Exhibit 10.7

 

CUBIC CORPORATION

 

MANAGEMENT INCENTIVE BONUS PLAN

 

This Incentive Bonus Plan (the “Plan”) is intended to provide an additional
incentive for management employees of Cubic Corporation and its subsidiaries
(collectively, the “Company”), to perform to the best of their abilities, to
further the growth, development and financial success of the Company, and to
enable the Company to attract and retain highly qualified employees.  The Plan
is for the benefit of the Participants (as defined below).

 

The Compensation Committee (the “Committee”) of the Board of Directors of the
Company (the “Board”) has adopted the Plan, effective October 27, 2014.

 

1.                                      Participants.  Participation in the Plan
shall be limited to such employees of the Company and its subsidiaries whom the
Committee from time to time determines shall be eligible to receive a bonus
award (a “Bonus”) hereunder (the “Participants”).

 

2.                                      Administration.  The Plan shall be
administered by the Committee.  The Committee shall have the discretion and
authority to administer and interpret the Plan, including the authority to
establish bonus programs or guidelines under the Plan (the “Bonus Guidelines”)
from time to time containing such terms and conditions as the Committee may
determine or deem appropriate in its discretion, including, without limitation,
terms and conditions relating to the administration of the Plan and/or the
determination and payment of Bonuses hereunder.

 

The Committee may modify, suspend, terminate or supersede the Bonus Guidelines
at any time in its sole discretion.  Any and all Bonus Guidelines adopted by the
Committee shall be subject to the terms and conditions of the Plan.  Any
disputes under the Plan shall be resolved by the Committee or its designee,
whose decision will be final.

 

3.                                      Performance Goals.  The Plan is intended
to provide incentives for the achievement of approved annual corporate, business
unit and/or individual objectives (the “Performance Goals”), as determined by
the Committee with respect to each fiscal year during the term of the Plan (each
an “Incentive Plan Year”).

 

(a)                                 Corporate Performance Goals.  At the
beginning of each Incentive Plan Year, the Committee shall select such objective
corporate Performance Goals as the Committee may determine in its sole
discretion, which may include, without limitation, one or more of the following
criteria:  net earnings (either before or after one or more of the following:
interest, taxes, depreciation, amortization, and goodwill or other impairment
charges, “EBITDA”); gross or net sales or revenue; net income (either before or
after taxes); adjusted net income; net operating income, operating earnings;
cash flow (including, but not limited to, operating cash flow and free cash
flow); return on net or gross assets; return on capital; return on shareholders’
equity; total stockholder return; return on sales; gross or net profit or
operating margin; costs; acquisitions or new investments; leverage level;
expenses; working capital; earnings per share; adjusted earnings per share;
funds from operations per share; price per share of the Company’s common stock;
implementation or completion of critical projects; comparisons with various

 

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stock market indices; debt reduction; shareholder equity; operating efficiency;
financial ratios; and financing and other capital raising transactions.  It is
intended that the corporate objectives be objectively determinable, with the
weighting of the various corporate Performance Goals to be approved by the
Committee.

 

(b)                                 Business Unit Goals.  Each year corporate
and business unit management will establish a set of Performance Goals for
recommendation to the Committee, applicable to each specific business unit,
which may consider, in addition to any of the applicable goals set forth in the
Corporate Performance Goals: corporate financial objectives, business unit past
experience, the business units current business plan, any specific business
emphasis appropriate at the time for the subject business unit for the year
under consideration, and future business potential.  A portion of the award may
be discretionary, as determined by the Committee.

 

(c)                                  Individual Performance Goals.  A portion of
each Participant’s Bonus may be determined in the sole discretion of the
Committee based on individual performance and the consideration of such other
factors as the Committee determines to be appropriate.  If individual
Performance Goals are to be established for an Incentive Plan Year, each
Participant in the Plan will work with his or her direct manager and/or other
appropriate manager to develop a list of key individual Performance Goals.  If
appropriate, the Chief Executive Officer of the Company will work with the
Committee to develop his individual Performance Goals.

 

A Performance Goal may be a single goal or a range with a minimum goal up to a
maximum goal.  Unless otherwise determined by the Committee, the amount of each
Participant’s Bonus shall be based upon a bonus formula determined by the
Committee in its sole discretion that ties such Bonus to the attainment of the
applicable Performance Goals.  The Committee may in its sole discretion modify
or change the bonus formulas and/or Performance Goals at any time and from time
to time during or upon completion of an Incentive Plan Year.

