DEF 14A 1 a2240352zdef14a.htm DEF 14A

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No.  )

    þ Filed by the Registrant
  
  o Filed by a Party other than the Registrant  

 
   
   
   
   
    Check the appropriate box:
 
    o       Preliminary Proxy Statement    
 
    o       Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))    
 
    þ       Definitive Proxy Statement    
 
    o       Definitive Additional Materials    
 
    o       Soliciting Material Pursuant to §240.14a-12    
 

LOGO

COHERENT, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 
   
   
   
   
    Payment of Filing Fee (Check the appropriate box):
 
    þ       No fee required.    
 
    o       Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.    
 
            (1) Title of each class of securities to which transaction applies:    
 
            (2) Aggregate number of securities to which transaction applies:    
 
            (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):    
 
            (4) Proposed maximum aggregate value of transaction:    
 
            (5) Total fee paid:    
 
    o       Fee paid previously with preliminary materials.    
 
    o       Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.    
 
            (1) Amount Previously Paid:    
 
            (2) Form, Schedule or Registration Statement No.:    
 
            (3) Filing Party:    
 
            (4) Date Filed:    
 

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LOGO

Notice of Virtual Annual
Meeting of Stockholders

April 27, 2020

8:30 a.m., Pacific Time

As part of our precautions regarding the coronavirus (COVID-19) and in compliance with current mandatory orders from applicable government entities, we are holding this year's annual meeting solely by means of remote communication. We have not previously held a virtual annual meeting and expect that we will again revert to an in-person meeting for future meetings if possible. If you plan to participate in the virtual meeting, please see the instructions in the accompanying proxy statement. Stockholders will be able to listen, vote and submit questions (subject to the question guidelines) from any remote location that has Internet connectivity. There will be no physical location for stockholders to attend the meeting. Stockholders may participate in the meeting only by logging in at www.virtualshareholdermeeting.com/COHR2020.

MATTERS TO BE VOTED ON:

1.
To elect the eight directors named in the accompanying proxy statement;
2.
To approve the Coherent Equity Incentive Plan;
3.
To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending October 3, 2020;
4.
To approve on a non-binding, advisory basis, our named executive officer compensation; and
5.
To transact such other business as may properly be brought before the meeting and any adjournment(s) thereof.

The foregoing items of business are more fully described in the proxy statement accompanying this notice.

Stockholders of record at the close of business on March 3, 2020 are entitled to notice of and to vote at the meeting and at any adjournments or postponements thereof.

All stockholders are cordially invited to attend and participate in our virtual meeting. However, to ensure your representation at the meeting, you are urged to vote in advance. You may vote via the Internet or by telephone, or if you requested to receive printed proxy materials, by marking, signing, dating and returning the proxy card as promptly as possible in the postage-prepaid envelope provided for that purpose.

We have retained Georgeson LLC to assist us in the solicitation of proxies. If you have any questions or require any assistance with completing your proxy, please contact Georgeson LLC by telephone at (866) 647-8872.

Santa Clara, California
April 6, 2020
  Sincerely,
    GRAPHIC

 

 

Bret DiMarco
Executive Vice President, General Counsel and
Corporate Secretary

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on April 27, 2020

The proxy statement and annual report to stockholders are available at www.proxyvote.com.

YOUR VOTE IS IMPORTANT


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  GENERAL INFORMATION ABOUT THE MEETING   3

 

SPOTLIGHT ON GOVERNANCE

 

8

 

PROPOSAL ONE—ELECTION OF DIRECTORS

 

9

 

PROPOSAL TWO—APPROVAL OF THE COHERENT EQUITY INCENTIVE PLAN

 

22

 

PROPOSAL THREE—RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

27

 

PROPOSAL FOUR—APPROVAL ON A NON-BINDING, ADVISORY BASIS, OF OUR NAMED EXECUTIVE OFFICER COMPENSATION

 

29

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

30

 

OUR EXECUTIVE OFFICERS

 

32

 

COMPENSATION DISCUSSION AND ANALYSIS

 

33

 

SUMMARY COMPENSATION AND EQUITY TABLES

 

52

 

PAY RATIO

 

57

 

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

 

58

 

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

 

59

 

OTHER MATTERS

 

60

 

