EXHIBIT 10.6
MERCURY COMPUTER SYSTEMS,
INC.
ANNUAL EXECUTIVE BONUS
PLAN—CORPORATE FINANCIAL PERFORMANCE
SECTION 1
BACKGROUND, PURPOSE, AND
DURATION
1.1 Effective Date . The
Plan is effective as of July 28, 2009, subject to ratification
by an affirmative vote of a majority of the Shares cast on the
matter at the 2009 Annual Meeting of Shareholders of the
Company.
1.2 Purpose of the Plan
. The Plan is intended to increase shareholder value and the
success of the Company by motivating Participants to
(a) perform to the best of their abilities, and
(b) achieve the Company’s financial objectives. The
Plan’s goals are to be achieved by providing Participants
with the opportunity to earn incentive awards for the annual
achievement and over-achievement of goals relating to the financial
performance of the Company. The Plan is intended to permit the
payment of bonuses that qualify as performance-based compensation
under Section 162(m) of the Code.
SECTION 2
DEFINITIONS
The following words and phrases
shall have the following meanings unless a different meaning is
plainly required by the context:
“ Actual Bonus ”
means, as to any Performance Period, the actual annual bonus (if
any) payable to a Participant for the Performance Period pursuant
to Section 4.3(a). Each Actual Bonus is determined by the
Payout Formula for the Performance Period, subject to the
Committee’s authority under Section 3.5 to eliminate or
reduce the bonus otherwise determined by the Payout
Formula.
“ Affiliate ”
means any corporation or other entity controlled by the
Company.
“ Banked Portion
” means a percentage of each Over-Achievement Award to be
determined by the Committee prior to the Determination Date. The
Banked Portion shall be paid on a delayed, multi-year basis
following the Performance Period during which such portion was
earned as provided in Section 4.3(b).
“ Board ” means
the Board of Directors of the Company.
“ Cash Position ”
means the Company’s level of cash and cash equivalents as of
a specified date, determined in accordance with generally accepted
accounting principles.
“ Cause ” means
(a) the willful and continued failure by the Participant
(other than any such failure resulting from (i) the
Participant’s incapacity due to physical or mental illness,
(ii) any such actual or anticipated failure after the issuance
of a notice of termination by the Participant for Good Reason, or
(iii) the Company’s active or passive obstruction of the
performance of the Participant’s duties and responsibilities)
to perform substantially the duties and responsibilities of the
Participant’s position with the Company after a written
demand for substantial performance is delivered to the Participant
by the Board, which demand specifically identifies the manner in
which the Board believes that the Participant has not substantially
performed such duties or responsibilities, (b) the conviction
of the Participant by a court of competent jurisdiction for felony
criminal conduct or a plea of nolo contendere to a felony,
or (c) the willful engaging by the Participant in fraud,
dishonesty, or other misconduct which is demonstrably and
materially injurious to the Company or its reputation, monetarily
or otherwise. No act, or failure to act, on the Participant’s
part shall be deemed “willful” unless committed or
omitted by the Participant in bad faith and without a reasonable
belief that the Participant’s act or failure to act was in,
or not opposed to, the best interest of the Company.
1
“ Code ” means
the Internal Revenue Code of 1986, as amended. Reference to a
specific section of the Code or regulation thereunder shall include
such section or regulation, any valid regulation promulgated
thereunder, and any comparable provision of any future legislation
or regulation amending, supplementing or superseding such section
or regulation.
“ Committee ”
means the Compensation Committee of the Board or any successor
committee to the Compensation Committee.
“ Company ” means
Mercury Computer Systems, Inc., a Massachusetts corporation, or any
successor thereto.
“ Controllable Profits
” means, as to any Performance Period, a business
unit’s Revenue minus one or more of the following to the
extent deemed appropriate by the Committee prior to the
Determination Date: (a) cost of sales; (b) research,
development, and engineering expense; (c) marketing and sales
expense; (d) general and administrative expense;
(e) extended receivables expense; and (f) shipping
requirement deviation expense for such business unit, in each case
determined in accordance with generally accepted accounting
principles.
“ Current Portion
” means a percentage of each Over-Achievement Award to be
determined by the Committee prior to the Determination Date. The
Current Portion shall be paid on a current basis following the
Performance Period during which such portion was earned in
accordance with Section 4.3(b).
