile - Performance vs. Aerospace & Defense Companies in the S&P 1500 *
|
Payout Factor
|
January 1, 2017 - December 31, 2017
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70.3 percentile
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167.7%
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January 1, 2018 - December 31, 2018
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4.10 percentile
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0.0%
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January 1, 2019 - December 31, 2019
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100.0 percentile
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200.0%
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January 1, 2017 - December 31, 2019
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66.6 percentile
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155.3%
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Average Payout Factor:
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130.80%
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(*) Performance below the 35th percentile rank versus the Aerospace and Defense companies in the S&P 1500 Index results in a 0% Payout Factor for the applicable performance period. Payout percentages for performance between the 35th and 80th percentile rank are interpolated.
Following certification of Vectrus performance for the 2017 TSR awards, the Compensation Committee approved payouts in January 2020 at 130.8% of the target award. Payments in January 2020 to the NEOs were as follows:
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|
|
Named Executive Officer
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2017 Target Award
|
Payout at 130.8%
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Charles L. Prow
|
$450,000
|
$588,600
|
David A. Hathaway
|
$125,000
|
$163,500
|
Susan L. Deagle
|
$125,000
|
$163,500
|
William B. Noon
|
$52,500
|
$68,670
|
Mr. Boyle and Ms. Lynch did not receive a 2017 TSR award because Mr. Boyle joined the Company in October 2018 and Ms. Lynch joined the Company in August 2019. Mr. Klein did not receive a 2017 award payout because he resigned from the Company effective April 15, 2019. TSR awards are discussed in more detail above at "Relative Total Shareholder Return (TSR) Award Component."
POST-EMPLOYMENT COMPENSATION
The Vectrus employer match contribution is 50% up to 8% of employee-elected deferrals based upon annual base compensation. All contributions are 100% vested.
Vectrus also established and maintains a non-qualified, unfunded Vectrus Systems Corporation Excess Savings Plan to provide key employees an opportunity to earn benefits in excess of the benefits that may be earned under the Vectrus 401(k) Plan. This plan is discussed in more detail in “Non-qualified Deferred Compensation for 2019” below.
SEVERANCE PLAN ARRANGEMENTS
The plans discussed below are described in more detail in "Payments Upon a Termination or Change in Control." The severance plans apply to key Vectrus employees as defined by Section 409A. The Vectrus severance plan arrangements
are not considered in determining other elements of compensation. All of the Vectrus NEOs were covered under the Senior Executive Severance Play Plan and the Special Senior Executive Severance Pay Plan.
SENIOR EXECUTIVE SEVERANCE PAY PLAN
The purpose of this plan is to provide a period of transition for senior executives. Senior executives who are U.S. citizens or who are employed in the United States are covered by this plan. The plan generally provides for severance payments if the Company terminates a senior executive’s employment without cause.
The exceptions to severance payments are:
|
|
|
l
|
the executive terminates his or her own employment;
|
l
|
the executive’s employment is terminated for cause; or
|
l
|
if the executive accepts employment or refuses comparable employment with a purchaser in a divestiture situation.
|
No severance is provided for termination for cause because the Company believes employees terminated for cause should not receive additional compensation. No severance is provided where an executive accepts or refuses comparable employment in a divestiture situation because the executive had the opportunity to receive employment income from another party under comparable circumstances. All of the NEOs, except for Mr. Noon, are covered under this plan. See "Other Severance Plan" below.
SPECIAL SENIOR EXECUTIVE SEVERANCE PAY PLAN
The purpose of this plan is to provide compensation in the case of termination of employment in connection with an Acceleration Event (defined in "Payments Upon Termination or Change in Control"). The provisions of this plan are specifically designed to address the inability of senior executives to influence the Company's future performance after certain change in control events. The plan is structured to encourage executives to act in the best interests of shareholders by providing for certain compensation and retention benefits and payments, including change in control provisions, in the case of an Acceleration Event.
The purposes of these provisions are to:
|
|
|
l
|
provide for continuing cohesive operations as executives evaluate a transaction, which, without change in control protection, could be personally adverse to the executive;
|
l
|
keep executives focused on preserving value for shareholders;
|
l
|
retain key talent in the face of potential transactions; and
|
l
|
attract talented employees in the competitive marketplace.
|
As discussed above, this plan provides severance benefits for covered executives, including any NEO whose employment was terminated by the Company without cause, or where the covered executive terminated his or her employment for good reason within two years after the occurrence of an acceleration event as described below (including a termination due to death or disability) or if during the two-year period following an Acceleration Event, the covered executive had grounds to resign with good reason or the covered executive’s employment was terminated in contemplation of an Acceleration Event that ultimately occurred.
The plan is designed to put the executive in the same position, from a compensation and benefits standpoint, as he or she would have been in without the Acceleration Event. With respect to incentive plan awards, since the executive would no longer have the ability to influence the corporate objectives
upon which the awards were based, the plan provides that any AIP awards be paid out at target.
OTHER SEVERANCE PLAN
Mr. Noon is covered under another Company severance plan, which provides severance benefits to certain employees whose employment is terminated by the Company other than for cause. Severance pay under this plan is determined by length of service and level and may not exceed 52 weeks of pay.
CHANGE IN CONTROL ARRANGEMENTS
As described more fully in "Payments Upon Termination or Change in Control," the Compensation Committee has provided for treatment of short-term and long-term incentive plans, severance arrangements and the excess savings plan upon a change in control.
EMPLOYEE BENEFITS AND PERQUISITES
Vectrus executives are eligible to participate in Vectrus’ broad-based employee benefits programs, including medical, dental, vision coverage, group life insurance, and other specified benefit plans according to the plan documents.
PERQUISITES FOR THE NEOs
Vectrus provides only those perquisites that it considers to be reasonable and consistent with competitive practice. Mr. Prow received a housing allowance in January and February, 2019. He also received a lump-sum payment in 2019 associated with his relocation to Colorado. No perquisites were provided to any other NEOs. (See the "All Other Compensation Table.") The Compensation Committee continues to review benefits and perquisites to assure they are reasonable and consistent with competitive practice.
OTHER CONSIDERATIONS AND POLICIES
CLAWBACK POLICY
The Board of Directors has adopted a clawback policy to provide for recoupment of performance-based compensation if the Board of Directors determines that a senior executive has engaged in fraud or willful misconduct. This would include annual cash incentive and bonus awards and all forms of equity-based compensation to the extent such awards are performance-based. If, in the Board of Directors’ view, the compensation related to Vectrus’ financial performance would have been lower if it had been based on the restated results, the Board of Directors will, to the extent permitted by applicable law, seek recoupment from that senior executive of any portion of such compensation as it deems appropriate after a review of all relevant facts and circumstances. The NEOs, Senior Vice Presidents, Corporate Vice Presidents, executives who are direct reports to the President and CEO and their direct reports are covered by this policy.
EQUITY GRANT POLICY - CONSIDERATION OF MATERIAL NON-PUBLIC INFORMATION
Vectrus equity-based awards granted to NEOs, senior and other executives, and equity-based awards granted to Directors, are awarded and priced on the same date as the approval date or a subsequent date approved by the Compensation Committee for administrative reasons. Vectrus may also make equity-based grants in the case of the promotion of an existing employee or hiring of a new employee. These grants may be made at a time Vectrus is in possession of material non-public information related to the promotion or the hiring of a new employee or other matters. Vectrus does not time its release of material non-public information for the purpose of affecting the value of executive compensation, and executive compensation decisions are not timed to the release of material non-public information.
CONSIDERATION OF TAX AND ACCOUNTING IMPACTS
Section 162(m)- Section 162(m) of the Code as in effect prior to the enactment of the Tax Act in December 2017 placed a limit of $1,000,000 on the amount of compensation that Vectrus could deduct in any one year with respect to its "covered employees," which consisted of its Chief Executive Officer and the three other highest-paid named executive officers, other than the Chief Financial Officer. There was an exception to the $1,000,000 limitation for performance-based compensation meeting certain requirements.
The Tax Act retained the $1,000,000 deduction limit, but repealed the performance-based compensation exemption from the deduction limit and expanded the definition of “covered employees,” effective for taxable years beginning after December 31, 2017. Consequently, compensation paid in 2018 and later years to NEOs in excess of $1,000,000 is not deductible unless it qualifies for transitional relief applicable to certain binding, written performance-based compensation arrangements that were in place as of November 2, 2017.
The Compensation Committee generally intends to continue to comply with the requirements of Section 162(m) as it existed prior to the Tax Act with respect to performance-based compensation in excess of $1,000,000 payable under outstanding awards granted before November 2, 2017 under our 2014 Plan in order to qualify them for the transitional relief. However, no assurance can be given that the compensation associated with these awards will qualify for the transitional relief, due to ambiguities and uncertainties as to the application and interpretation of the revised Section 162(m) and the related requirements for transitional relief.
Section 409A - Vectrus plans are intended to comply with Section 409A of the Code, to the extent applicable. While Vectrus endeavors to comply with other applicable sections of the Code with respect to compensation, the Compensation Committee did not consider other tax implications when designing Vectrus’ compensation programs.
Excise Taxes - Vectrus provides “best-net” provisions with respect to any excise tax triggered by a change-in-control. Under these provisions, if payments triggered by a change-in-control would be subject to an excise tax, then either payments would be reduced by the amount needed to avoid triggering the tax, or no reduction of payments would occur, depending on which alternative left the executive in the better after-tax position.
POLICY AGAINST HEDGING, PLEDGING, SPECULATION IN COMPANY STOCK AND INSIDER TRADING
Vectrus has a policy that prohibits employees and Directors from taking advantage of, disclosing, or using any confidential information for the purpose of personal gain, including buying, selling, or trading in any Vectrus security. The policy includes prohibitions for Corporate Vice Presidents and above against hedging or pledging Vectrus securities, speculation or other investments where the shareowner’s economic interest is disassociated from share ownership. These prohibited transactions encompass the purchase of financial instruments, including short sales, forward contracts, equity swaps, collars, puts, calls or other derivative securities that are speculative in nature or designed to hedge or offset a decrease in market value of any Vectrus security (other than exercises of Company granted stock options). The Board of Directors has adopted a parallel policy that applies to Directors. In addition, Directors must receive specific written approval prior to entering into any transaction involving Vectrus securities. Directors and Corporate Vice Presidents and above also annually receive specific instructions with respect to trading in equity securities of Vectrus to ensure compliance with the Company's hedging, pledging, speculation and insider trading policies.
BUSINESS RISK AND COMPENSATION
Compensation across the enterprise is structured so that unnecessary or excessive risk-taking behavior is discouraged. Total compensation for senior officers is heavily weighted toward long-term compensation consistent with the Vectrus compensation philosophy, which is focused on long-term value creation. This focus on long-term compensation discourages behaviors that encourage short-term risks. The President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer attend those portions of the Compensation Committee meetings at which plan features and design configurations of annual and long-term incentive plans are considered and approved. Overall enterprise risk is reviewed and considered at the Committee and Board meetings, providing additional important information to the Compensation Committee.
Vectrus management recently conducted a risk assessment of our compensation policies and programs, including our executive compensation programs. This risk assessment is conducted annually. Vectrus management reviewed and discussed the findings of the assessment with the Compensation Committee and the full Board of Directors which concluded that our compensation programs are
designed with an appropriate balance of risk and reward in relation to our overall business strategy and do not encourage excessive risk-taking behavior. As a result, we do not believe that risks relating to our compensation programs are reasonably likely to have a material adverse effect on the Company. The Compensation Committee reviewed management’s summary on the review and assessment of such compensation programs and approved these conclusions.
The Compensation Committee considered risk implications of our compensation programs during its deliberations on the design of our 2019 executive compensation programs, with the goal of appropriately balancing short-term and long-term performance.