APPENDIX A—COHERENT EQUITY INCENTIVE PLAN

 

A-1

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PROXY STATEMENT

General Information About the Meeting

General

The Board of Directors (the "Board") of Coherent, Inc. ("Coherent" or the "Company") is soliciting proxies for use at the virtual Annual Meeting of Stockholders (the "Annual Meeting" or "meeting") to be held at 8:30 a.m., Pacific Time, on April 27, 2020 and at any adjournment(s) thereof, for the purposes set forth herein and in the accompanying Notice of Annual Meeting of Stockholders. There will be no physical location for stockholders to attend the meeting. You can participate in the Annual Meeting by logging in at www.virtualshareholdermeeting.com/COHR2020, where you will be able to listen to the meeting live, vote and submit questions. These proxy solicitation materials were first mailed on or about April 6, 2020 to all stockholders entitled to vote at the Annual Meeting.

Who May Vote at the Meeting?

You are entitled to vote at the Annual Meeting if you held your shares as of the close of business on our record date, March 3, 2020 (the "Record Date"). On the Record Date, 24,166,669 shares of our common stock, $0.01 par value, were issued and outstanding.

What Does Each Share of Common Stock I Own Represent?

On all matters, each share has one vote, unless, with respect to Proposal One regarding the election of directors, cumulative voting is in effect. See "Proposal One—Election of Directors—Vote Required" for a description of cumulative voting rights with respect to the election of directors.

How Can I Participate in the Virtual Annual Meeting?

To participate in the meeting, visit www.virtualshareholdermeeting.com/COHR2020 and enter your 16-digit control number as indicated. You can find your 16-digit control number on your proxy card or on the instructions that accompanied your proxy materials. You will be able to log into the virtual meeting platform beginning at 8:00 a.m. PDT on April 27, 2020. The meeting will begin promptly at 8:30 a.m. PDT on April 27, 2020. We encourage you to log in prior to the meeting start time and allow ample time for the check-in procedures.

The virtual meeting platform is supported across browsers (Internet Explorer, Firefox, Chrome, and Safari) and devices (desktops, laptops, tablets, and cell phones) running the most updated version of applicable software and plugins. Participants should ensure that they have a strong WiFi connection wherever they intend to participate in the meeting. Participants should also give themselves plenty of time to log in and ensure that they can hear streaming audio prior to the start of the meeting.

If you wish to submit a question during the meeting, log into the virtual meeting platform, type your question into the "Ask a Question" field, and click "Submit." Questions pertinent to meeting matters will be answered during the meeting, subject to time constraints. Questions regarding personal matters, including those related to employment, product or service issues, or suggestions for product innovations, are not pertinent to meeting matters and, therefore, will not be answered. In the event we are not able to address any questions appropriately related to the business of the Company due to time constraints, we will address them at an upcoming financial results conference call.

If you encounter any difficulties accessing the virtual meeting during check-in please call the technical support number that will be posted on the virtual meeting platform's log in page.

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How Does a Stockholder Vote?

Whether or not you plan to attend the Annual Meeting, we urge you to vote by proxy to ensure your vote is counted. If you are entitled to vote, you may do so as follows:

Through the Internet—Before the Annual Meeting:  If you are a stockholder of record, go to www.proxyvote.com. Please have your proxy card in hand when you visit the website.

Through the Internet—During the Annual Meeting:  If you are a stockholder of record, you may vote live at the Annual Meeting through the virtual meeting platform by logging into www.virtualshareholdermeeting.com/COHR2020. If your shares are held in street name, you will need to obtain a legal proxy from your broker, bank or other nominee in order to vote live at the Annual Meeting.

Using the Telephone:  Dial toll-free 1-800-690-6903 using a touch-tone phone and follow the recorded instructions. You will be asked to provide the 16-digit control number, which you can find on your proxy card or on the instructions that accompanied your proxy materials.

Through Your Broker:  If your shares are held through a broker, bank or other nominee (commonly referred to as held in "street name"), you will receive instructions from them that you must follow to have your shares voted.

Returning a Proxy Card:  If you have requested printed proxy materials, simply complete, sign and date the proxy card and return it promptly in the envelope provided. If your signed proxy card is received before the Annual Meeting, the designated proxies will vote your shares as you direct.