“ Days Sales
Outstanding ” means, as to any Performance Period, the
average number of days that the Company or a business unit takes to
collect revenue after a sale has been made, determined in
accordance with generally accepted accounting principles, provided,
however, that prior to the Determination Date, the Committee shall
determine whether any items shall be excluded or included from such
calculation with respect to one or more Participants.
“ Determination Date
” means the 90 th day of a Performance Period.
“ Disability ”
means total and permanent disability as defined in
Section 22(e)(3) of the Code, provided that the Committee, in
its sole discretion, may determine whether a permanent and total
disability exists in accordance with uniform and non-discriminatory
standards adopted by the Company from time to time.
“ Earnings Per Share
” means, as to any Performance Period, the Company’s
Net Income, divided by a weighted average number of the combination
of (a) common shares outstanding, and (b) dilutive common
equivalent shares deemed outstanding, determined in accordance with
generally accepted accounting principles, provided, however, that
prior to the Determination Date, the Committee shall determine
whether any items shall be excluded or included from such
calculation with respect to one or more Participants.
“ EBITDA ” means,
as to any Performance Period, the Company’s or a business
unit’s earnings before interest, taxes, depreciation, and
amortization determined in accordance with generally accepted
accounting principles, provided, however, that prior to the
Determination Date, the Committee shall determine whether any items
shall be excluded or included from such calculation with respect to
one or more Participants.
“ Employee ”
means any employee of the Company or an Affiliate, whether such
employee is so employed at the time that the Plan is adopted or
becomes so employed subsequent to the adoption of the
Plan.
“ Fiscal Year ”
means the fiscal year of the Company.
“ Free Cash Flow
” means, as to any Performance Period, the Company’s or
a business unit’s operating cash flows less capital
expenditures determined in accordance with generally accepted
accounting principles, provided, however, that prior to the
Determination Date, the Committee shall determine whether any items
shall be excluded or included from such calculation with respect to
one or more Participants.
2
“ Good Reason ”
for termination by the Participant of the Participant’s
employment means the Participant has complied with the Good Reason
Process following the occurrence (without the Participant’s
express written consent) of any one of the following
events:
a. a material adverse change in the
Participant’s status or position with the Company, including
without limitation any adverse change in the Participant’s
status or position as a result of a material diminution of the
Participant’s duties or responsibilities, or the assignment
to the Participant of any duties or responsibilities which are
inconsistent with such status or position, or any removal of the
Participant from, or any failure to reappoint or reelect the
Participant to, such position;
b. a material reduction in the
Participant’s base salary; or
c. the Company requiring the
Participant to be based at an office that is greater than fifty
(50) miles from where the Participant’s office is
currently located, except for required travel on the
Company’s business to an extent substantially consistent with
the business travel obligations that the Participant undertook on
behalf of the Company prior to such change in office
location.
If the Participant has a
change-in-control agreement with the Company, Good Reason shall
have the meaning assigned to such term in the change-in-control
agreement.
“ Good Reason Process
” shall mean that (a) the Participant reasonably
determines in good faith that a “Good Reason” event has
occurred; (b) the Participant notifies the Company in writing
of the first occurrence of the Good Reason event within sixty
(60) days of the first occurrence of such event; (c) the
Participant cooperates in good faith with the Company’s
efforts, for a period not less than thirty (30) days following
such notice (the “Cure Period”), to remedy the event;
(d) notwithstanding such efforts, the Good Reason event
continues to exist; and (e) the Participant terminates his or
her employment within sixty (60) days after the end of the
Cure Period. If the Company cures the Good Reason event during the
Cure Period, Good Reason shall be deemed not to have
occurred.
“ Inventory Reduction
” means, as to any Performance Period, the reduction to the
Company’s or a business unit’s inventory during the
Performance Period, determined in accordance with generally
accepted accounting principles, provided, however, that prior to
the Determination Date, the Committee shall determine whether any
significant items shall be included or excluded from such
calculation with respect to one or more Participants.
“ Net Income ”
means, as to any Performance Period, the income after taxes of the
Company or a business unit for the Performance Period determined in
accordance with generally accepted accounting principles, provided,
however, that prior to the Determination Date, the Committee shall
determine whether any significant items shall be included or
excluded from such calculation with respect to one or more
Participants.