The following table summarizes representative Vectrus compensation components or policies and relevant risk mitigation factors:
RISK ASSESSMENT ACROSS THE ENTERPRISE
|
|
|
|
VECTRUS COMPENSATION COMPONENT OR POLICY
|
RISK MITIGATION FACTOR
|
Base Salary
|
Based on market rates. Provides stability and minimizes risk-taking incentives.
|
Annual Incentive Plan
|
l
|
AIP design emphasizes overall performance and collaboration across the enterprise.
|
l
|
AIP components focus on metrics that encourage operating performance and that differ from those used for long-term incentive awards.
|
l
|
Individual AIP components and total AIP awards are capped.
|
l
|
Payments are made only after external audit review and Compensation Committee certification of performance to metrics and approval of the payments.
|
Long-Term Incentive Awards
-RSUs
|
RSUs vest annually in one-third increments over a three-year period.
|
-Total Shareholder Return Awards
|
TSR awards are based on relative share price performance over four separate periods (e.g., 2019, 2020, 2021 and 2019-2021) during a three-year cycle and encourage behaviors focused on long-term goals, while discouraging behaviors focused on short-term risks. Relative TSR is a different metric from those used for AIP awards.
|
Perquisites
|
Limited perquisites are based on competitive market data. (See "Employee Benefits and Perquisites - Perquisites for the NEOs.")
|
Severance
|
Severance plans are maintained by the Company in the event of termination without cause or in certain circumstances following a change in control of the Company.
|
Clawback Policy
|
Provides mechanism for senior executive compensation recapture in certain situations involving fraud or willful misconduct.
|
Officer Share Ownership Guidelines
|
Vectrus officers are required to own Vectrus shares or share equivalents up to 5 X base salary, depending on the level of the officer. In addition, the officers are required to hold shares until their guidelines are met. Share ownership guidelines align executive and shareholder interests and discourage executives from focusing on short-term results without regard for longer-term consequences.
|
Prohibition Against Pledging or Hedging or Speculation in Vectrus Securities
|
Vectrus policy prohibits Directors and Corporate Vice Presidents and above from pledging or hedging or speculative trading in and out of Vectrus securities, including short sales, forward contracts, equity swaps, collars, puts, calls or other derivative securities that are speculative in nature or designed to hedge or offset a decrease in market value of any Vectrus security (other than exercises of Company granted stock options).
|
Change in Control
|
Under the 2014 Plan and award agreements, a double trigger requires both consummation of the transaction and a qualifying termination for accelerated vesting of outstanding long-term incentive grants.
|
Pension Plans
|
Vectrus does not provide a traditional pension plan or supplemental executive retirement plan.
|
COMPENSATION TABLES
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation of our NEOs for 2017, 2018 and 2019.
|
|
|
|
|
|
|
|
|
|
|
Name and Principal Position
|
Year
|
Salary ($)
|
Bonus ($) (a)
|
Stock Awards ($) (b)
|
Option Awards ($) (c)
|
Non-equity Incentive Plan Compen-sation ($) (d)
|
Change in Pension Value and Non-Qualified Deferred Compen-sation Earnings
($) (e)
|
All Other Compen-sation ($) (f)
|
Total
($)
|
Charles L. Prow
President and Chief Executive Officer
|
2019
|
700,003
|
|
1,599,994
|
—
|
645,300
|
—
|
102,766
|
3,048,063
|
2018
|
680,775
|
—
|
1,599,988
|
—
|
814,800
|
—
|
61,733
|
3,157,296
|
2017
|
600,018
|
—
|
720,002
|
180,002
|
619,800
|
—
|
55,701
|
2,175,523
|
Susan D. Lynch
Senior Vice President and Chief Financial Officer
|
2019
|
168,700
|
—
|
450,001
|
—
|
93,000
|
—
|
819
|
712,520
|
David A. Hathaway Senior Vice President, Programs
|
2019
|
372,394
|
—
|
249,996
|
—
|
172,500
|
—
|
13,898
|
808,788
|
2018
|
365,019
|
25,000
|
249,999
|
—
|
233,700
|
—
|
13,598
|
887,316
|
Susan L. Deagle
Senior Vice President, Chief Growth Officer
|
2019
|
362,336
|
—
|
249,996
|
—
|
195,000
|
—
|
13,656
|
820,988
|
2018
|
324,245
|
—
|
249,999
|
—
|
211,300
|
—
|
2,728
|
788,272
|
2017
|
196,166
|
75,000
|
199,998
|
50,000
|
103,300
|
—
|
264
|
624,728
|
Kevin T. Boyle
Senior Vice President,
Chief Legal Officer and General Counsel
|
2019
|
365,019
|
—
|
249,996
|
—
|
184,300
|
—
|
11,012
|
810,327
|
William B. Noon
Corporate Vice President and Former Acting Chief Financial Officer (g)
|
2019
|
282,249
|
—
|
150,009
|
—
|
105,400
|
—
|
8,410
|
546,068
|
Matthew M. Klein
Former Senior Vice President and Chief Financial Officer (h)
|
2019
|
171,538
|
—
|
424,988
|
—
|
—
|
—
|
4,916
|
601,442
|
2018
|
367,323
|
—
|
425,012
|
—
|
283,700
|
—
|
11,718
|
1,087,753
|
2017
|
333,131
|
—
|
328,000
|
82,003
|
225,000
|
—
|
10,248
|
978,382
|
|
|
(a)
|
The amount in this column for 2018 represents a cash payment for Mr. Hathaway in connection with his offer of employment. The amount for 2017 represents a cash payment for Ms. Deagle in connection with her offer of employment.
|
|
|
(b)
|
Amounts in this column include the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for target TSR awards and RSUs. The assumptions used in calculating these amounts are incorporated herein by reference to Note 15 to the consolidated financial statements in the Vectrus Form 10-K for the year ended December 31, 2019. For the maximum value of TSR awards, see the table in "Grants of Plan-Based Awards in 2019."
|
|
|
(c)
|
Amounts in this column represent the aggregate grant date fair values of the option grants. The assumptions used by Vectrus in calculating these amounts are incorporated herein by reference to Note 15 to the consolidated financial statements in the Vectrus Form 10-K for the year ended December 31, 2019.
|
|
|
(d)
|
Amounts in this column reflect the AIP awards that were earned for the applicable performance year.
|
|
|
(e)
|
Vectrus does not have a traditional pension plan; therefore, no values are reported.
|
|
|
(f)
|
Amounts in this column represent items specified in the All Other Compensation table below.
|
|
|
(g)
|
Mr. Noon served as Acting Chief Financial Officer from April 16, 2019 through August 7, 2019.
|
|
|
(h)
|
Mr. Klein served as Chief Financial Officer until April 15, 2019.
|
ALL OTHER COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
Name
|
Year
|
Perquisites
(a) ($)
|
Tax Reimburse-ments
(b) ($)
|
Excess Savings Plan Contributions
(c) ($)
|
401(k) Matching Contributions (d) ($)
|
Other
(e) ($)
|
Total All Other Compensation ($)
|
Charles L. Prow
|
2019
|
42,586
|
28,724
|
16,800
|
9,500
|
5,156
|
102,766
|
Susan D. Lynch
|
2019
|
—
|
—
|
—
|
—
|
819
|
819
|
David A. Hathaway
|
2019
|
—
|
—
|
3,696
|
9,310
|
892
|
13,898
|
Susan L. Deagle
|
2019
|
—
|
—
|
3,293
|
9,500
|
863
|
13,656
|
Kevin T. Boyle
|
2019
|
—
|
—
|
3,401
|
6,739
|
872
|
11,012
|
William B. Noon
|
2019
|
—
|
—
|
90
|
7,136
|
1,184
|
8,410
|
Matthew M. Klein
|
2019
|
—
|
—
|
—
|
4,718
|
198
|
4,916
|
|
|
(a)
|
The amount in this column represents a housing allowance in the amount of $6,000 and relocation reimbursement in the amount of $36,586 paid in 2019 for Mr. Prow.
|
|
|
(b)
|
Amounts in this column represent the tax reimbursement for Mr. Prow associated with his relocation reimbursement during 2019.
|
|
|
(c)
|
Contributions to the Vectrus Systems Corporation Excess Savings Plan are unfunded and earnings are credited at the same rate as the Stable Value Fund available to participants in the Vectrus 401(k) Plan.
|
|
|
(d)
|
Amounts represent matching contributions during 2019 in the Vectrus 401(k) Plan, as follows: Mr. Prow (Company match $9,500, met IRS limit on employee deferral); Mr. Hathaway (Company match $9,310, did not meet IRS limit on employee deferral); Ms. Deagle (Company match $9,500, met IRS limit on employee deferral); Mr. Boyle (Company match $6,739, did not meet IRS limit on employee deferral); Mr. Noon (Company match $7,136, met IRS limit on employee deferral); and Mr. Klein (Company match $4,718, did not meet IRS limit on employee deferral). Ms. Lynch did not participate in the Vectrus 401(k) Plan in 2019.
|
|
|
(e)
|
Amounts represent taxable group term life insurance premiums paid for each NEO.
|
CEO PAY RATIO
In accordance with the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act, we are required to calculate and report an estimate of the ratio of the total compensation of our CEO to the total compensation of our median employee. The intended purpose of the disclosure is to provide a reasonable measure of the relationship of pay between the CEO and the median paid employee. His compensation is discussed in detail in "Individual Executive Positions - 2019 Compensation Information" earlier in this Proxy Statement. The Company believes its compensation philosophy and process represent a responsible approach toward CEO pay. The required disclosure is presented as follows:
|
|
|
Median Employee Total Annual Compensation:
|
$52,694
|
CEO Total Annual Compensation:
|
$3,048,063
|
Ratio of CEO Pay to Median Employee Compensation:
|
57.8 to 1.0
|
In determining the median employee, the Company prepared a listing of all employees as of October 31, 2019. This includes U.S. and non-U.S. employees who were full-time, part-time or temporary employees and those on an approved leave of absence. Approximately 6,000 subcontract employees were excluded from the analysis because their compensation is determined by unaffiliated third parties. The data examined were W-2 wages or foreign equivalent compensation paid from November 1, 2018 through October 31, 2019. The median was calculated directly from the arrayed data using taxable wages as the chosen consistently applied compensation measure ("CACM"). Once the median employee was determined, annual total compensation was calculated for that individual using the Summary Compensation Table rules for both the CEO and the median employee. As of October 31, 2019 the Company employed approximately 7,000 persons, excluding the CEO and approximately 200 employees from Advantor, which the Company acquired in July 2019.
GRANTS OF PLAN-BASED AWARDS IN 2019
The following table summarizes awards made to our NEOs during the year ended December 31, 2019. Grants made to NEOs during 2019 were made under the 2014 Plan. The table includes the grant date for equity-based awards, the estimated future payouts under non-equity incentive plan awards (which consist of potential payouts for 2019 under the AIP), and estimated future payouts under the long-term incentive awards, which consist of potential payouts related to the TSR awards granted in 2019 for the 2019 - 2021 performance period. The table also provides the number of shares underlying all other stock awards, which consist of RSU awards, and the grant date fair value of each equity award computed under FASB ASC Topic 718.
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
Grant Date
|
Estimated Future Payouts Under Non-Equity Incentive Plan Awards
(2)
|
Estimated Future Payouts Under Equity Incentive Plan Awards (3)
|
All Other Stock Awards: Number of Shares of Stock or Units (#) (4)
|
All Other Option Awards: Number of Securities Underlying Options (#) (5)
|
Exercise or Base Price of Option Awards ($/Sh) (5)
|
Grant Date Fair Value of Stock and Option Awards ($) (6)
|
Threshold ($)
|
Target ($)
|
Maximum ($)
|
Threshold ($)
|
Target ($)
|
Maximum ($)
|
Charles L. Prow
|
|
367,500
|
735,000
|
1,470,000
|
|
|
|
|
|
|
|
1/1/2019
|
|
|
|
400,000
|
800,000
|
1,600,000
|
|
|
|
|
3/4/2019
|
|
|
|
|
|
|
28,839
|
|
|
799,994
|
Susan D. Lynch (1)
|
|
58,250
|
116,500
|
233,000
|
|
|
|
|
|
|
|
1/1/2019
|
|
|
|
112,500
|
225,000
|
450,000
|
|
|
|
|
8/8/2019
|
|
|
|
|
|
|
5,176
|
|
|
225,001
|
David A. Hathaway
|
|
102,900
|
205,800
|
411,600
|
|
|
|
|
|
|
|
1/1/2019
|
|
|
|
62,500
|
125,000
|
250,000
|
|
|
|
|
3/4/2019
|
|
|
|
|
|
|
4,506
|
|
|
124,996
|
Susan L. Deagle
|
|
101,750
|
203,500
|
407,000
|
|
|
|
|
|
|
|
1/1/2019
|
|
|
|
62,500
|
125,000
|
250,000
|
|
|
|
|
3/4/2019
|
|
|
|
|
|
|
4,506
|
|
|
124,996
|
Kevin T. Boyle
|
|
100,400
|
200,800
|
401,600
|
|
|
|
|
|
|
|
1/1/2019
|
|
|
|
62,500
|
125,000
|
250,000
|
|
|
|
|
3/4/2019
|
|
|
|
|
|
|
4,506
|
|
|
124,996
|
William B. Noon
|
|
60,000
|
120,000
|
240,000
|
|
|
|
|
|
|
|
1/1/2019
|
|
|
|
37,500
|
75,000
|
150,000
|
|
|
|
|
3/4/2019
|
|
|
|
|
|
|
2,704
|
|
|
75,009
|
Matthew M. Klein (7)
|
|
106,250
|
212,500
|
425,000
|
|
|
|
|
|
|
|
1/1/2019
|
|
|
|
106,250
|
212,500
|
425,000
|
|
|
|
|
3/4/2019
|
|
|
|
|
|
|
7,660
|
|
|
212,488
|
|
|
(1)
|
Ms. Lynch joined the Company effective August 1, 2019 and received a 2019 long-term incentive award on August 8, 2019 in connection with her offer of employment.
|
|
|
(2)
|
Amounts reflect the threshold, target, and maximum payment levels for commensurate performance under the AIP described above in “Compensation Discussion and Analysis - Compensation Program Objectives” if certain performance metrics are met. These potential payments are based on achievement of specific performance metrics and individual goals and are completely at risk. The target award is computed based upon the applicable range of net estimated payments denominated in dollars where the target award is equal to 100% of the award potential, the threshold is equal to 50% of target and the maximum is equal to 200% of target. The approved AIP formula for 2019 was based on performance measures and totals that would pay 96% of target for 100% achievement of the approved goals. Actual AIP awards for 2019 are shown in the Summary Compensation Table.