 

4.                                      Target Bonuses.  Each Participant will
be assigned a “Target Bonus Percentage” based on his or her job classification
and responsibilities.  If a Participant moves from one Target Bonus Percentage
level to another during an Incentive Plan Year, his or her Target Bonus
Percentage will be prorated for time spent in positions with different Target
Bonus Percentages during the Incentive Plan Year.

 

A “Target Bonus” for each Participant will be determined by multiplying his or
her Target Bonus Percentage by his or her Base Salary (as defined below) for the
relevant Incentive Plan Year.  For purposes of this Plan, “Base Salary” shall
mean the actual salary paid to a Participant, including salary paid during
vacation and accumulated time off, during the Incentive Plan Year.

 

The Target Bonus Percentages for each Participant shall be approved by the
Committee for each Incentive Plan Year.  A Participant’s maximum Bonus under the
Plan shall not exceed 195% of his or her Target Bonus.

 

Effective for fiscal year 2015, and unless and until changed by the Committee,
in its sole discretion, the Target Bonus Percentages for the executive officers
of the Company for purposes of this Plan shall be as follows:

 

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Position

 

Target Bonus Percentage
(as % of Base Salary)

 

 

 

Chief Executive Officer

 

100

Chief Operating Officer

 

50

Chief Financial Officer

 

50

Other Key Corporate Officers

 

50

Business Unit Presidents

 

50

Senior Business Unit Officers

 

50

Other Key Personnel

 

25-40%

 

5.                                      Sliding Scale.  With respect to the
corporate and business unit Performance Goals, a sliding scale of award
determination will be used so that the incentive earned will decrease from 100%
based on performance of less than 100% of the Performance Goal with the
opportunity to earn  up to 150% of the target award should actual performance
exceed 100% of the Performance Goal.

 

In the example of the Performance Goals being sales, EBITDA, return on net
assets and earnings per share; for all components except for sales, between 100%
and 120% of the financial goal, the percent earned will increase at a rate of
2.5% for every 1% improvement in financial performance, with a maximum of 150%
of the target award. For the sales goal, between 100% and 110% of the financial
goal, the percent earned will increase at a rate of 5% for every 1% improvement
in financial performance, with a maximum of 150% of the target award. For all
goals, between 100% and 90% of the financial goal, the percent earned will
decrease at a rate of 3% of the target award for every 1% point shortfall in
financial performance. Between 90% and 80% of the financial goal, the percent
earned will decrease at a rate of 4.5% of the target award for every 1% point
shortfall in financial performance. Between 80% and 75% of the financial goal,
the percent earned will decrease at a rate of 5% of the target award for every
1% point shortfall in financial performance, so that at the 75% level, the award
will be zero for that financial goal.

 

The individual component of each Participant’s Bonus will be evaluated
separately.  Based on the determination of the Participant’s individual
performance, a multiplier will be applied to the Participant’s Bonus as
determined based on achievement relative to the corporate and/or business unit
Performance Goals.  The multiplier for individual performance will be within the
range of 0% to 130%.

 

6.                                      Calculation of Bonuses.  The actual
Bonus for a Participant will be calculated by the Committee as soon as
practicable following the completion of the relevant Incentive Plan year by
applying the Sliding Scale to the Target Bonus for such Participant according to
the weightings and methods approved by the Committee for such Incentive Plan
Year.  The individual multiplier, if any, will then be multiplied by the
resulting Bonus to determine the final Bonus for such Participant.

 

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The incentive awards are based on the actual financial performance achieved by
the respective business unit and the total corporation as reflected in the
Company’s audited financial statements. If there are to be any adjustments to
the audited results for the purposes of a Bonus determination, these adjustments
will generally be established at the time the Performance Goals are set.
Achievement of the financial goals will be calculated after deduction of the
Bonus payments related to this Plan for the Plan Year and to any other
applicable incentive plans.

 

The Company may, in its discretion, reduce or eliminate a Bonus otherwise
payable to any Participant.  Any such reduction or elimination may be made based
on objective or subjective determinations as the Company determines appropriate.

 

7.                                      Payment of Bonuses.  The payment of
Bonuses under the Plan shall be made in cash between November 1 and December 31
of the calendar year following the Incentive Plan Year to which such Bonuses
relate, on such date or dates determined by the Committee and shall be subject
to such terms and conditions as may be determined by the Committee in its sole
discretion.