“ New Orders ”
means, as to any Performance Period, the firm orders for a system,
product, part, or service, which are being recorded for the first
time as defined in the Company’s order-recognition policies
and procedures.
“ Operating Cash Flow
” means the Company’s or a business unit’s sum of
Net Income, plus depreciation and amortization, less capital
expenditures, plus changes in working capital comprised of accounts
receivable, inventories, other current assets, trade accounts
payable, accrued expenses, product-warranty costs, advance payments
from customers, and long-term accrued expenses, determined in
accordance with generally accepted accounting principles, provided,
however, that prior to the Determination Date, the Committee shall
determine whether any items shall be excluded or included from such
calculation with respect to one or more Participants.
“ Operating Income
” means the Company’s or a business unit’s income
from operations, determined in accordance with generally accepted
accounting principles, provided, however, that prior to the
Determination Date, the Committee shall determine whether any items
shall be excluded or included from such calculation with respect to
one or more Participants.
3
“ Over-Achievement
Award ” means for any Participant, an amount equal to the
result of (a) the Participant’s Target Over-Achievement
Award multiplied by (b) the Over-Achievement Award Pool
established for a Performance Period. Notwithstanding the foregoing
sentence, each Over-Achievement Award is subject to a cap of
one-hundred percent (100%) of the sum of (x) the
Participant’s Target Bonus under this Plan (i.e., the
corporate performance bonus) plus (y) the Participant’s
target bonus for management-by-results performance (i.e., the MBR
bonus) under the Company’s plan titled “Annual
Executive Bonus Plan—Individual Performance” (the
“ Individual Performance Plan ”). Each
Over-Achievement Award shall consist of a Current Portion and a
Banked Portion.
An example of the calculation of a
Participant’s Over-Achievement Award is as follows. Assume
that the Participant’s Target Over-Achievement Award is 6.67%
of the Over-Achievement Award Pool and that the Over-Achievement
Award Pool is $1,500,000. Further assume that the
Participant’s Target Bonus under this Plan is $75,000 and the
Participant’s target bonus under the Individual Performance
Plan is $25,000 for a total target bonus of $100,000. The
Over-Achievement Award would be calculated as follows:
(a) 6.67% multiplied by (b) $1,500,000 equals $100,500.
In this example, the Participant’s Over-Achievement Award is
$100,000 since the calculated Over-Achievement Award ($100,500)
exceeds the cap ($100,000) by $500.
“ Over-Achievement Award
Pool ” means the incentive pool established pursuant to
Section 3.4.
“ Participant ”
means, as to any Performance Period, an Employee who has been
approved by the Committee for participation in the Plan for that
Performance Period.
“ Payout Formula
” means, as to any Performance Period, the formula or payout
matrix established by the Committee in order to determine the
Actual Bonuses (if any) to be paid to Participants. The formula or
matrix may differ from Participant to Participant. The formula or
matrix may contain adjustments to account for acquisitions during
the Performance Period, provided that such adjustments shall be set
forth in writing in a manner that would enable a third-party having
knowledge of the relevant facts to apply such adjustments to
calculate the payout of any Participant.
“ Performance Goals
” means the goals (or combined goals) approved by the
Committee to be applicable to a Participant for a Target Bonus for
a Performance Period. As approved by the Committee, the Performance
Goals for any Target Bonus applicable to a Participant may provide
for a targeted level or levels of achievement using one or more of
the following measures: (a) Cash Position;
(b) Controllable Profits; (c) Days Sales Outstanding;
(d) Earnings Per Share; (e) EBITDA; (f) Free Cash
Flow; (g) Inventory Reduction; (h) Net Income;
(i) New Orders; (j) Operating Cash Flow;
(k) Operating Income; (l) Return on Assets;
(m) Return on Equity; (n) Return on Sales;
(o) Revenue; and (p) Total Shareholder Return.
Performance Goals may differ from Participant to Participant, from
Performance Period to Performance Period, and from bonus to bonus.
Any criteria used may be measured, as applicable, (a) in
absolute terms, (b) in relative terms (including without
limitation by the passage of time and/or against anothe