|
|
|
(3)
|
Amounts reflect the threshold, target, and maximum payment levels, respectively, which are denominated in dollars, if an award payout is achieved under the Company's 2019 TSR awards. The 2019 TSR awards are subject to a three-year performance period from January 1, 2019 to December 31, 2021. The potential payments are based on achievement of specific approved performance as further described above in "Compensation Discussion and Analysis - Long-Term Incentive Program - Relative Total Shareholder Return (TSR) Award Component." TSR awards are completely at-risk compensation and payments, if any, are made in cash after the end of the performance period. The target amount shown is the grant date fair value.
|
|
|
(4)
|
Amounts reflect the number of RSUs granted in 2019 to the NEOs. RSUs granted to NEOs vest in one-third annual installments on the first, second and third anniversaries of the grant. The numbers of shares underlying the RSU awards granted on March 4, 2019 were determined based on $27.74, the closing price of Vectrus common stock on March 4, 2019
|
and RSU awards granted on August 8, 2019 were determined based on $43.47, the closing price of Vectrus common stock on August 8, 2019. During the restriction period, holders of RSUs do not have voting rights.
|
|
(5)
|
Stock options were not granted in 2019.
|
|
|
(6)
|
Amounts in this column represent the aggregate grant date fair value computed in accordance with FASB ASC Topic 718 for equity awards granted to the NEOs in 2019.
|
|
|
(7)
|
Mr. Klein was not eligible for a 2019 annual incentive plan award and has no outstanding 2019 long-term incentive awards because he resigned from the Company effective April 15, 2019.
|
SPECIAL COMPENSATION ARRANGEMENTS
CHARLES L. PROW EMPLOYMENT LETTER AND OTHER MATTERS
On November 30, 2016, Vectrus and Charles L. Prow entered into an employment letter (the "Prow Employment Letter") setting forth the terms and conditions of his employment as President and Chief Executive Officer of the Company. The material terms of the Prow Employment Letter are set forth below.
|
|
1.
|
Compensation and Benefits.
|
|
|
a.
|
Annual Base Salary. Mr. Prow’s initial base salary was $600,000.
|
|
|
b.
|
2017 Target Annual Incentive. Mr. Prow is eligible to participate in the Company’s Annual Incentive Plan with a target award of 100% of his annual base salary, starting in 2017.
|
|
|
c.
|
Long-Term Incentives. Mr. Prow is eligible for annual long-term incentive awards with an aggregate long-term incentive target for 2017 of $900,000 under the Company’s Long-Term Incentive Program, subject to approval by the Compensation Committee. It was anticipated that fifty percent (50%) of his 2017 long-term incentive award would be in the form of a cash incentive opportunity tied to relative total shareholder return; thirty percent (30%) would be in the form of time-vesting RSUs; and twenty percent (20%) would be in the form of time-vesting non-qualified stock options. In addition, as a one-time incentive, on December 8, 2016, he received a special RSU grant valued at $600,000 with annual vesting over three years.
|
|
|
d.
|
Other Benefit Programs. Mr. Prow is eligible to participate in the Company’s compensation and benefit plans, policies and arrangements that are applicable to other executives, including the Company’s Senior Executive Severance Pay Plan and Special Senior Executive Severance Pay Plan. Mr. Prow is an at-will employee.
|
Housing Costs. On February 24, 2017, the Compensation Committee approved a housing allowance for Mr. Prow in the amount of $3,000 per month. Mr. Prow, who was hired in December 2016 and worked primarily at the Company’s Reston, Virginia office until his recent relocation to Colorado Springs in January 2019, was expected to spend a substantial amount of time in Colorado Springs, Colorado (the location of the Company’s headquarters). The Committee approved the housing allowance, which was not grossed up for taxes,
following the Company’s cost analysis that indicated that the allowance would be less expensive than estimated hotel costs
for his visits to Colorado Springs. The Company previously paid a total of $2,827 in 2017 for short-term apartment rental costs in Colorado Springs. The housing allowance was discontinued effective March 2019.
Relocation Costs. In February 2019, the Compensation Committee approved reimbursement of Mr. Prow's relocation costs (less the total amount of housing allowance previously paid, $72,000) in connection with his move to Colorado Springs, Colorado. Accordingly, Mr. Prow was reimbursed $65,310, which included a gross up for taxes of $28,724, on April 2, 2019.
SUSAN L. DEAGLE EMPLOYMENT LETTER
On March 13, 2017, Vectrus and Ms. Deagle entered into an employment letter (the "Deagle Employment Letter") setting forth the terms and conditions of her employment as Senior Vice President and Chief Growth Officer of the Company. Ms. Deagle joined the Company on May 1, 2017. The material terms of the Deagle Employment Letter are set forth below.
|
|
1.
|
Compensation and Benefits.
|
|
|
a.
|
Annual Base Salary. Ms. Deagle’s initial base salary was $300,019.
|
|
|
b.
|
Cash Sign-on Payment. Ms. Deagle received a cash sign-on payment (for equity that she forfeited at her then-current employer) of $75,000, subject to repayment (net of taxes) if Ms. Deagle voluntarily terminated her employment within one year of her start date.
|
|
|
c.
|
2017 Target Annual Incentive. Ms. Deagle is eligible to participate in the Company’s Annual Incentive Plan. She was eligible for a target award of 50% of her annual base salary in 2017, and the award was prorated based on the number of months worked in 2017.
|
|
|
d.
|
Long-Term Incentives. Ms. Deagle is eligible to participate in the Company's Long-Term Incentive Program, subject to approval of her awards by the Compensation Committee. For 2017, she was recommended for a total target award of $250,000, comprised of 50% in the form of a cash target related to relative total shareholder return (subject to a three-year performance period beginning January 1, 2017 through December 31, 2019), 20% in non-qualified stock options and 30% in RSUs. The options and RSUs will vest in one-third installments on the first, second and third anniversaries of the grant date.
|
|
|
e.
|
Other Benefit Programs. Ms. Deagle is eligible to participate in the Company’s benefit plans that are applicable to other employees.
|
DAVID A. HATHAWAY EMPLOYMENT LETTER AND OTHER MATTERS
On September 4, 2017, Vectrus and Mr. Hathaway (currently our Senior Vice President, Programs) entered into an employment letter (the "Hathaway Employment Letter") setting forth the terms and conditions of his employment as Senior Vice President, Information Technology & Network Communications Services of the Company. Mr. Hathaway joined the Company on October 10, 2017. The material terms of the Hathaway Employment Letter are set forth below.
|
|
1.
|
Compensation and Benefits.
|
|
|
a.
|
Annual Base Salary. Mr. Hathaway's initial base salary was $365,019.
|
|
|
b.
|
Cash Sign-on Payment. Mr. Hathaway was eligible for and paid a cash sign-on payment of $130,000 as recognition of the annual bonus forfeited from his previous employer, subject to repayment (net of taxes) if Mr. Hathaway voluntarily terminated his employment within one year of his start date.
|
|
|
c.
|
Restricted Stock Units. Mr. Hathaway received an award of RSUs valued at $60,000, which was intended to replace equity at his then-current employer, which was scheduled to vest in 2018. The RSUs were granted five business days following his date of hire and will vest in one-third annual installments on the first, second and third anniversaries of the grant date.
|
|
|
d.
|
2017 Target Annual Incentive. Mr. Hathaway is eligible to participate in the Company’s Annual Incentive Plan. He was eligible for a target award of 55% of his annual base salary for 2017 and the award was prorated based on the number of months worked in 2017.
|
|
|
e.
|
Additional Cash Payment. Mr. Hathaway received a lump sum payment of $50,000 structured over a two-year period. $25,000 was paid within one month of his date of hire and the remaining $25,000 was paid on or about his one year anniversary with the Company. The payment was subject to repayment (net of taxes) if Mr. Hathaway voluntarily terminated his employment within one year of his start date.
|
|
|
f.
|
Long-Term Incentives. Mr. Hathaway is eligible to participate in the Company's Long-Term Incentive Program, subject to approval of his awards by the Compensation Committee. For 2017, he was recommended for a total target award of $250,000, comprised of 50% in the form of a cash target related to relative total shareholder return (subject to a three-year performance period beginning January 1, 2017 through December 31, 2019), 20% in non-qualified stock options and 30% in RSUs. The options and RSUs will vest in one-third installments on the first, second and third anniversaries of the grant date.
|
|
|
g.
|
Benefit Programs. Mr. Hathaway is eligible to participate in the Company’s benefit plans that are applicable to other employees.
|
KEVIN T. BOYLE EMPLOYMENT LETTER AND OTHER MATTERS
On October 3, 2018, Vectrus and Mr. Boyle entered into an employment letter (the "Boyle Employment Letter") setting forth the terms and conditions of his employment as Senior Vice President, Chief Legal Officer and General Counsel of the Company. Mr. Boyle joined the Company on October 15, 2018.
The material terms of the Boyle Employment Letter are set forth below.
|
|
1.
|
Compensation and Benefits.
|
|
|
a.
|
Annual Base Salary. Mr. Boyle's initial base salary was $365,019.
|
|
|
b.
|
2018 Target Annual Incentive. Mr. Boyle is eligible to participate in the Company’s Annual Incentive Plan. He was eligible for a target award of 55% of his annual base salary for 2018 and the award was prorated based on the number of months worked in 2018.
|
|
|
c.
|
Long-Term Incentives. Mr. Boyle is eligible to participate in the Company's Long-Term Incentive Program, subject to approval of his awards by the Compensation Committee. For 2018, he was recommended for a total target award of $250,000, comprised of 50% in the form of a cash target based on the Company's relative total shareholder return performance (subject to a three-year performance period beginning January 1, 2018 through December 31, 2020) and 50% in the form of restricted stock units that will vest in one third-installments on the first, second and third anniversaries of the grant date.
|
|
|
d.
|
Benefit Programs. Mr. Boyle is eligible to participate in the Company’s benefit plans that are applicable to other employees.
|
SUSAN D. LYNCH EMPLOYMENT LETTER AND OTHER MATTERS
On July 7, 2019, Vectrus and Ms. Lynch entered into an employment letter (the "Lynch Employment Letter") setting forth the terms and conditions of her employment. Ms. Lynch was appointed Senior Vice President and Chief Financial Officer of the Company effective August 8, 2019. The material terms of the Lynch Employment Letter are set forth below.
|
|
1.
|
Compensation and Benefits.
|
|
|
a.
|
Annual Base Salary. Ms. Lynch's initial base salary was $430,019.
|
|
|
b.
|
2019 Target Annual Incentive. Ms. Lynch is eligible to participate in the Company’s Annual Incentive Plan. She was eligible for a target award of 65% of her annual base salary for 2019 and the award was prorated based on the number of months worked in 2019.
|
|
|
c.
|
Long-Term Incentives. Ms. Lynch is eligible to participate in the Company's Long-Term Incentive Program, subject to approval of her awards by the Compensation Committee. For 2019, she was recommended for a total target award of $450,000, comprised of 50% in the form of a cash target based on the Company's relative total shareholder return performance (subject to a three-year performance
|
period beginning January 1, 2019 through December 31, 2021) and 50% in the form of restricted stock units that will vest in one third-installments on the first, second and third anniversaries of the grant date.
|
|
d.
|
Benefit Programs. Ms. Lynch is eligible to participate in the Company’s benefit plans that are applicable to other employees.
|
OUTSTANDING EQUITY AWARDS AT 2019 FISCAL YEAR END
The following table sets forth summary information regarding the outstanding equity awards held by our NEOs at December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
Stock Awards
|
Name
|
Grant Date
|
Number of Securities Underlying Unexercised Options
(#) Exercisable
|
Number of Securities Underlying Unexercised Options
(#) Unexercisable (1)
|
Option Exercise Price
($)
|
Option Expiration Date
|
Number of Shares or Units of Stock That Have Not Vested
(#) (1)
|
Market Value of Shares or Units of Stock That Have Not Vested
($) (2)
|
Charles L. Prow
|
3-Mar-2017
|
14,599
|
7,299
|
21.98
|
3/3/2027
|
4,094
|
209,858
|
5-Mar-2018
|
—
|
—
|
—
|
|
15,863
|
813,137
|
4-Mar-2019
|
—
|
—
|
—
|
|
28,839
|
1,478,287
|
Susan D. Lynch
|
8-Aug-2019
|
—
|
—
|
—
|
|
5,176
|
265,322
|
David A. Hathaway
|
17-Oct-2017
|
2,684
|
1,342
|
32.49
|
10/17/2027
|
1,384
|
70,944
|
5-Mar-2018
|
—
|
—
|
—
|
|
2,478
|
127,022
|
4-Mar-2019
|
—
|
—
|
—
|
|
4,506
|
230,978
|
Susan L. Deagle
|
8-May-2017
|
3,746
|
1,872
|
26.05
|
5/8/2027
|
959
|
49,158
|
5-Mar-2018
|
—
|
—
|
—
|
|
2,478
|
127,022
|
4-Mar-2019
|
—
|
—
|
—
|
|
4,506
|
230,978
|
Kevin T. Boyle
|
22-Oct-2018
|
—
|
—
|
—
|
|
2,896
|
148,449
|
4-Mar-2019
|
—
|
—
|
—
|
|
4,506
|
230,978
|
William B. Noon
|
3-Mar-2017
|
1,704
|
851
|
21.98
|
3/3/2027
|
477
|
24,451
|
5-Mar-2018
|
—
|
—
|
—
|
|
1,239
|
63,511
|
4-Mar-2019
|
—
|
—
|
—
|
|
2,704
|
138,607
|
Mr. Klein did not have outstanding equity awards at December 31, 2019 because he resigned from the Company effective April 15, 2019.
