Exhibit 10.12
VECTRUS, INC. ANNUAL INCENTIVE PLAN
1. PURPOSE
     The purpose of this Vectrus, Inc. Annual Incentive Plan is to provide
incentive compensation in the form of a bonus to eligible executives of Vectrus,
Inc. (the “Company”) for achieving specific pre-established performance
objectives and to continue to motivate participating executives to achieve their
business goals, while tying a portion of their compensation to measures
affecting shareholder value. For purposes of grants made under the Predecessor
Plan (as defined below), the term “Company” shall include Exelis Inc. (the
“Predecessor Corporation”) as the original grantor. The Incentive Plan seeks to
enable the Company to continue to be competitive in its ability to attract and
retain executives of the highest caliber.
     This Vectrus, Inc. Annual Incentive Plan (the “Incentive Plan”) first
became effective immediately prior to, and conditioned upon the consummation of,
the spin-off of the Company from the Predecessor Corporation; provided, however,
that for purposes of grants made under the Predecessor Plan, the term “Incentive
Plan” shall include the Predecessor Plan as it existed at the time of the grant.
The Incentive Plan shall remain in effect unless/until terminated by the Board;
provided, however, that if an Acceleration Event has occurred no amendment or
termination shall impair the rights of any participant with respect to any prior
award... The Predecessor Corporation maintained a similar plan prior to the
spin-off (the “Predecessor Plan”), and the Incentive Plan was created to govern
the awards under the Predecessor Plan, as revised to reflect the spin-off from
the Predecessor Corporation. The Incentive Plan shall remain in effect as
provided in Article VIII hereof, and participants shall receive full credit for
their service and participation with the Predecessor Corporation as provided in
Article VIII hereof.
2. PLAN ADMINISTRATION
     The Compensation and Personnel Committee (the “Committee”) of the Board of
Directors (the “Board”) of the Company shall have full power and authority to
administer, construe and interpret the provisions of the Incentive Plan and to
adopt and amend administrative rules and regulations, agreements, guidelines and
instruments for the administration of the Incentive Plan and for the conduct of
its business as the Committee considers appropriate.
     The Committee shall have full power, to the extent permitted by law and the
Committee’ charter, to delegate its authority to any officer or employee of the
Company to administer and interpret the Incentive Plan, subject to the terms of
the Incentive Plan, and references in the Incentive Plan to the “Committee”
shall be read, consistent with the scope of the delegation, as references to
such officers or employees to the extent such officers or employees have been so
delegated authority to act with respect to the Incentive Plan.
     The Committee may rely on opinions, reports or statements of officers or
employees of the Company and of counsel to the Company (inside or retained
counsel), public accountants and other professional or expert persons.
     The Board reserves the right to amend or terminate the Incentive Plan in
whole or in part at any time; provided, however, that no amendments shall
adversely affect or impair the rights of any participant previously accrued
thereby, without the written consent of the participant.  
     No member of the Committee shall be liable for any action taken or omitted
to be taken or for any determination made by him or her in good faith with
respect to the Incentive Plan, and the Company shall indemnify and hold harmless
each member of the Committee against any cost or expense (including counsel
fees) or liability (including any sum paid in settlement of a claim with the
approval of the Committee) arising out of any act or omission in connection with
the administration or interpretation of the Incentive Plan, unless arising out
of such person’s own fraud or bad faith.