 

Except as otherwise provided in a written employment agreement between a
Participant and the Company or as otherwise determined by the Committee, in
order to be entitled to receive such Bonus, a Participant must be an active
employee of the Company or its subsidiaries or affiliates and in good standing
and working on the last day of the Plan Year. However, there will be two
exceptions to this provision.  First, should an employee elect full retirement
(with retirement points pursuant to Cubic’s Pension plan of 85 or more, or at
the age of 65), the Bonus will be prorated for the time prior to retirement and
that amount paid in accordance with the provisions above, as long as the
business unit, subsidiary or total company, achieves its financial goals. 
Second, if an employee dies, or becomes totally and permanently disabled, the
Bonus will be pro-rated for the time prior to death or disability, and that
amount will be paid to his/her estate, or him/her as the case may be, in
accordance with the provisions above, as long as the business unit, subsidiary
or total company achieves its financial goals.

 

An employee may be excluded from receiving an incentive award in the event
he/she is involuntarily terminated for any reason other than a lay off during
the period from the last day of the respective fiscal year and the date that the
Bonus would normally be paid.  In addition, an employee may be excluded if the
terms and conditions of a separation agreement specifically exclude the receipt
of the incentive award.

 

8.                                      Amendment, Suspension and Termination of
the Plan.  The Committee shall have the authority to amend, suspend or terminate
the Plan at any time in its sole discretion.

 

9.                                      Miscellaneous.

 

(a)                                 The Company shall deduct all federal, state,
and local taxes required by law or Company policy from any Bonuses paid
hereunder.

 

(b)                                 Nothing contained in this Plan shall confer
upon any Participant any right to continue in the employ of the Company, or
shall interfere with or restrict in any way the right of the Company, which is
hereby expressly reserved, to discharge any Participant at any time for any
reason whatsoever, with or without cause.  Notwithstanding anything to the
contrary contained in the Plan, nothing in the Plan shall adversely affect any
rights that a Participant may otherwise have under an employment or severance
agreement or plan with or maintained by the Company to which such Participant is
a party or under which such Participant is a beneficiary.

 

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(c)                                  The Plan shall be unfunded.  Amounts
payable under the Plan are not and will not be transferred into a trust or
otherwise set aside.  The Company shall not be required to establish any special
or separate fund or to make any other segregation of assets to assure the
payment of any Bonus under the Plan.  Any accounts under the Plan are for
bookkeeping purposes only and do not represent a claim against the specific
assets of the Company.

 

(d)                                 No Bonus granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated. All
rights with respect to a Bonus granted to a Participant under the Plan shall be
available during his or her lifetime only to the Participant.

 

(e)                                  Notwithstanding anything in the Plan to the
contrary, any and all amounts payable to any Participant under the Plan from
time to time may, in the Committee’s sole discretion, be reduced or offset by
any amounts then due or owing by such Participant to the Company or any of its
affiliates pursuant to or in accordance with any benefit or compensation plan,
program, policy or arrangement maintained by the Company or such affiliates.

 

(f)                                   Any provision of the Plan that is
prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions of
the Plan.

 

(g)                                  The Plan shall be construed, interpreted
and the rights of the parties determined in accordance with the laws of the
State of California. Should any provision of the Plan be determined by a court
of law to be illegal or unenforceable, the other provisions shall nevertheless
remain effective and shall remain enforceable.

 

Any and all controversies or disputes involving, relating to, or arising out of,
or under, this Plan, including but not limited to its construction,
interpretation or enforcement, shall be litigated exclusively in the state or
federal courts sitting in San Diego County, California.  Each Participant is
hereby deemed to irrevocably and unconditionally consent to the personal
jurisdiction of the state courts in San Diego County, California with regard to
any and all controversies or disputes involving, relating to, or arising out of,
or under, the Plan.  Each Participant is further deemed to irrevocably and
unconditionally waive any defense or objection of lack of personal jurisdiction
over Participant by the state or federal courts sitting in San Diego County,
California.

 

(h)                                 Bonus payments are not intended to
constitute a deferral of compensation subject to Section 409A of the Code and
are intended to satisfy the “short-term deferral” exemption under Section 409A
of the Code and the Treasury Regulations issued thereunder.

 

Accordingly, to the extent necessary to cause Bonus payments hereunder to
satisfy the “short-term deferral” exemption under Section 409A of the Code and
the Treasury Regulations issued thereunder, a Bonus payment shall be made not
later than the later of: (i) the fifteenth day of the third month following the
Participant’s first taxable year in which the Bonus payment is no longer subject
to a substantial risk of forfeiture, or (ii) the fifteenth day of the third

 

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month following the Company’s first taxable year in which the Bonus payment is
no longer subject to a substantial risk of forfeiture; provided, however, that
if due to administrative reasons Bonuses are not paid within the foregoing time
periods, then such Bonuses will be paid as soon as administratively feasible but
no later than the last day of the calendar year following the end of the
Incentive Plan Year to which such Bonuses relate.

 

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