|
|
(1)
|
These awards vest in one-third annual installments on the applicable anniversaries of the grant date.
|
|
|
(2)
|
Reflects the Company's closing stock price of $51.26 on December 31, 2019.
|
OPTION VESTING SCHEDULE
Generally, stock options vest on the applicable anniversary of the grant date. Options vest in one-third cumulative annual installments on the first, second and third anniversaries of the grant date. Stock options were not granted in 2018 or 2019.
|
|
|
|
|
Name
|
Grant Date
|
Vesting Schedule (#s)
|
2020
|
Charles L. Prow
|
3-Mar-2017
|
7,299
|
|
David A. Hathaway
|
17-Oct-2017
|
1,342
|
|
Susan L. Deagle
|
8-May-2017
|
1,872
|
|
William B. Noon
|
3-Mar-2017
|
851
|
|
RESTRICTED STOCK UNIT VESTING SCHEDULE
Generally, RSUs vest on the applicable anniversary of the grant date. Except as otherwise noted, RSUs vest in one-third annual installments on the first, second and third anniversaries of the grant date.
|
|
|
|
|
|
|
|
|
Name
|
Grant Date
|
Vesting Schedule (#s)
|
2020
|
2021
|
2022
|
Charles L. Prow
|
3-Mar-2017
|
4,094
|
|
|
|
5-Mar-2018
|
7,932
|
|
7,931
|
|
|
4-Mar-2019
|
9,613
|
|
9,613
|
|
9,613
|
|
Susan D. Lynch
|
8-Aug-2019
|
1,726
|
|
1,725
|
|
1,725
|
|
David A. Hathaway
|
17-Oct-2017
|
1,384
|
|
|
|
5-Mar-2018
|
1,239
|
|
1,239
|
|
|
4-Mar-2019
|
1,502
|
|
1,502
|
|
1,502
|
|
Susan L. Deagle
|
8-May-2017
|
959
|
|
|
|
5-Mar-2018
|
1,239
|
|
1,239
|
|
|
4-Mar-2019
|
1,502
|
|
1,502
|
|
1,502
|
|
Kevin T. Boyle
|
22-Oct-2018
|
1,448
|
|
1,448
|
|
|
4-Mar-2019
|
1,502
|
|
1,502
|
|
1,502
|
|
William B. Noon
|
3-Mar-2017
|
477
|
|
|
|
5-Mar-2018
|
620
|
|
619
|
|
|
4-Mar-2019
|
902
|
|
901
|
|
901
|
|
OPTION EXERCISES AND STOCK VESTED
The following table summarizes the option exercises and vesting of RSUs for each of our NEOs in 2019.
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
Stock Awards
|
Name
|
Number of Shares Acquired on Exercise(#)
|
Value Realized on Exercise ($) (1)
|
Number of Shares Acquired on Vesting (#)
|
Value Realized on Vesting ($) (2)
|
Charles L. Prow
|
—
|
|
—
|
|
20,244
|
|
744,740
|
|
Susan D. Lynch
|
—
|
|
—
|
|
—
|
|
—
|
|
David A. Hathaway
|
—
|
|
—
|
|
2,625
|
|
93,610
|
|
Susan L. Deagle
|
—
|
|
—
|
|
2,200
|
|
70,594
|
|
Kevin T. Boyle
|
—
|
|
—
|
|
1,449
|
|
65,075
|
|
William B. Noon
|
—
|
|
—
|
|
1,098
|
|
30,306
|
|
Matthew M. Klein
|
46,286
|
|
675,653
|
|
6,016
|
|
167,120
|
|
|
|
(1)
|
Represents the difference between the market price of a share of Vectrus common stock on the date of exercise, and the exercise price per share, multiplied by the number of shares acquired upon exercise.
|
|
|
(2)
|
The aggregate value realized on the date of vesting of the RSUs is based on the average of high and low prices of Vectrus common stock on the date of vesting, multiplied by the number of shares acquired upon vesting. The value realized for these NEOs is based on $28.07 per share on the vesting dates of March 3, 2019 and March 4, 2019, $27.24 on the vesting date of March 5, 2019, $38.35 per share on the vesting date of May 8, 2019, $43.20 per share on the vesting date of October 17, 2019, $44.91 per share on the vesting date of October 22, 2019 and $50.35 per share on the vesting date of December 8, 2019, as calculated below. As December 8, 2019 fell on a weekend, $50.35 represents the average of the high and low prices of Vectrus common stock on the next business day on December 9, 2019.
|
PENSION BENEFITS
Prior to the Spin-off, the NEOs participated in pension plans provided by Exelis. Vectrus has not adopted a pension plan, and does not provide pension benefits to the NEOs.
NON-QUALIFIED DEFERRED COMPENSATION FOR 2019
EXCESS SAVINGS PLAN
The Vectrus Systems Corporation Excess Savings Plan provides our key employees with an opportunity to earn retirement savings benefits in excess of the retirement benefits they may contribute under our 401(k) Plan. Section 415 of the Code limits the amount of compensation that can be used to determine employee and employer contribution amounts ($280,000 in 2019) to the 401(k) Plan. The benefit that is provided to an employee under an excess benefit plan generally amounts to the difference between what the employee would have received under the employer's qualified
retirement plan without applying the Section 415 limitations and what the employee actually receives under the qualified retirement plan.
The Vectrus Systems Corporation Excess Savings Plan is a non-qualified unfunded savings plan. All balances under this plan are maintained on the books of Vectrus. Vectrus contributes to the participant's excess savings account at 4% of eligible base compensation. Participant investment earnings are based on the Guaranteed Income Fund - Stable Value Fund in the Vectrus 401(k) Plan. Benefits will be paid to the NEO in a lump sum in the seventh month following the last day worked by such NEO.
DEFERRED COMPENSATION
The following table shows the activity within the Excess Savings Plan for the NEOs for 2019.
NON-QUALIFIED DEFERRED COMPENSATION
|
|
|
|
|
|
|
Name
|
Executive Contributions in Last FY ($)(a)
|
Registrant Contributions in Last FY ($)(b)(1)
|
Aggregate Earnings in Last FY ($)(c)
|
Aggregate Withdrawals/ Distributions ($)(d)(2)
|
Aggregate Balance at Last FYE ($)(e)(3)
|
Charles L. Prow
|
—
|
16,800
|
741
|
—
|
45,507
|
Susan D. Lynch
|
—
|
—
|
—
|
—
|
—
|
David A. Hathaway
|
—
|
3,696
|
91
|
—
|
7,396
|
Susan L. Deagle
|
—
|
3,293
|
52
|
—
|
5,318
|
Kevin T. Boyle
|
—
|
3,401
|
8
|
—
|
3,409
|
William B. Noon
|
—
|
90
|
—
|
—
|
—
|
Matthew M. Klein
|
—
|
—
|
603
|
36,995
|
—
|
|
|
(1)
|
The amounts in this column are also included in the Summary Compensation Table and in the All Other Compensation Table as Excess Savings Plan Contributions.
|
|
|
(2)
|
Mr. Klein received a distribution from the Vectrus Excess Savings Plan in connection with his resignation.
|
|
|
(3)
|
The following amounts of the aggregate balance from the table were reported in previous summary compensation tables: Mr. Prow -- $27,966, Mr. Hathaway -- $3,610, Ms. Deagle -- $1,973, and Mr. Klein -- $36,316.
|
PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
In this section, we discuss the compensation payable (including accelerated vesting of equity awards) in the event of a change in control and employment termination under several different circumstances, including voluntary termination, termination for cause, death, disability, termination without cause and termination in connection with a change in control.
The amounts shown in the Potential Post-Employment Compensation table are estimates, assuming the triggering event occurred on December 31, 2019. Values attributed to accelerated vesting of equity-based awards are based on Vectrus’ closing stock price on December 31, 2019, which was $51.26.
PAYMENTS AND BENEFITS PROVIDED GENERALLY TO SALARIED EMPLOYEES
The amounts shown in the table below do not include payments and benefits to the extent these payments and benefits are provided on a non-discriminatory basis to salaried employees generally upon termination of employment. These include:
|
|
|
l
|
Accrued salary and paid time off; and
|
l
|
Amounts currently vested under the Vectrus Excess Savings Plan.
|
No perquisites are provided to the NEOs upon a change in control or in any of the post-employment circumstances shown in the table below.
SEVERANCE AND CHANGE IN CONTROL
SENIOR EXECUTIVE SEVERANCE PAY PLAN
The purpose of this plan is to provide a period of transition for senior executives. Senior executives who are U.S. citizens or who are employed in the United States are covered by this plan. The plan generally provides for severance payments if Vectrus terminates a senior executive’s employment without cause. The amount of severance pay under this plan depends on the executive’s base pay and years of service. In October 2015, the plan was amended to, among other things, reduce the maximum severance benefit from 24 months of base pay to 18 months of base pay. The severance benefit begins at 12 months of base pay for less than four years of service and increases to 18 months of base pay for service of nine years or more. Senior executives who had earned severance of greater than 18 months as of the October 2015 plan amendment were grandfathered at the higher level. In November 2016, the plan was further amended to provide severance benefits to eligible covered executives regardless of age. The amendments made with respect to this plan were the result of a study of competitive practice undertaken in concert with the Compensation Consultant retained by the Compensation Committee. The executives are also eligible to continue receiving subsidized health and welfare benefits during the severance payment period. Vectrus considers these severance pay provisions appropriate given the job responsibilities and competitive market in which senior executives function. Vectrus’ obligation to continue severance payments stops if the executive does not comply with the Vectrus Code of Conduct or applicable Vectrus Corporate Policies. Vectrus considers this cessation provision to be critical to Vectrus’ emphasis on ethical behavior. Vectrus’ obligation to continue severance payments also ends if the
executive engages in any activity inimical to the best interests of Vectrus, disparages Vectrus, induces employees to leave Vectrus without our consent or does not comply with non-competition provisions of this plan. These provisions protect the integrity of our business and are consistent with typical business arrangements. If a covered executive receives or is entitled to receive other severance or similar compensation under another Vectrus plan or agreement or under applicable law, the amount of that other compensation will reduce amounts otherwise payable under this plan, to the extent such offsetting would not violate Code Section 409A. The severance is paid in equal installments over the applicable severance period.
The exceptions to severance payments are:
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the executive terminates his or her own employment;
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the executive’s employment is terminated for cause, death or disability; or
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the executive accepts employment or refuses comparable employment with a purchaser in a divestiture situation.
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Assuming a termination by Vectrus without cause on December 31, 2019, Messrs. Prow, Hathaway and Boyle and Mses. Lynch and Deagle would have been entitled to 12 months of severance. In addition, Mr. Noon, who is covered by another severance plan, would have been entitled to 18 weeks of severance. (See "Post-Employment Compensation - Other Severance Plan" above.)
SPECIAL SENIOR EXECUTIVE SEVERANCE PAY PLAN
The purpose of this plan is to provide compensation in the case of termination of employment in connection with an Acceleration Event (as defined below). The provisions of this plan are specifically designed to address the inability of senior executives to influence the Company's future performance after certain change in control events. The plan is structured to encourage executives to act in the best interests of shareholders without regard to the potential impact a change in control transaction might have with respect to his or her employment by providing severance protections for terminations that arise in connection with a change in control transaction.
The purposes of these provisions are to:
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provide for continuing cohesive operations as executives evaluate a transaction, which, without change in control protection, could be personally adverse to the executive;
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keep executives focused on preserving value for shareholders;
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retain key talent in the face of potential transactions; and
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attract talented employees in the competitive marketplace.
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As discussed above, this plan provides severance benefits for covered executives, including the NEOs, if their employment is terminated (i) by the Company without cause within two years after a change in control transaction or prior to a change
in control transaction if the termination occurs after public announcement of the transaction (provided the transaction is consummated) or the termination is at the request of a party to the transaction, or (ii) where the covered executive terminates his or her employment for good reason (including a termination due to death or disability if at the time of such termination the executive could have resigned for good reason) within two years after a change in control transaction.
This plan provides four tiers of benefits for covered executives, based on their position within the Company and the criticality of their role in a change in control transaction. The Compensation Committee, working in concert with the independent Compensation Consultant, considered four tiers of benefits appropriate based on the relative ability of each tier of employee to influence future Company performance. In the event of a covered termination under this plan, the executive would be entitled to:
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any accrued but unpaid base salary and paid time off, any earned but unpaid bonus (AIP payment) relating to the preceding year, unreimbursed expenses and any amounts to which the executive is entitled under applicable employee benefit plans;
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two and a half (2.5), two (2.0), one and a half (1.5) or one (1.0) times the executive’s annual base salary and target AIP at the time of the termination, paid in equal installments; and
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continuation of health (medical/dental) and life insurance benefits at the same levels for the length of the individual's severance.
