As discussed in more detail below at Equity Compensation (following the Grants of
Plan-Based Awards table), depending on our relative TSR over the performance period, the executive officers may earn from 0% of the number of target performance shares if the relative TSR performance is not at least equal to the 20th
percentile of the peer group to 150% of the number of target performance shares if relative TSR performance equals or exceeds the 80th percentile of the peer group, based on the sliding scale shown in that discussion.
Performance shares earned are distributed at the end of the three-year performance period. Under the award agreements, a portion of the granted performance
shares also vest and become deliverable upon the death or disability of a recipient or upon a change of control of ADTRAN, as discussed in more detail below under the heading Potential Payments Upon Termination or Change of Control. The
recipients of the performance shares under the award agreements receive dividend credits based on the shares of common stock underlying the performance shares. The dividend credits are paid in cash upon vesting of those shares under the applicable
awards.
The 2015 grant of performance shares vested in November 2018, and the Compensation Committee certified at that time that the TSR relative to its
peer group over the performance period was 31.4%. As a result, as indicated in the table below at Equity Compensation (following the Grants of Plan-Based Awards table), the recipients earned 53.64% of the performance shares
originally granted and payment, in cash, of the dividend credits accrued on such earned performance shares.
Overlay Performance Share CAGR Awards
(Three-Year Award Program)
In January 2017, as part of its actions to bring executive compensation into the median range of its competitors, the
Compensation Committee established an incentive program aligned with the Companys long-term strategic plan, which provided for executive officers of the Company a performance share grant under our 2015 Employee Stock Incentive Plan (the
Overlay Plan). Under the Overlay Plan program, the performance shares are earned only at the end of the three-year performance period ending December 31, 2019, if the Compound Annual Growth Rate (CAGR) of the
Companys Adjusted EBIT (defined as the Companys earnings before interest and tax, determined based on the Companys audited financial results, and adjusted to remove any restructuring expenses, stock-based compensation and
acquisition-related expenses, amortization and adjustments) is at least 21.84%. If the CAGR of Adjusted EBIT over the three-year performance period is at least 21.84%, but less than 25%, the recipients will receive 100% of the awarded performance
shares; if the CAGR of Adjusted EBIT is at least 25%, but less than 27.8%, the executives will receive 121.4% of the awarded performance shares; if the CAGR of Adjusted EBIT is 27.8% or more, then the recipients will receive 142.9% of the awarded
performance shares. The Compensation Committee determined that, if the performance measures set for the Overlay Plan performance share grants were met, the Company would have provided significant value to its stockholders, thereby aligning the
executives performance with stockholder return. In determining to use the CAGR of Adjusted EBIT, the Compensation Committee selected a challenging performance metric that it believes is closely aligned with an increase in the equity price of
the Company, and therefore in an increase in TSR. Because of the programs designusing the compound annual growth rate of adjusted EBIT as the measurestockholders may experience an increase in value sooner than officers receive
compensation and stockholders indeed may experience increases in value even if the executives receive no compensation because, at the end of the three-year measurement period, the CAGR has not reached the minimum threshold of 21.84%. After two
years, the CAGR of the Companys Adjusted EBIT was
(-9.4%).
To date, the Company has not recorded any compensation expense with respect to this program and does not anticipate making any payments pursuant
to the Overlay Plan.
Employment Agreements
Mr. Scheiterer is employed pursuant to a Secondment Agreement with ADTRAN, Inc., dated January 1, 2016. The Secondment Agreement contemplates that
Mr. Scheiterers secondment from ADTRAN GmbH will last until December 31, 2019. During this time, his employment agreement with ADTRAN GmbH is suspended. If and when his secondment terminates, his employment agreement with ADTRAN GmbH
will reactivate; however, if Mr. Scheiterer remains in the U.S. after five years, he will convert to a localized, ADTRAN, Inc. employee and both the Secondment Agreement and his employment agreement with ADTRAN GmbH will terminate.
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