MERCURY SYSTEMS INC appointed William L. Ballhaus as new CEO

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.


On August 15, 2023, the Company announced that William L. Ballhaus has been appointed as the Company's President and Chief Executive Officer. Mr. Ballhaus, age 56, joined the Company's Board of Directors as a non-employee director in June 2022, was appointed interim President and Chief Executive Officer on June 24, 2023, and was appointed President and CEO effective August 15, 2023. As previously announced, Mr. Ballhaus will become the Company's Chairman of the Board effective with the 2023 annual meeting of shareholders. Mr. Ballhaus has significant experience in the aerospace, defense, and technology industries, including multiple CEO roles, as well as experience in operational transformations and delivering strong results. He previously served as Chairman and CEO of Blackboard, Inc., a leading EdTech company, from 2016 until its merger with Anthology in 2021. Prior to that, he served as CEO and President of SRA International, Inc., a provider of information technology services, from 2011 until the creation of CSRA Inc. from SRA International Inc.'s and CSC's U.S. public sector business. Before that, Mr. Ballhaus served as CEO and President of government contractor DynCorp International from 2008 to 2010. Mr. Ballhaus has also held senior leadership positions at BAE Systems, Boeing, and Hughes, where he led global government and commercial technology businesses particularly focused on software and IT. 


There are no family relationships between Mr. Ballhaus and any director or executive officer of the Company, and he has no direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.


The Company and Mr. Ballhaus are parties to an employment agreement (the "Agreement"), a copy of which is filed as exhibit 10.1 hereto. The Agreement has an initial employment term of four years, with 12-month renewal terms. Mr. Ballhaus' principal office location will be the Company's Arlington, VA office. Pursuant to the Agreement, Mr. Ballhaus' annual compensation for fiscal 2024 will consist of a base salary of $950,000 (retroactive to July 1, 2023) and a target bonus opportunity under the Company's annual incentive plan of 150% of base salary, as well as $5,750,000 in grants of long-term incentive ("LTI") awards under the Company's 2018 Stock Incentive Plan (the "2018 Plan") to be granted on August 17, 2023. Approximately 60% of the LTI awards (valued at $3,400,000) will be in the form of performance shares that cliff vest after three years and are contingent upon the Company's financial and shareholder return performance during the three fiscal years ended 2026. The remaining 40% of the LTI awards (valued at $2,350,000) will be in the form of time-based restricted shares that vest ratably over three years in equal annual increments. 


Mr. Ballhaus will also receive an onboarding grant of premium-priced stock options (the "New Hire Stock Options") under the 2018 Plan in four tranches with the following terms:


Tranche Option Shares Per Share Exercise Price Cliff Vesting Date Termination Date 

1 233,500 $ 42.00 8/17/26 8/17/27 

2 233,500 $ 43.00 8/17/26 8/17/27 

3 233,500 $ 46.00 8/17/27 8/17/28 

4 233,500 $ 49.00 8/17/27 8/17/28 


In the event that the per share exercise price for any of these tranches is less than 110% of the per share closing price of the Company's common stock on the August 17, 2023 grant date, then the exercise price of such tranche will be increased to 110% of such closing price.


In addition to these awards, subject to Mr. Ballhaus' agreement to purchase at least $1,500,000 million in Mercury common stock on the open market between the execution of the Agreement and December 15, and to maintain his existing ownership in Mercury common stock (including these additional purchased shares) though August 17, 2026, Mr. Ballhaus will receive a matching award of $3,000,000 in time-based restricted shares under the 2018 Plan that cliff vest three years after the August 17, 2023 grant date (the "New Hire Matching Award").


The number of shares to be granted to Mr. Ballhaus in respect of the time-based and performance awards described above will be determined by dividing their respective dollar values by the average closing price of the Company's common stock during the 30 calendar days prior to the August 17, 2023 grant date. 


If Mr. Ballhaus' employment is terminated by the Company without cause, by Mr. Ballhaus for good reason, or the Company elects not to renew the term of the Agreement (each, a "Qualified Termination"), then he will receive: (i) 24 months base salary continuation; (ii) a lump sum payment of 2x target bonus; (iii) a pro-rated payout of his in-flight bonus reflecting the portion of the fiscal year completed as of the termination date, subject to full-year company performance and assuming target performance of any qualitative measures applicable solely to the CEO; (iv) pro-rated vesting of time-based long-term incentive awards (including the New Hire Stock Options) reflecting vesting that would have occurred during his base salary continuation period referenced above; (v) pro-rated vesting of performance-based long-term incentive awards reflecting the portion of the vesting period completed as of the termination date, subject to actual performance over the full performance period for purposes of calculating award payouts, if any; (vi) subject to Mr. Ballhaus' satisfaction of the stock purchase and holding requirements through the date of his Qualified Termination, full vesting of the New Hire Matching Award; and (vii) healthcare continuation at active employee rates for up to 24 months (or if applicable, the shorter period prior to like benefits eligibility from another employer), subject to the Company's ability to make a lump sum cash payment following the first 18 months of coverage equal to the healthcare premiums that the Company would have paid during the remaining six months if Mr. Ballhaus had remained an active employee. 


Notwithstanding the foregoing, if Mr. Ballhaus experiences a Qualified Termination in connection with a change in control of the Company, then in lieu of the benefits described he will receive: (i) a lump sum payment equal to 3x base salary and 3x target bonus; (ii) a pro-rated payout of his in-flight bonus reflecting the portion of the fiscal year completed as of the termination date, with performance requirements credited at the greater of target or actual achievements to date; (iii) accelerated vesting of all long term incentive awards, with performance requirements credited at the greater of target or actual achievements to date; and (iv) healthcare continuation at active employee rates for up to 24-months (or if applicable, the shorter period prior to like benefits eligibility from another employer), subject to the Company's ability to make a lump sum cash payment 


following the first 18 months of coverage equal to the healthcare premiums the Company would have paid during the remaining six months if Mr. Ballhaus had remained an active employee. 


In the event Mr. Ballhaus' employment is terminated due to death or disability, he will receive accelerated vesting of 100% of his long-term incentive awards, subject to actual performance for purposes of calculating the extent of performance-based award payouts. Any New Hire Stock Options so accelerated will remain exercisable for up to 24 months following termination (or up to the termination date of such stock options, if shorter).


During his employment, Mr. Ballhaus will participate in the Company's healthcare, disability, and other benefits plans and retirement programs on the same basis as all other executives. Mr. Ballhaus will also be provided with a $12,000 annual allowance for personal tax and financial planning services on the same terms as are provided to all other executives. 


The foregoing description does not purport to be complete and is qualified in its entirety by reference to the Agreement, a copy of which is attached hereto as exhibit 10.1 and which is incorporated herein by reference.