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If payments triggered by a change in control transaction would constitute excess parachute payments for purposes of Code Section 280G, then either: (1) payments would be reduced by the amount needed to avoid triggering Code Section 280G, or (2) no reduction of payments would occur, depending on which alternative leaves the executive in a better after-tax position.
Mr. Prow is covered at the Tier 1 level of benefits of 2.5 times, Ms. Lynch is covered at the Tier 2 level of benefits of 2.0 times, Messrs. Hathaway and Boyle and Ms. Deagle are covered at the Tier 3 level of benefits of 1.5 times and Mr.Noon is covered at the Tier 4 level of benefits at 1.0 times.
EFFECT OF A CHANGE IN CONTROL AND TERMINATION OF EMPLOYMENT ON ANNUAL INCENTIVE AWARDS, EQUITY AWARDS AND THE EXCESS SAVINGS PLAN
Annual Incentive Awards. Under the AIP, upon a change in control, the AIP awards for the year of the change in control would be paid at the greater of “target” or actual achievement as of the date of the change in control event. Since the AIP awards would have been earned as of December 31, 2019 based on continued employment through such date, and actual performance exceeded target, we have not reflected the 2019 AIP awards in the table below. The NEO’s AIP awards
for 2019, including the target opportunities and the actual amounts earned, are discussed in the Compensation Discussion and Analysis section of this Proxy Statement.
Long-Term Incentive Awards. No outstanding long-term incentive awards accelerate solely upon a change in control transaction; however, vesting is accelerated in the event of certain termination of employment scenarios. Following is a description of how the awards are treated upon different termination events.
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Stock Options. The stock options become fully vested upon termination due to death or disability. Upon termination due to retirement (termination at or after age 60 with at least 5 years of service, other than termination by the Company for cause or due to death or disability), a prorated portion of the option will continue to vest on the applicable vesting dates based on the number of full months of employment during the vesting period, and any remaining unvested portion will expire unless the option holder agrees to comply with the non-competition covenants contained in the stock option agreement, in which case the option will vest without proration on each subsequent vesting date as if employment had continued. If the option holder is not retirement eligible upon voluntary resignation or termination by the Company without cause, the unvested portions of the option expire immediately, except that if employment is terminated by the Company without cause or by the option holder for good reason within 24 months following a change in control transaction, the options become fully vested.
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RSUs. The RSUs become fully vested upon termination due to death or disability. Upon termination due to retirement (termination at or after age 60 with at least 5 years of service, other than termination by the Company for cause or due to death or disability) or termination by the Company without cause, a prorated portion of the RSUs will continue to vest on the applicable vesting dates based on the number of full months of employment during the vesting period, and any remaining unvested portion will be forfeited unless the RSU holder agrees to comply with the non-competition covenants contained in the RSU agreement, in which case the RSUs will vest without proration on each subsequent vesting date as if employment had continued. If the RSU holder is not retirement eligible upon voluntary resignation, the unvested portions of the RSUs will be forfeited. If employment is terminated by the Company without cause or by the option holder for good reason within 24 months following a change in control transaction, the RSUs become fully vested.
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TSR Awards. Upon termination due to death or disability, the TSR awards remain eligible to vest based on actual performance over the performance period (or as determined upon a change in control event as described below if such an event occurs during the performance period) as if the award holder
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had remained employed. Upon termination due to retirement (termination at or after age 60 with at least 5 years of service, other than termination by the Company for cause or due to death or disability) or termination by the Company without cause, a prorated portion of the TSR award will remain eligible to vest based on actual performance over the performance period (or as determined upon a change in control event as described below if such an event occurs during the performance period) as if employment had continued, and any remaining unvested portion will expire unless the award holder agrees to comply with the non-competition covenants contained in the TSR award agreement, in which case the portion of the award that vests will not be prorated. If the award holder is not retirement eligible upon voluntary resignation, the unvested portions of the award will be forfeited. If employment is terminated by the Company without cause or by the award holder for good reason within 24 months following a change in control transaction, the award becomes fully vested, with a prorated portion of the award determined by calculating the average performance over any completed and open performance periods (based on actual performance through the date of the change in control event) and the remainder based on assumed target performance.
Each of the NEOs has accepted the terms and conditions with respect to their awards, including restrictive covenants. None of the NEOs were retirement eligible (age 60 with 5 years of service) for purposes of their long-term incentive awards on December 31, 2019.
Vectrus Systems Corporation Excess Savings Plan. Payment of the NEOs’ accounts under this plan would be triggered by a change in control or a termination of employment or death of the NEO. The definition of change in control under this plan is consistent with the corresponding definition under Code Section 409A. Since there is no accelerated vesting or other enhancement of benefits under the plan, we have not disclosed the NEOs’ accounts in the table below. For information regarding this plan and the NEOs’ aggregate balances as of December 31, 2019, see the “Non-Qualified Deferred Compensation” table above.
Additional Information. The change in control and employment termination provisions in these plans and agreements are intended to provide protections in the context of change in control transaction and certain termination events so that the executives can focus on preserving value for shareholders when evaluating situations that, without these provisions, could be personally adverse to the executive. Except for the Vectrus Systems Corporation Excess Savings Plan, which defines a change in control by reference to the corresponding definition under Code Section 409A, change in control is defined as one of the following acceleration events ("Acceleration Events") for purposes of these plans and agreements:
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1.
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A report on Schedule 13D was filed with the SEC disclosing that any person, other than Vectrus or one of its subsidiaries or any employee benefit plan that is sponsored by Vectrus or a subsidiary, had become the beneficial owner of 30% or more of Vectrus’ outstanding stock;
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2.
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A person other than Vectrus or one of its subsidiaries or any employee benefit plan that is sponsored by Vectrus or a subsidiary purchased Vectrus shares in connection with a tender or exchange offer, if after consummation of the offer the person purchasing the shares is the beneficial owner of 30% or more of Vectrus outstanding stock;
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(a)
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any consolidation, business combination or merger of Vectrus other than a consolidation, business combination or merger in which the shareholders of Vectrus immediately prior to the merger would hold 50% or more of the combined voting power of Vectrus or the surviving corporation of the merger and would have the same proportionate ownership of common stock of the surviving corporation that they held in Vectrus immediately prior to the merger; or
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(b)
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any sale, lease, exchange or other transfer of all or substantially all of the assets of Vectrus;
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4.
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A majority of the members of the Board of Directors of Vectrus changed within a 12-month period, unless the election or nomination for election of each of the new Directors by Vectrus’ shareholders had been approved by two-thirds of the Directors still in office who had been Directors at the beginning of the 12-month period or whose nomination for election or election was recommended or approved by a majority of Directors who were Directors at the beginning of the 12-month period; or
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5.
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Any person other than Vectrus or one of its subsidiaries or any employee benefit plan sponsored by Vectrus or a subsidiary became the beneficial owner of 30% or more of Vectrus outstanding stock.
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The Potential Post-Employment Compensation table on the following page provides additional information.
POTENTIAL POST-EMPLOYMENT COMPENSATION
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Executive*
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Resignation (a)($)
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Termination for Cause
(b)($)
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Death
(c)($)
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Disability (d)($)
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Termination Not For Cause
(e)($)
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Change in Control and Termination Not For Cause or With Good Reason
(f)($)
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Charles L. Prow
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Severance (1)
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0
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0
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0
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0
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710,044
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3,613,977
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2018 - 2020 TSR Award (2)
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0
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0
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800,000
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800,000
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533,360
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976,907
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2019 - 2021 TSR Award (2)
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0
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0
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1,000,000
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1,000,000
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333,300
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1,065,680
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Unvested RSUs and Options (3)
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0
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0
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2,714,998
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2,714,998
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831,873
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2,714,998
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Total
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0
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0
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4,514,998
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4,514,998
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2,408,577
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8,371,562
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Susan D. Lynch
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Severance (1)
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0
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0
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0
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0
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444,609
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1,449,261
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2019 - 2021 TSR Award (2)
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0
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0
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281,250
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281,250
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93,741
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283,071
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Unvested RSUs and Options (3)
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0
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0
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265,322
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265,322
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29,480
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265,322
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Total
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0
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0
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546,572
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546,572
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567,830
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1,997,654
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David A. Hathaway
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Severance (1)
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0
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0
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0
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0
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388,685
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892,190
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2018 - 2020 TSR Award (2)
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0
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0
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125,000
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125,000
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83,338
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152,642
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2019 - 2021 TSR Award (2)
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0
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0
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156,250
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156,250
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52,078
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166,513
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Unvested RSUs and Options (3)
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0
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0
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454,133
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454,133
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111,221
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454,133
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Total
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0
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0
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735,383
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735,383
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635,322
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1,665,478
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Susan L. Deagle
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Severance (1)
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0
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0
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0
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0
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378,055
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872,637
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2018 - 2020 TSR Award (2)
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0
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0
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125,000
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125,000
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83,338
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152,642
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2019 - 2021 TSR Award (2)
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0
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0
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156,250
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156,250
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52,078
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166,513
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Unvested RSUs and Options (3)
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0
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0
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454,351
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454,351
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134,018
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454,351
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Total
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0
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0
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735,601
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735,601
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647,489
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1,646,143
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Kevin T. Boyle
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Severance (1)
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0
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0
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0
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0
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378,485
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876,539
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2018 - 2020 TSR Award (2)
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0
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0
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125,000
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125,000
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83,338
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152,642
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2019 - 2021 TSR Award (2)
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0
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0
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156,250
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156,250
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52,078
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166,513
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Unvested RSUs and Options (3)
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0
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0
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379,427
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379,427
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70,084
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379,427
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Total
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0
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0
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660,677
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660,677
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583,985
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1,575,121
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William B. Noon
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Severance (1)
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0
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0
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0
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0
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106,606
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425,534
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2018 - 2020 TSR Award (2)
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0
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0
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62,500
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62,500
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41,669
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76,321
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2019 - 2021 TSR Award (2)
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0
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0
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93,750
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93,750
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31,247
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99,908
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Unvested RSUs and Options (3)
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0
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0
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251,486
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251,486
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76,787
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251,486
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Total
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0
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0
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407,736
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407,736
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256,309
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853,249
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* Mr. Klein resigned on April 15, 2019 and did not receive severance or other post-employment compensation in connection with his resignation. He received a distribution from the Vectrus Excess Savings Plan.
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(1)
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Amounts shown in column (e) reflect the cash severance and estimated cost to Vectrus of the continuation of benefits under the Senior Executive Severance Pay Plan, which would have been as follows: Mr. Prow ($700,003 and $10,041); Ms. Lynch ($430,019 and $14,590); Mr. Hathaway ($374,150 and $14,535); Ms. Deagle ($370,032 and $8,023); Mr. Boyle ($365,019 and $13,466); and Mr. Noon ($103,853 and $2,753) who is covered under the other severance plan as discussed
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above. Amounts shown in column (f) reflect the cash severance and estimated cost to Vectrus of the continuation of benefits and life insurance under the Special Senior Executive Severance Pay Plan, which would have been as follows: Mr. Prow ($3,587,515 and $26,462); Ms. Lynch ($1,419,063 and $30,198); Mr. Hathaway ($869,899 and $22,291); Ms. Deagle ($860,324 and $12,313); Mr. Boyle ($848,669 and $27,870); and Mr. Noon ($420,027 and $5,507).
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(2)
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Amounts shown in columns (c), (d) and (e) for the 2018-2020 TSR awards are based on actual performance for the years ended December 31, 2018 and December 31, 2019 and target performance (100%) for the remaining two measurement periods. Amounts in columns (c), (d) and (e) for the 2019-2021 TSR awards are based on actual performance for the year ended December 31, 2019 and target performance (100%) for the remaining three measurement periods. At December 31, 2019, none of the NEOs were eligible for retirement treatment (age 60 with 5 years of service) for purposes of their outstanding TSR awards. Amounts shown in column (f) for the 2018-2020 TSR awards were calculated in accordance with the award agreements by multiplying a prorated portion of the award (2/3) by an average payout factor based on actual performance results through December 31, 2019, and multiplying the remainder of the award (1/3) by a payout factor of 100%, reflecting target performance. Amounts shown in column (f) for the 2019-2021 TSR awards were calculated in accordance with the award agreements by multiplying a prorated portion of the award (1/3) by an average payout factor based on actual performance results through December 31, 2019, and multiplying the remainder of the award (2/3) by a payout factor of 100%, reflecting target performance. At December 31, 2019, none of the NEOs were eligible for retirement treatment (age 60 with 5 years of service) for purposes of their outstanding TSR awards.
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(3)
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Amounts shown in columns (c), (d) and (f) reflect the market value of unvested RSUs and in-the-money value of stock options that would vest, based on a $51.26 per share value, the closing price of Vectrus common stock on December 31, 2019. Amounts shown in column (e) reflect the prorated portion of the unvested RSUs and in-the-money stock options that would vest, based on the number of full months of employment between the grant date and December 31, 2019. At December 31, 2019, none of the NEOs were eligible for retirement treatment (age 60 with 5 years of service) for purposes of their outstanding RSUs or stock options.