1

--------------------------------------------------------------------------------

3. ELIGIBLE EXECUTIVES
     Executives of the Company or its affiliates in salary grade 19 and above
shall be eligible to participate in the Incentive Plan; provided, however, that
for purposes of grants made under the Predecessor Plan, the term “Company” shall
include the Predecessor Corporation as the original grantor.
4. PLAN YEAR, PERFORMANCE PERIODS, PERFORMANCE MEASURES AND PERFORMANCE TARGETS
     Each fiscal year of the Incentive Plan (the “Plan Year”) shall begin on
January 1 and end on December 31. The performance period (the “Performance
Period”) with respect to which bonuses may be payable under the Incentive Plan
shall be the Plan Year unless the Committee designates one or more different
Performance Periods.
     The Committee shall establish the performance measures (the “Performance
Measures”) to be used which may include, but shall not be limited to, net
earnings, net sales growth, net operating profit, return measures (including,
but not limited to, return on assets, investment or invested capital, equity, or
sales), earnings (including, but not limited to, earnings before or after taxes,
interest, taxes, depreciation and/or amortization), gross or operating margins,
productivity ratios, net income (before or after taxes), expense targets,
margins, operating efficiency, customer satisfaction, employee satisfaction
metrics, human resources metrics, operating income, economic value added,
earnings per share, expense management, profitability of an identifiable
business unit or product, maintenance or improvement of profit margins, stock
price (including, but not limited, growth measures and total shareholder
return), market share, revenues or sales (including, but not limited to, organic
revenue), costs, cash flow (including, but not limited to, operating cash flow
and free cash flow), cash flow return on capital, or such other measures as
determined by the Committee. In addition, Performance Measures may be based upon
other objectives such as negotiating transactions or sales and developing
long-term goals. Unless determined otherwise by the Committee, the Performance
Measures shall be objectively determinable and, to the extent that they are
expressed in standard accounting terms, shall be according to generally accepted
accounting principles as in existence on the date on which the applicable
Performance Period is established and without regard to any changes in such
principles after such date. For purposes of the Incentive Plan, unless
determined otherwise by the Committee, economic value added shall mean the
amount of economic profit created in excess of the amount required to satisfy
the obligations to and normal expectations of the Company’s lenders and
investors.
     Unless determined otherwise by the Committee, the Committee shall establish
the performance targets (the “Performance Targets”) to be achieved which shall
be based on one or more Performance Measures relating to the Company as a whole
or to the specific businesses of the Company, subsidiaries, operating companies,
or operating units as determined by the Committee and shall be expressed as an
objective formula to be used in calculating the amount of bonus award each
executive shall be eligible to receive. There may be a sliding scale of payment
dependent upon the percentage levels of achievement of Performance Targets.
     The Performance Measures and Performance Targets may be different with
respect to each executive and each Performance Period.  
5. CERTIFICATION OF PERFORMANCE TARGETS AND CALCULATION OF BONUS AWARDS
     The Committee shall calculate the amount of each executive’s bonus for such
Performance Period based upon the Performance Measures and Performance Targets
for each executive. In establishing Performance Targets and Performance Measures
and in calculating the degree of achievement thereof, the Committee may include
or exclude, among other things, (a) asset write-downs, (b) litigation or claim
judgments or settlements, (c) the effect of changes in tax laws, accounting
principles, or other laws or provisions affecting reported results, (d) any
reorganization and restructuring programs, (e) extraordinary nonrecurring items
as described in Accounting Principles Board Opinion No. 30 and/or in
management’s discussion and analysis of financial condition and results of
operations appearing in the Company’s annual report to shareholders for the
applicable year, (f) acquisitions or divestitures, and (g) foreign exchange
gains and losses. The Committee shall have authority and discretion to increase
or decrease the amount of any executive’s bonus as so determined, and may
totally eliminate any bonus award if it determines in its absolute

2

--------------------------------------------------------------------------------

and sole discretion that such action is appropriate in order to reflect the
executive’s performance or unanticipated factors during the Performance Period.
6. PAYMENT OF AWARDS
     Approved bonus awards shall be payable by the Company in cash to each
executive, or to the executive’s estate in the event of the executive’s death,
as soon as practicable (but not later than March 15th) in the Plan Year
following each Performance Period.
     If an executive is not an employee on the last day of the Performance
Period, the Committee shall have sole discretion to determine what portion, if
any, the executive shall be entitled to receive with respect to any award for
the Performance Period. The Committee shall have the authority to adopt
appropriate rules and regulations for the administration of the Incentive Plan
in such termination cases.
     The Company retains the right to deduct from any bonus awards paid under
the Incentive Plan any Federal, state, local or foreign taxes required by law to
be withheld with respect to such payment.
7. OTHER TERMS AND CONDITIONS
     Any award made under this Incentive Plan shall be subject to the discretion
of the Committee. No person shall have any legal claim to be granted an award
under the Incentive Plan and the Committee shall have no obligation to treat
executives uniformly. Except as may be otherwise required by law, bonus awards
under the Incentive Plan shall not be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, charge,
garnishment, execution, or levy of any kind, either voluntary or involuntary.
Bonuses awarded under the Incentive Plan shall be payable from the general
assets of the Company, and no executive shall have any claim with respect to any
specific assets of the Company.
     Nothing contained in the Incentive Plan shall give any executive the right
to continue in the employment of the Company or affect the right of the Company
to terminate an executive.  
8. ACCELERATION EVENT.
     An “Acceleration Event” shall occur if (i) a report on Schedule 13D shall
be filed with the Securities and Exchange Commission pursuant to Section 13(d)
of the Securities Exchange Act of 1934 (the “Act”) disclosing that any person
(within the meaning of Section 13(d) of the Act), other than the Company or a
subsidiary of the Company or any employee benefit plan sponsored by the Company
or a subsidiary of the Company, is the beneficial owner directly or indirectly
of twenty percent (20%) or more of the outstanding Common Stock, $0.01 par
value, of the Company (the “Stock”): (ii) any person (within the meaning of
Section 13(d) of the Act), other than the Company or a subsidiary of the
Company, or any employee benefit plan sponsored by the Company or a subsidiary
of the Company, shall purchase shares pursuant to a tender offer or exchange
offer to acquire any Stock of the Company (or securities convertible into Stock)
for cash, securities or any other consideration, provided that after
consummation of the offer, the person in question is the beneficial owner (as
such term is defined in Rule 13d-3 under the Act), directly or indirectly, of
twenty percent (20%) or more of the outstanding Stock of the Company (calculated
as provided in paragraph (d) of Rule 13d-3 under the Act in the case of rights
to acquire Stock); (iii) 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 Stock
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 merger or consolidation 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 merger or
consolidation or the parent of such corporation), relative to other holders of
Stock immediately prior to the merger, business combination or consolidation,
immediately after the 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, (iv) there
shall have been a change in a majority of the members of the Board of Directors
of the Company within a 12-month period unless the election or