For telephone or Internet use before the meeting, your vote must be received by 11:59 p.m., Eastern time, on April 26, 2020 to be counted.

If you return a signed and dated proxy card without marking any voting directions, your shares will be voted "for" the election of all eight nominees for director set forth in this proxy statement and "for" Proposals Two, Three and Four.

We have retained Georgeson LLC to assist us in the solicitation of proxies. If you have any questions or require any assistance with voting, please contact Georgeson LLC by telephone at (866) 647-8872.

Matters to be Presented at the Meeting

We are not aware of any matters to be presented at the meeting other than those described in this proxy statement. If any other matter is properly presented at the Annual Meeting, your proxy holders (one of the individuals named on your proxy card) will vote your shares in their discretion. The cost of this solicitation will be borne by us. We may reimburse brokerage firms and other persons representing beneficial owners of shares for their expenses in forwarding solicitation material to such beneficial owners. In addition, proxies may be solicited by certain of our directors, officers and regular employees, without additional compensation, personally or by telephone, e-mail or facsimile. We have also retained Georgeson LLC to assist us in the solicitation of proxies. We expect to pay Georgeson LLC approximately $15,000 for these services, plus expenses.

Revoking Your Proxy

If you hold your shares in street name, you must follow the instructions of your broker, bank or other nominee to revoke your voting instructions. If you are a holder of record and wish to revoke your proxy instructions, you must (i) advise the Corporate Secretary in writing by sending an email to investor.relations@coherent.com before the proxies vote your shares at the meeting, (ii) timely deliver later-dated proxy instructions or (iii) participate in the meeting and vote your shares electronically during the meeting.

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Quorum; Abstentions; Broker Non-Votes

Our bylaws provide that stockholders holding a majority of the shares of common stock issued and outstanding and entitled to vote on the Record Date constitute a quorum at meetings of stockholders. Votes will be counted by the inspector of election appointed for the Annual Meeting, who will separately count "For" and "Against" votes, abstentions and broker non-votes.

A "broker non-vote" occurs when a nominee holding shares for a beneficial owner does not vote because the nominee does not have discretionary voting power with respect to the proposal and has not received instructions with respect to the proposal from the beneficial owner. Broker non-votes represented by submitted proxies will not be taken into account in determining the outcome of any proposal. Abstentions will not be taken into account in determining the outcome of the election of directors. However, abstentions are deemed to be votes cast with respect to Proposals Two, Three and Four and will have the same effect as a vote "Against" these proposals. We intend to separately report abstentions, and our Compensation and HR Committee will generally view abstentions as neutral when considering the results of Proposal Four.

Deadline for Receipt of Stockholder Proposals or Nominations; Proxy Access

In order to submit stockholder proposals for inclusion in our proxy statement pursuant to Rule 14a-8 of the Securities Exchange Act of 1934, as amended ("SEC Rule 14a-8") for the annual meeting to be held in fiscal 2021, written materials must be received by the Corporate Secretary at our principal office in Santa Clara, California no later than December 7, 2020. Stockholder proposals must otherwise comply with the requirements of SEC Rule 14a-8.

Proposals must be addressed to: Bret DiMarco, Corporate Secretary, Coherent, Inc., 5100 Patrick Henry Dr., Santa Clara, California 95054. Simply submitting a proposal does not guarantee its inclusion.

Section 2.16 of the Company's bylaws also establishes an advance notice procedure with respect to director nominations and stockholder proposals that are not submitted for inclusion in the proxy statement, but that a stockholder instead wishes to present directly from the floor at any annual meeting. To be properly brought before the annual meeting to be held in fiscal 2021, a notice of the nomination or the matter the stockholder wishes to present at the meeting must be delivered to the Corporate Secretary (see above), no later than the close of business on the 45th day (February 20, 2021), nor earlier than the 75th day (January 21, 2021), prior to the one year anniversary of the date these proxy materials were first mailed by us, unless the annual meeting of stockholders is held prior to March 28, 2021 or after June 26, 2021, in which case, the proposal must be received by us not earlier than the close of business on the 120th day prior to the annual meeting and not later than the close of business on the later of (i) the 90th day prior to the annual meeting and (ii) the tenth day following the day on which public announcement of the date of such meeting is first made, and must otherwise be in compliance with applicable laws and regulations in order to be considered for inclusion in the proxy statement and form of proxy relating to that meeting. We have not received any notice regarding any such matters to be brought at the Annual Meeting.