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DIRECTIONS TO THE VECTRUS 2020 ANNUAL MEETING OF SHAREHOLDERS
Hyatt Regency Tysons Corner Center, 7901 Tysons One Place, Tysons Corner, VA 22102
Washington Dulles International Airport (IAD) - 15.3 miles
From the airport take Dulles Access Road East toward Washington, D.C. Take the exit toward I-495S/VA-123/Chain Bridge Road and then merge onto VA-267E. Take exit 18A to merge onto 495S. Take the Westpark Drive exit and turn left on to Westpark Drive. Turn right onto Tysons Place to Hyatt Regency Tysons Corner Center.
Ronald Reagan Washington National Airport / Washington, DC (DCA) - 16.6 miles
Head north toward I-495N / Dulles Airport (Portions toll). Merge onto I-495S and then use the left two lanes to take the Westpark Drive exit. Turn left on Westpark Drive and then turn right onto Tysons Place to Hyatt Regency Tysons Corner Center.
APPENDIX A
AMENDMENT AND RESTATEMENT OF THE
VECTRUS, INC.
2014 OMNIBUS INCENTIVE PLAN
(Effective as of May 7, 2020, Subject to Shareholder Approval)
ARTICLE I
ESTABLISHMENT, PURPOSE, AND DURATION
1.1 Establishment. Vectrus, Inc., an Indiana corporation (hereinafter referred to as the “Company”), has established an incentive compensation plan known as the Vectrus, Inc. 2014 Omnibus Incentive Plan, as amended and restated (hereinafter referred to as the “Plan”), as set forth in this document. The Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights (SARs), Restricted Stock, Restricted Stock Units and Other Awards.
The Plan first became effective September 27, 2014 (the “Effective Date”). The Plan shall remain in effect as provided in Section 1.3 hereof.
1.2 Purpose of the Plan. The purpose of the Plan is to promote the long-term interests of the Company and its shareholders by strengthening the Company’s ability to attract and retain Employees of the Company and its Affiliates and members of the Board of Directors upon whose judgment, initiative, and efforts the financial success and growth of the business of the Company largely depend, and to provide an additional incentive for such individuals through share ownership and other rights that promote and recognize the financial success and growth of the Company and create value for shareholders.
1.3 Duration of the Plan. The Plan commenced as of the Effective Date, as described in Section 1.1 hereof, and shall remain in effect, subject to the right of the Compensation and Personnel Committee of the Board, (the “Committee”) to amend or terminate the Plan at any time pursuant to Article 13 hereof, until all Shares subject to it shall have been purchased or acquired according to the Plan’s provisions.
ARTICLE II
DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set forth below, and when the meaning is intended, the initial letter of the word shall be capitalized.
2.1 “Acceleration Event” shall be deemed to have occurred, to the extent allowed under applicable law or regulatory filings, (i) for Awards granted on or after October 6, 2015, as of the first day that any one or more of the following conditions described in Sections 2.1.1, 2.1.2, 2.1.3, 2.1.4 and 2.1.5 have been satisfied and (ii) for Awards granted prior to October 6, 2015, as of the first day that any one or more of such conditions have been satisfied, except that a twenty percent (20%) threshold shall apply instead of thirty percent (30%) in Sections 2.1, 2.1.2 and 2.1.5.
2.1.1 a report on Schedule 13D shall be filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Exchange Act disclosing that any Person, other than the Company or a Subsidiary or any employee benefit plan sponsored by the Company or a Subsidiary (or related trust), is the Beneficial Owner directly or indirectly of thirty percent (30%) or more of the outstanding Shares;
2.1.2 any Person, other than the Company or a Subsidiary, or any employee benefit plan sponsored by the Company or a Subsidiary (or related trust), shall purchase shares pursuant to a tender offer or exchange offer to acquire any Shares (or securities convertible into Shares) for cash, securities or any other consideration, provided that after consummation of the offer, the Person in question is the Beneficial Owner, directly or indirectly, of thirty percent (30%) or more of the outstanding Shares (calculated as provided in paragraph (d) of Rule 13d-3 under the Exchange Act in the case of rights to acquire Shares);
2.1.3 the consummation of:
(a)any consolidation, business combination or merger involving the Company, other than a consolidation, business combination or merger involving the Company in which holders of Shares immediately prior to the consolidation, business combination or merger (x) hold fifty percent (50%) or more of the combined voting power of the Company (or the corporation resulting from the consolidation, business combination or merger or the parent of such corporation) after the merger and (y) have the same
proportionate ownership of common stock of the Company (or the corporation resulting from the consolidation, business combination or merger or the parent of such corporation), relative to other holders of Shares immediately prior to the consolidation, business combination or merger, immediately after the consolidation, business combination or merger as immediately before; or
(b)any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company;
2.1.4 there shall have been a change in a majority of the members of the Board within a 12-month period unless the election or nomination for election by the Company’s shareholders of each new director during such 12-month period was approved by the vote of two-thirds of the directors then still in office who (x) were directors at the beginning of such 12-month period or (y) whose nomination for election or election as directors was recommended or approved by a majority of the directors who were directors at the beginning of such 12-month period; or
2.1.5 any Person, other than the Company or a Subsidiary or any employee benefit plan sponsored by the Company or a Subsidiary (or related trust), becomes the Beneficial Owner of thirty percent (30%) or more of the Shares.
2.2 “Affiliate” means any Subsidiary and any other Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Person specified.
2.3 “Award” means, individually or collectively, a grant under this Plan of Nonqualified Stock Options, Incentive Stock Options, SARs, Restricted Stock, Restricted Stock Units, Converted Awards and Other Awards.
2.4 “Award Agreement” means either (i) an agreement entered into by the Company and a Participant setting forth the terms and provisions applicable to Awards granted under this Plan, or (ii) a statement issued by the Company to a Participant describing the terms and conditions of such Award.
2.5 “Beneficial Owner” shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act.
2.6 “Board” or “Board of Directors” means the Board of Directors of the Company.
2.7 “Code” means the U.S. Internal Revenue Code of 1986, as amended from time to time.
2.8 “Committee” means the Compensation and Personnel Committee of the Board.
2.9 “Company” means Vectrus, Inc., an Indiana corporation, and any successor thereto as provided in Article 15 herein; provided, however, that for purposes of grants made under a Predecessor Plan, Company shall mean the Predecessor Corporation, as applicable, as the original grantor.
2.10 “Converted Award” means Nonqualified Stock Options, Incentive Stock Options, SARs, Restricted Stock, Restricted Stock Units and Other Awards granted in replacement of awards that were originally granted to a Participant under a Predecessor Plan.
2.11 “Covered Employee” means a Participant who is a “Covered Employee,” as defined in Code Section 162(m) and the regulations promulgated under Code Section 162(m), or any successor statute.
2.12 “Director” means any individual who is a member of the Board of Directors.
2.13 “Employee” means any employee of the Company or its Affiliates.
2.14 “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, or any successor act thereto.
2.15 “Fair Market Value” means a price that is based on the opening, closing, actual, high, low, or average selling prices of a Share on the New York Stock Exchange (“NYSE”) or other established stock exchange (or exchanges) on the applicable date, the preceding trading day, the next succeeding trading day, or an average of trading days, as determined by the Committee in its discretion.
Such definition of Fair Market Value may differ depending on whether Fair Market Value is in reference to the grant, exercise, vesting, or settlement or payout of an Award. If, however, the accounting standards used to account for equity awards granted to Participants are substantially modified subsequent to the Effective Date of the Plan, the Committee shall have the ability to determine an Award’s Fair Market Value based on the relevant facts and circumstances. If Shares are not traded on an established stock exchange, Fair Market Value shall be determined by the Committee based on objective criteria.
2.16 “Freestanding SAR” means a SAR that is granted independently of any Options, as described in Article 7 herein.
2.17 “Full Value Award” means an Award other than an Option granted with an Option Price equal to at least Fair Market Value on the date of grant or a SAR with a Grant Price equal to at least Fair Market Value on the date of grant.
2.18 “Grant Price” means the amount to which the Fair Market Value of a Share is compared pursuant to Section 7.6 to determine the amount of payment that should be made upon exercise of a SAR.
2.19 “Incentive Stock Option” or “ISO” means an Option that meets the requirements of Code Section 422, or any successor provision, and that is not designated as a Nonqualified Stock Option.
2.20 “Insider” means an individual who is, on the relevant date, an officer, Director, or more than ten percent (10%) Beneficial Owner of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act, as determined by the Board or the Committee in accordance with Section 16 of the Exchange Act.
2.21 “Non-Employee Director” means a Director who is not an employee of the Company or an Affiliate of the Company.
2.22 “Nonqualified Stock Option” or “NQSO” means an Option that is not intended to meet the requirements of Code Section 422, or that otherwise does not meet such requirements.
2.23 “Option” means an Incentive Stock Option or a Nonqualified Stock Option to purchase Shares, as described in Article 6 herein.
2.24 “Option Price” means the price at which a Share may be purchased by a Participant pursuant to an Option.
2.25 “Other Award” means an Award granted to a Participant pursuant to Article 9 herein.
2.26 “Participant” means an Employee or Director who has been selected to receive an Award or who has an outstanding Award granted under the Plan.
2.27 “Performance-Based Compensation” means an Award that is qualified as Performance-Based Compensation under Code Section 162(m).
2.28 “Performance Period” means the period of time during which the performance goals must be met in order to determine the amount of payout and/or vesting with respect to an Award.
2.29 “Period of Restriction” means the period when Restricted Stock or Restricted Stock Units are subject to a substantial risk of forfeiture (based on the passage of time, the achievement of performance goals, or upon the occurrence of other events as determined by the Committee, at its discretion) and transfer restrictions, as provided in Article 8 herein.
2.30 “Person” shall have the meaning given in Section 3(a) (9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof.
2.31 “Plan Year” means the fiscal year of the Company.
2.32 “Plan” means the Vectrus, Inc. 2014 Omnibus Incentive Plan, as may be amended from time to time; provided, however, that for purposes of grants made under a Predecessor Plan, Plan shall mean a Predecessor Plan, as it existed on the date of such grant.
2.33 “Predecessor Corporation” means Exelis Inc. and ITT Corporation.
2.34 “Predecessor Plan” means the Exelis Inc. 2011 Omnibus Incentive Plan and the ITT 2003 Equity Incentive Plan.
2.35 “Restricted Stock” means an Award granted to a Participant pursuant to Article 8 herein.
2.36 “Restricted Stock Unit” means an Award granted to a Participant pursuant to Article 8 herein.
2.37 “Share” means a share of common stock of the Company, $0.01 par value per share.
2.38 “Stock Appreciation Right” or “SAR” means an Award granted to a Participant pursuant to Article 7 herein.
2.39 “Subsidiary” means any corporation, partnership, joint venture, limited liability company, or other entity (other than the Company) in an unbroken chain of entities beginning with the Company if each of the entities other than the last entity in the unbroken chain owns at least fifty percent (50%) of the total combined voting power in one of the other entities in such chain.
2.40 “Tandem SAR” means a SAR that is granted in connection with a related Option pursuant to Article 7.
ARTICLE III
ADMINISTRATION
3.1 General. The Committee shall be responsible for administering the Plan. The Committee may employ attorneys, consultants, accountants, and other persons, and the Committee, the Company, and its officers and Directors shall be entitled to rely upon the advice, opinions, or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee shall be final and binding upon the Participants, the Company, and all other interested persons.
3.2 Authority of the Committee. The Committee shall have full and exclusive discretionary power to interpret the terms and the intent of the Plan and to determine eligibility for Awards and to adopt such rules, regulations, and guidelines for administering the Plan as the Committee may deem necessary or proper. Such authority shall include, but not be limited to, selecting Award recipients, establishing all Award terms and conditions and, subject to Section 4.3 and Article 13, adopting modifications and amendments to the Plan or any Award Agreement, including without limitation, any that are necessary to comply with the laws of the countries in which the Company and its Affiliates operate. Notwithstanding the foregoing, the Committee may only accelerate the vesting, distribution or payout of an Award in connection with an adjustment pursuant to Section 4.3, death, disability or an Acceleration Event.
3.3 Delegation. The Committee may delegate to one or more of its members or to one or more agents or advisors such administrative duties as it may deem advisable, and the Committee or any person to whom it has delegated duties as aforesaid may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. The Committee may, by resolution, authorize one or more officers of the Company to do one or both of the following: (a) designate Employees and Directors to be recipients of Awards; and (b) determine the size of the Award; provided, however, the Committee shall not delegate such responsibilities to any such officer for Awards granted to an Employee that is considered an elected officer of the Company.
3.4 General. The Committee shall be responsible for administering the Plan. The Committee may employ attorneys, consultants, accountants, and other persons, and the Committee, the Company, and its officers and Directors shall be entitled to rely upon the advice, opinions, or valuations of any such persons. All actions taken and all interpretations and determinations made by the Committee shall be final and binding upon the Participants, the Company, and all other interested persons.