3

--------------------------------------------------------------------------------

nomination for election by the Company’s stockholders 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 (v) any person (within the meaning of
Section 13(d) of the Act) (other than the Company or any subsidiary of the
Company or any employee benefit plan (or related trust) sponsored by the Company
or a subsidiary of the Company) becomes the beneficial owner (as such term is
defined in Rule 13d-3 under the Act) of twenty percent (20%) or more of the
Stock.
     Upon the occurrence of such Acceleration Event, the Performance Measures
for each Performance Period with respect to which bonuses may be payable under
the Incentive Plan shall be deemed to be achieved at the greater of (i) the
Performance Target established for such Performance Measures or (ii) the
Company’s actual achievement of such Performance Measures as of the Acceleration
Event. Payment of the bonuses, for the full year, will be made to each
Participating Executive, in cash, within five (5) business days following such
Acceleration Event.
9. SECTION 409A
It is intended that awards under the Incentive Plan will be exempt from
Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) as
“short-term deferrals” unless the Committee specifically determines otherwise,
and the Incentive Plan and the terms and conditions of all awards provided
hereunder shall be interpreted, construed and administered in accordance with
this intent. Notwithstanding anything to the contrary contained herein, neither
the Company nor any member of the Committee shall have any liability to any
participant if the Incentive Plan or any award hereunder is subject to
additional tax and/or penalties under Section 409A of the Code. To the extent
applicable, the Incentive Plan and any awards hereunder shall be interpreted in
accordance with Section 409A of the Code and Department of Treasury regulations
and other interpretive guidance issued thereunder. To the extent an award under
the Incentive Plan is determined to constitute deferred compensation subject to
Section 409A of the Code (i) if such award is payable as a result of the
participant’s termination of employment, the determination of whether the
participant has experienced a termination of employment will be determined
consistent with the rules relating to a “separation from service” as defined in
Section 409A of the Code and the regulations thereunder, (ii) if such award is
payable as a result of the participant’s termination of employment and the
participant is deemed at the time of such termination of employment to be a
“specified employee” under Section 409A of the Code, then such payment shall not
be made until the earlier of (a) the expiration of the 6-month period following
the participant’s separation from service or (b) the date of the participant’s
death, and (iii) such award will only be paid as a result of an Acceleration
Event to the extent the Acceleration Event is also an event described in Treas.
Reg. Section 1.409A-3(i)(5); provided, however, that, in each case, the
foregoing provisions in this sentence shall only be applicable to the extent
required to avoid imposition of taxes and penalties pursuant to Section 409A of
the Code.
10. MISCELLANEOUS.
     The Incentive Plan shall be effective immediately prior to, and conditioned
upon the consummation of, the spin-off of the Company from Exelis Inc. The
Incentive Plan shall remain in effect unless/until terminated by the Board;
provided, however, that if an Acceleration Event has occurred no amendment or
termination shall impair the rights of any executive with respect to any prior
award. This Incentive Plan shall be construed and governed in accordance with
the laws of the State of New York.  Notwithstanding any other provision of the
Incentive Plan to the contrary, all prior service and participation by a
participant with the Predecessor Corporation shall be credited in full towards a
participant’s service and participation with the Company.

4