ARTICLE IV
SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1 Number of Shares Available for Awards. Subject to adjustment as provided in Section 4.3 herein, the number of Shares hereby reserved for issuance after December 31, 2014 to Participants under the Plan shall be two million, six hundred twenty-five thousand (2,625,000). For purposes of the prior sentence, Shares subject to Converted Awards shall not be considered available for issuance under the Predecessor Plan. Any Shares related to Awards (including Converted Awards) that terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of such Shares, are settled in cash in lieu of Shares, or are exchanged with the Committee’s permission for Awards not involving Shares, shall be available again for grant under the Plan. Notwithstanding the foregoing, (a) upon the exercise of a stock-settled Stock Appreciation Right or net-settled Option, the number of Shares subject to the Award (or portion of the Award) that is then being exercised shall be counted against the maximum aggregate number of Shares that may be issued under the Plan as provided above, on the basis of one Share for every Share subject thereto, regardless of the actual number of Shares issued upon exercise, (b) any Shares withheld with respect to an Award (or, with respect to Restricted Stock, returned) in satisfaction of tax withholding obligations shall be counted as Shares issued and (c) any Shares tendered in satisfaction of tax withholding obligations or an Option exercise price or repurchased by the Company with proceeds collected in connection with the exercise of an Option may not be added back to the maximum aggregate number of Shares that may be issued under the Plan.
Subject to adjustment as provided in Section 4.3 herein, the number of Shares hereby reserved for issuance under the Plan for Full Value Awards granted after December 31, 2014 shall not exceed one million two hundred thousand (1,200,000). In addition, any Shares related to Full Value Awards (including Converted Awards that are Full Value Awards) that terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of such Shares, are settled in cash in lieu of Shares, or are exchanged with the Committee’s permission for Awards not involving Shares, shall be available again for grant of Full Value Awards under the Plan.
All of the reserved Shares may be used as ISOs.
The Shares available for issuance under the Plan may be authorized and unissued Shares or treasury Shares.
The following limits (“Award Limits”) shall apply to Awards (other than Converted Awards), dividends and dividend equivalent intended to qualify as Performance-Based Compensation:
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Options: The maximum aggregate number of Shares that may be granted in the form of Options, pursuant to any Award granted in any one Plan Year to any one Participant shall be eight hundred thousand (800,000).
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SARs: The maximum number of Shares that may be granted in the form of Stock Appreciation Rights, pursuant to any Award granted in any one Plan Year to any one Participant shall be eight hundred thousand (800,000).
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Restricted Stock or Restricted Stock Units: The maximum aggregate grant with respect to Awards of Restricted Stock or Restricted Stock Units granted in any one Plan Year to any one Participant shall be four hundred thirty thousand (430,000).
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Other Awards: The maximum aggregate number of Shares with respect to which Other Awards may be granted in any one Plan Year to any one Participant shall be four hundred thirty thousand (430,000) and the maximum aggregate cash that may be payable with respect to Other Awards granted in any one Plan Year to any one Participant shall be six million ($6,000,000) dollars.
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Dividends and Dividend Equivalents: The maximum aggregate value of cash dividends (other than large, nonrecurring cash dividends) or dividend equivalents that any one Participant may receive pursuant to Awards in any one Plan Year shall not exceed one million, five hundred thousand ($1,500,000) dollars.
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4.2 Non-Employee Director Limitations. The maximum grant date fair value of Awards granted during a single fiscal year to any Non-Employee Director, together with all cash fees paid during the fiscal year in respect of the Non-Employee Director’s service as a member of the Board and any Board committees, shall not exceed $500,000 in total value (calculating the value of any such Awards based on the grant date fair value of such Awards for financial reporting purposes).
4.3 Adjustments in Authorized Shares. In the event of any equity restructuring (within the meaning of FASB Accounting Standards Codification (ASC) 718 (formerly FAS 123R) that causes the per share value of Shares to change, such as a stock dividend, stock split, spin off, rights offering, or recapitalization through a large, nonrecurring cash dividend, the Committee shall cause there to be made an equitable adjustment to: (a) the number and, if applicable, kind of shares that may be issued under the Plan or pursuant to any type of Award under the Plan, (b) the Award Limits, (c) the number and, if applicable, kind of shares subject to outstanding Awards and (d) as applicable, the Option Price or Grant Price of any then outstanding Awards. In the event of any other change in corporate structure or capitalization, such as a merger, consolidation, any reorganization (whether or not such reorganization comes within the definition of such term in Section 368 of the Code) or any partial or complete liquidation of the Company, the Committee, in its sole discretion, in order to prevent dilution or enlargement of Participants’ rights under the Plan, shall cause there to be made such equitable adjustments described in the foregoing sentence. Any fractional shares resulting from adjustments made pursuant to this Section 4.3 shall be eliminated. Any adjustment made pursuant to this Section 4.3 shall be conclusive and binding for all purposes of the Plan.
Except to the extent it would unintentionally cause Performance Based Compensation to fail to qualify for the performance based exception to Code Section 162(m), appropriate adjustments may also be made by the Committee in the terms of any Awards under the Plan to reflect such changes or distributions and to modify any other terms of outstanding Awards on an equitable basis, including modifications of performance goals and changes in the length of Performance Periods. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on Participants under the Plan.
Subject to the provisions of Article 12, without affecting the number of Shares reserved or available hereunder, the Committee may authorize the issuance or assumption of benefits under this Plan in connection with any merger, consolidation, acquisition of property or stock, share exchange, amalgamation, reorganization or similar transaction upon such terms and conditions as it may deem appropriate; provided, however, that no such issuance or assumption shall be made without affecting the number of Shares reserved or available hereunder if it would prevent the granting of ISOs under the Plan.
4.4 Minimum Vesting for Equity Awards. Except in the event of the death, disability or, for Awards granted prior to May 13, 2016, retirement of the Employee, a Converted Award or replacement of an Award, or in connection with an adjustment pursuant to Section 4.3 or an Acceleration Event, Awards granted to an Employee under the Plan shall be subject to a minimum vesting period of one year. Notwithstanding the foregoing, the Committee may grant Awards without the above-described minimum vesting requirements, or may permit and authorize acceleration of vesting of Awards otherwise subject to the above-described minimum vesting requirements, with respect to Awards covering 5% or fewer of the total number of Shares authorized under the Plan.
ARTICLE V
ELIGIBILITY AND PARTICIPATION
5.1 Eligibility. Individuals eligible to participate in this Plan include all Employees and Directors.
5.2 Actual Participation. Subject to the provisions of the Plan, the Committee may, from time to time, select from all eligible individuals, those to whom Awards shall be granted and shall determine the form and amount of each Award.
5.3 Prior Participation. Notwithstanding any other provision of the Plan to the contrary, all prior service and participation by a Participant with a Predecessor Corporation shall be credited in full towards a Participant’s service and participation with the Company.
ARTICLE VI
STOCK OPTIONS
6.1 Grant of Options. Subject to the terms and provisions of the Plan, Options may be granted to Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee.
ISOs may not be granted following the ten-year (10) anniversary of the date the Plan was last approved by shareholders in a manner that satisfies the shareholder approval requirements applicable to ISOs. ISOs may be granted only to Employees.
6.2 Award Agreement. Each Option grant shall be evidenced by an Award Agreement that shall specify the Option Price, the duration of the Option, the number of Shares to which the Option pertains, the conditions upon which an Option shall become vested and exercisable, and such other provisions as the Committee shall determine which are not inconsistent with the terms of the Plan. The Award Agreement also shall specify whether the Option is intended to be an ISO or an NQSO.
6.3 Option Price. The Option Price for each grant of an Option under this Plan shall be as determined by the Committee; provided, however, the Option Price shall not be less than one hundred percent (100%) of the Fair Market Value of a Share on the date the Option is granted.
6.4 Duration of Options. Each Option granted to a Participant shall expire at such time as the Committee shall determine at the time of grant; provided, however, no Option shall be exercisable later than the tenth (10th) anniversary of its grant.
6.5 Exercise of Options. Options granted under this Article 6 shall be exercisable at such times and be subject to such terms and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant.
6.6 Payment. Options granted under this Article 6 shall be exercised by the delivery of notice of exercise to an agent designated by the Company or by complying with any alternative procedures which may be authorized by the Committee, setting forth the number of Shares with respect to which the Option is to be exercised.
A condition of the issuance of the Shares as to which an Option shall be exercised shall be the payment of the Option Price. The Option may be exercised (and the Option Price may be satisfied) by (a) delivering cash or its equivalent, (b) tendering (either by actual delivery or attestation) previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the Option Price, (c) broker-assisted cashless exercise, (d) net exercise, (e) a combination of the foregoing or (f) by any other method approved by the Committee in its sole discretion. The Committee shall determine acceptable methods for tendering Shares as payment upon exercise of an Option and may impose such limitations and prohibitions on the use of Shares to exercise an Option as it deems appropriate.
Subject to any governing rules or regulations, as soon as practicable after receipt of written notification of exercise and full payment (including satisfaction of any applicable tax withholding), the Company shall deliver to the Participant evidence of book entry Shares, or upon the Participant’s request, Share certificates in an appropriate amount based upon the number of Shares purchased under the Option(s).
Unless otherwise determined by the Committee, all payments under the methods indicated above shall be paid in United States dollars.
6.7 Restrictions on Share Transferability. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Option granted under this Article 6 as it may deem advisable, including, without limitation, restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares.
6.8 Termination of Employment or Service as a Director. The impact of a termination of a Participant’s employment on an Option’s vesting and exercise period shall be determined by the Committee, in its sole discretion, in the Participant’s Award Agreement, and need not be uniform among Option grants or Participants. The impact of a termination on a Participant’s service as a Director on an Option’s vesting and exercise period shall be determined by the Committee, in its sole discretion, in the Participant’s Award Agreement, and need not be uniform among Option grants or Participants.
6.9 Transferability of Options. During his or her lifetime, only the Participant shall have the right to exercise the Options. After the Participant’s death, the Participant’s estate or beneficiary shall have the right to exercise such Options.
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Incentive Stock Options. No ISO granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution.
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Nonqualified Stock Options. Except as otherwise provided in a Participant’s Award Agreement, no NQSO granted under this Article 6 may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Under no circumstances may an NQSO be transferable for value or consideration.
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6.10 Notification of Disqualifying Disposition. If any Participant shall make any disposition of Shares issued pursuant to the exercise of an ISO under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions), such Participant shall notify the Company of such disposition within ten (10) days thereof.
ARTICLE VII
STOCK APPRECIATION RIGHTS
7.1 Grant of SARs. Subject to the terms and conditions of the Plan, SARs may be granted to Participants at any time and from time to time as shall be determined by the Committee. The Committee may grant Freestanding SARs, Tandem SARs, or any combination of these forms of SARs.
Subject to the terms and conditions of the Plan, the Committee shall have complete discretion in determining the number of SARs granted to each Participant and, consistent with the provisions of the Plan, in determining the terms and conditions pertaining to such SARs.
The SAR Grant Price for each grant of a Freestanding SAR shall be determined by the Committee and shall be specified in the Award Agreement. The SAR Grant Price shall not be less than one hundred percent (100%) of the Fair Market Value of a Share on the date the SAR is granted. The Grant Price of Tandem SARs shall be equal to the Option Price of the related Option.
7.2 SAR Agreement. Each SAR Award shall be evidenced by an Award Agreement that shall specify the Grant Price, the term of the SAR, and such other provisions as the Committee shall determine.
7.3 Term of SAR. The term of a SAR granted under the Plan shall be determined by the Committee, in its sole discretion, provided that, no SAR shall be exercisable later than the tenth (10th) anniversary of its grant.
7.4 Exercise of Freestanding SARs. Freestanding SARs may be exercised upon whatever terms and conditions the Committee, in its sole discretion, imposes upon them; provided, however, such terms and conditions shall be subject to Section 7.1 as to grant price and Section 7.3 as to the term of the SAR.
7.5 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part of the Shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then exercisable.
Notwithstanding any other provision of this Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (a) the Tandem SAR will expire no later than the expiration of the underlying ISO; (b) the value of the payout with respect to the Tandem SAR may be for no more than one hundred percent (100%) of the difference between the Option Price of the underlying ISO and the Fair Market Value of the Shares subject to the underlying ISO at the time the Tandem SAR is exercised; and (c) the Tandem SAR may be exercised only when the Fair Market Value of the Shares subject to the ISO exceeds the Option Price of the ISO.
7.6 Payment of SAR Amount. Upon the exercise of a SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying:
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The difference between the Fair Market Value of a Share on the date of exercise over the Grant Price; by
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The number of Shares with respect to which the SAR is exercised.
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At the discretion of the Committee, the payment upon a SAR exercise may be in cash, in Shares of equivalent value, in some combination thereof, or in any other manner approved by the Committee at its sole discretion. The Committee’s determination regarding the form of SAR payout shall be set forth in the Award Agreement pertaining to the grant of the SAR.
7.7 Termination of Employment or Service as a Director. The impact of a termination of a Participant’s employment on a SAR’s vesting and exercise period shall be determined by the Committee, in its sole discretion, in the Participant’s Award Agreement, and need not be uniform among SAR grants or Participants. The impact of a termination on a Participant’s service as a Director on a SAR’s vesting and exercise period shall be determined by the Committee, in its sole discretion, in the Participant’s Award Agreement, and need not be uniform among SAR grants or Participants.
7.8 Nontransferability of SARs. Except as otherwise provided in a Participant’s Award Agreement, no SAR granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Under no circumstances may a SAR be transferable for value or consideration. Further, except as otherwise provided in a Participant’s Award Agreement, all SARs granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant.
7.9 Other Restrictions. The Committee shall impose such other conditions and/or restrictions on any Shares received upon exercise of a SAR granted pursuant to the Plan as it may deem advisable. This includes, but is not limited to, requiring the Participant to hold the Shares received upon exercise of a SAR for a specified period of time.
ARTICLE VIII
RESTRICTED STOCK AND RESTRICTED STOCK UNITS
8.1 Grant of Restricted Stock or Restricted Stock Units. Subject to the terms and conditions of the Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock and/or Restricted Stock Units to Participants in such amounts as the Committee shall determine. Restricted Stock Units shall be similar to Restricted Stock except that no Shares are actually awarded to the Participant on the date of grant.
8.2 Restricted Stock or Restricted Stock Unit Agreement. Each Restricted Stock and/or Restricted Stock Unit grant shall be evidenced by an Award Agreement that shall specify the Period(s) of Restriction, the number of Shares of Restricted Stock or the number of Restricted Stock Units granted, and such other provisions as the Committee shall determine.
8.3 Transferability. Except as provided in this Article 8, the Shares of Restricted Stock and/or Restricted Stock Units granted herein may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable Period of Restriction established by the Committee and specified in the Award Agreement (and in the case of Restricted Stock Units until the date of delivery or other payment), or upon earlier satisfaction of any other conditions, as specified by the Committee, in its sole discretion, and set forth in the Award Agreement.
8.4 Other Restrictions. The Committee shall impose such other conditions and/or restrictions on any Shares of Restricted Stock or Restricted Stock Units granted pursuant to the Plan as it may deem advisable including, without limitation, a requirement that Participants pay a stipulated purchase price for each Share of Restricted Stock or each Restricted Stock Unit, restrictions based upon the achievement of specific performance goals, time-based restrictions on vesting following the attainment of the performance goals, time-based restrictions, and/or restrictions under applicable federal or state securities laws.
To the extent deemed appropriate by the Committee, the Company may retain the certificates representing Shares of Restricted Stock in the Company’s possession until such time as all conditions and/or restrictions applicable to such Shares have been satisfied or lapse.
Except as otherwise provided in this Article 8, Shares of Restricted Stock covered by each Restricted Stock Award shall become freely transferable by the Participant after all conditions and restrictions applicable to such Shares have been satisfied or lapse (including satisfaction of any applicable tax withholding obligations), and Restricted Stock Units shall be paid in cash, Shares, or a combination of cash and Shares as the Committee, in its sole discretion shall determine.
8.5 Voting Rights. To the extent permitted or required by law, as determined by the Committee, Participants holding Shares of Restricted Stock granted hereunder may be granted the right to exercise full voting rights with respect to those Shares during the Period of Restriction. A Participant shall have no voting rights with respect to any Restricted Stock Units granted hereunder.
8.6 Dividends and Other Distributions. During the Period of Restriction, Participants holding Shares of Restricted Stock or Restricted Stock Units granted hereunder may, if the Committee so determines, be credited with dividends paid with respect to the underlying Shares or dividend equivalents while they are so held in a manner determined by the Committee in its sole discretion. The
Committee may apply any restrictions to the dividends or dividend equivalents that the Committee deems appropriate. The Committee, in its sole discretion, may determine the time and form of payment of dividends or dividend equivalents, including cash, Shares, Restricted Stock, or Restricted Stock Units; provided, however, that if dividends or dividend equivalents are granted with respect to any Shares of Restricted Stock or Restricted Share Units that are subject to performance goals, the dividends or dividend equivalents shall be accumulated or reinvested and paid following the time such performance goals are met, as set forth by the Committee in the applicable Award Agreement.
8.7 Termination of Employment or Service as a Director. The impact of a termination of a Participant’s employment on a Restricted Stock or Restricted Stock Unit’s vesting and settlement shall be determined by the Committee, in its sole discretion, in the Participant’s Award Agreement, and need not be uniform among Restricted Stock or Restricted Stock Unit grants or Participants. The impact of a termination of a Participant’s service as a Director on a Restricted Stock or Restricted Stock Unit’s vesting and settlement shall be determined by the Committee, in its sole discretion, in the Participant’s Award Agreement, and need not be uniform among Restricted Stock or Restricted Stock Unit grants or Participants.
8.8 Section 83(b) Election. The Committee may provide in an Award Agreement that the Award of Restricted Stock is conditioned upon the Participant making or refraining from making an election with respect to the Award under Section 83(b) of the Code. If a Participant makes an election pursuant to Section 83(b) of the Code concerning a Restricted Stock Award, the Participant shall be required to file promptly a copy of such election with the Company.
ARTICLE IX
OTHER AWARDS
The Committee may grant Other Awards, which may include, without limitation, unrestricted Shares, the payment of Shares in lieu of cash, the payment of cash based on attainment of Performance Goals, service conditions or other goals established by the Committee and the payment of Shares in lieu of cash under other Company incentive or bonus programs. Payment under or settlement of any such Other Awards shall be made in such manner, at such times and subject to such terms and conditions as the Committee may determine.
ARTICLE X
PERFORMANCE MEASURES
The performance goals applicable to an Award may be based on one or more performance measures selected by the Committee in its sole discretion. As the Committee may deem appropriate, performance measure(s) may relate to the performance of the Company or an Affiliate as a whole, any business unit of the Company or an Affiliate or any combination thereof, and performance may be measured in absolute terms or as compared to the performance of one or more other companies or an index (including a stock market index). The Committee also has the authority to provide for accelerated vesting of any Award based on the achievement of performance goals. Awards that are intended to qualify as Performance-Based Compensation, and that are held by Covered Employees, may not be adjusted upward. The Committee shall retain the discretion to adjust such Awards downward.
ARTICLE XI
RIGHTS OF PARTICIPANTS
11.1 Employment. Nothing in the Plan or an Award Agreement shall interfere with or limit in any way the right of the Company and/or its Affiliates to terminate any Participant’s employment or of the Board of Directors to terminate service as a Director at any time or for any reason not prohibited by law, nor confer upon any Participant any right to continue his or her employment or service as a Director for any specified period of time.
Neither an Award nor any benefits arising under this Plan shall constitute an employment contract with the Company and, accordingly, subject to Article 3 and Section 13.1, this Plan and the benefits hereunder may be terminated at any time in the sole and exclusive discretion of the Committee without giving rise to any liability on the part of the Company, its Affiliates, and/or its Subsidiaries.
11.2 Participation. No individual shall have the right to be selected to receive an Award under this Plan, or, having been so selected, to be selected to receive a future Award.
11.3 Rights as a Shareholder. Except as otherwise provided in Article 8 of the Plan or in an Award Agreement, a Participant shall have none of the rights of a shareholder with respect to Shares covered by any Award until the Participant becomes the record holder of such Shares.
ARTICLE XII
ACCELERATION EVENT
The Compensation Committee shall specify in each Participant’s Award Agreement the treatment of outstanding Awards upon an Acceleration Event; provided that any Converted Award will continue to apply the definition of “change in control” or “acceleration event” as provided in the Predecessor Plan under which such Converted Award was originally granted. Notwithstanding anything in the Plan to the contrary, no award agreement shall provide for an acceleration of (i) vesting or (ii) distribution or payout of an Award unless there is both an Acceleration Event (or “change in control” or “acceleration event” in the case of Converted Awards) and a qualifying termination of employment or service.
ARTICLE XIII
AMENDMENT, MODIFICATION, SUSPENSION, AND TERMINATION
13.1 Amendment, Modification, Suspension, and Termination. Subject to Sections 3.2, 4.3 and 13.3, the Committee may, at any time and from time to time, alter, amend, modify, suspend, or terminate the Plan and any Award Agreement in whole or in part; provided, however, that, except for a change or adjustment made pursuant to Section 4.3, no Option Price of an outstanding Option or Grant Price of an outstanding SAR shall be reduced (whether through amendment, cancellation or replacement of Awards with other Awards or other payments of cash or property) without shareholder approval.
13.2 Adjustment of Awards Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee may make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4.3 hereof) affecting the Company or the financial statements of the Company or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent unintended dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. The determination of the Committee as to the foregoing adjustments, if any, shall be conclusive and binding on Participants under the Plan.
13.3 Awards Previously Granted. Notwithstanding any other provision of the Plan to the contrary, no termination, amendment, suspension, or modification of the Plan or an Award Agreement shall adversely affect in any material way any Award previously granted under the Plan, without the written consent of the Participant holding such Award, unless otherwise required by law.
ARTICLE XIV
WITHHOLDING
14.1 Tax Withholding. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, the minimum statutory amount to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this Plan.
14.2 Share Withholding. With respect to withholding required upon the exercise of Options, or SARs, upon the lapse of restrictions on Restricted Stock and Restricted Stock Units, or any other taxable event arising as a result of Awards granted hereunder, Participants may elect, subject to the approval of the Committee, to satisfy the withholding requirement, in whole or in part, by having the Company withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax that could be imposed on the transaction. All such elections shall be irrevocable, made in writing, and signed by the Participant, and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate.
ARTICLE XV
SUCCESSORS
All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
ARTICLE XVI
GENERAL PROVISIONS
16.1 Forfeiture Events. The Committee may specify in an Award Agreement that the Participant’s rights, payments, and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture, or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events shall include, but shall not be limited to, termination of employment for cause, violation of material Company and/or Affiliate policies, breach of noncompetition, confidentiality, or other restrictive covenants that may apply to the Participant, or other conduct by the Participant that is detrimental to the business or reputation of the Company and/or its Affiliates.
16.2 Legend. The certificates for Shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer of such Shares.
16.3 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular, and the singular shall include the plural.
16.4 Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
16.5 Requirements of Law. The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required.
16.6 Securities Law Compliance. With respect to Insiders, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successor under the Exchange Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee.
16.7 Registration and Listing. The Company may use reasonable endeavors to register Shares allotted pursuant to the exercise of an Award with the United States Securities and Exchange Commission or to effect compliance with the registration, qualification, and listing requirements of any national securities laws, stock exchange, or automated quotation system.
16.8 Delivery of Title. The Company shall have no obligation to issue or deliver evidence of title for Shares issued under the Plan prior to:
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Obtaining any approvals from governmental agencies that the Company determines are necessary or advisable; and
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Completion of any registration or other qualification of the Shares under any applicable national or foreign law or ruling of any governmental body that the Company determines to be necessary or advisable.
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16.9 Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.
16.10 Employees or Directors Based Outside of the United States. Notwithstanding any provision of the Plan to the contrary, in order to comply with the laws in other countries in which the Company and its Affiliates operate or have Employees or Directors, the Committee, in its sole discretion, shall have the power and authority to:
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Determine which Affiliates shall be covered by the Plan;
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Determine which Employees and/or Directors outside the United States are eligible to participate in the Plan;
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Modify the administrative terms and conditions of any Award granted to Employees and/or Directors outside the United States to comply with applicable foreign laws;
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Establish subplans and modify exercise procedures and other terms and procedures, to the extent such actions may be necessary or advisable. Any subplans and modifications to Plan terms and procedures established under this Section 16.10 by the Committee shall be attached to this Plan document as appendices; and
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Take any action, before or after an Award is made, that it deems advisable to obtain approval or comply with any necessary local government regulatory exemptions or approvals.
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Notwithstanding the above, the Committee may not take any actions hereunder, and no Awards shall be granted, that would violate the Exchange Act, the Code, any securities law, or governing statute or any other applicable law.
16.11 Uncertificated Shares. To the extent that the Plan provides for issuance of certificates to reflect the transfer of Shares, the transfer of such Shares may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the rules of any stock exchange.
16.12 Unfunded Plan. Participants shall have no right, title, or interest whatsoever in or to any investments that the Company may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any Participant, beneficiary, legal representative, or any other person. To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. The Plan is not subject to ERISA.
16.13 No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award. The Committee shall determine whether cash, Awards, or other property shall be issued or paid in lieu of fractional Shares or whether such fractional Shares or any rights thereto shall be forfeited or otherwise eliminated.
16.14 Retirement and Welfare Plans. The value of compensation paid under this Plan will not be included as “compensation” for purposes of computing the benefits payable to any participant under the Company’s retirement plans (both qualified and non-qualified) or welfare benefit plans unless such other plan expressly provides that such compensation shall be taken into account in computing a participant’s benefit.
16.15 Governing Law. The Plan and each Award Agreement shall be governed by the laws of the State of New York, excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of the Plan to the substantive law of another jurisdiction. Unless otherwise provided in the Award Agreement, recipients of an Award under the Plan are deemed to submit to the exclusive jurisdiction and venue of the federal or state courts of New York, to resolve any and all issues that may arise out of or relate to the Plan or any related Award Agreement.
16.16 Clawback, Repayment or Recapture Policy. Notwithstanding anything to the contrary, to the extent allowed under applicable law or regulatory filings, unless otherwise determined by the Committee, all Awards granted under the Plan, and any related payments made under the Plan, shall be subject to the requirements of any applicable clawback, repayment or recapture policy implemented by the Company, including any such policy adopted to comply with applicable law (including without limitation the Dodd-Frank Wall Street Report and Consumer Protection Act) or securities exchange listing standards and any rules or regulations promulgated thereunder, to the extent set forth in such policy and/or in any notice or agreement relating to an Award or payment under the Plan.