If a stockholder who has notified us of his or her intention to present a proposal at an annual meeting does not appear to present his or her proposal at such meeting, we need not present the proposal for vote at such meeting. The chairperson of the Annual Meeting has the final discretion whether or not to allow any matter to be considered at the meeting which did not timely comply with all applicable notice requirements.

If a stockholder wishes only to recommend a candidate for consideration by the Governance and Nominating Committee as a potential nominee for the Company's Board, see the procedures discussed in "Proposal One—Election of Directors—Process for Stockholders to Recommend Candidates for Election to the Board of Directors."

The attached proxy card grants to the proxyholders discretionary authority to vote on any matter raised at the Annual Meeting, including proposals which are timely raised at

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the meeting, but did not meet the deadline for inclusion in this proxy statement.

In addition, our bylaws provide that, under certain circumstances, a stockholder or group of stockholders may include director candidates that they have nominated in our proxy statement. These proxy access provisions permit a stockholder, or a group of up to 20 stockholders, who have owned 3% or more of our outstanding common stock continuously for at least three years to submit director nominees (for up to 20% of the number of directors then in office) for inclusion in our proxy materials, as long as the stockholder(s) provide timely written notice of such nomination and the stockholder(s) and nominee(s) satisfy the requirements specified in our bylaws. Notice of director nominees for our 2021 annual meeting of stockholders must include the information required under our bylaws and must be received by our Corporate Secretary at our principal executive offices between the close of business on November 7, 2020 and the close of business on December 7, 2020, unless the date of the annual meeting to be held in fiscal 2021 is more than 30 days before or more than 60 days after the anniversary of this Annual Meeting. In that case, such notice must be delivered not earlier than the 90th day prior to the date of the annual meeting to be held in fiscal 2021 and not later than the close of business on the later of (i) the 60th day prior to the date of the annual meeting to be held in fiscal 2021 or (ii) the 10th day following the day on which public announcement of the date of such meeting is first made. For additional information regarding the Company's proxy access provisions, please refer to the Company's bylaws.

Eliminating Duplicative Proxy Materials

To reduce the expense of delivering duplicate voting materials to our stockholders who may hold shares of Coherent common stock in more than one stock account, we are delivering only one set of our proxy materials to certain stockholders who share an address, unless otherwise requested. A separate proxy card is included in the voting materials (either electronically or by mail, as applicable) for each of these stockholders.

We will promptly deliver, upon verbal request, a separate copy of the annual report or this proxy statement to a stockholder at a shared address to which a single copy of the documents was delivered. To obtain an additional copy, you may also write us at 5100 Patrick Henry Drive, Santa Clara, California 95054, Attn: Investor Relations, or contact our Investor Relations department by telephone at (408) 764-4110.

Similarly, if you share an address with another stockholder and have received multiple copies of our proxy materials, you may contact us at the address or telephone number specified above to request that only a single copy of these materials be delivered to your address in the future. Stockholders sharing a single address may revoke their consent to receive a single copy of our proxy materials in the future at any time by contacting our distribution agent, Broadridge, either by calling toll-free at 1-800-542-1061, or by writing to Broadridge, Householding Department, 51 Mercedes Way, Edgewood, NY 11717. It is our understanding that Broadridge will remove such stockholder from the householding program within 30 days of receipt of such written notice, after which each such stockholder will receive an individual copy of our proxy materials.

Incorporation by Reference

To the extent that this proxy statement has been or will be specifically incorporated by reference into any other filing of Coherent with the SEC, the sections of this proxy statement entitled "Report of the Audit Committee of the Board of Directors" (to the extent permitted by the rules of the SEC) and "Compensation Discussion and Analysis" shall not be deemed to be so incorporated, unless specifically provided otherwise in such filing.

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FURTHER INFORMATION

We will provide without charge to each stockholder solicited by these proxy solicitation materials a copy of our annual report on Form 10-K for the fiscal year ended September 28, 2019 without exhibits and any amendments thereto upon request of such stockholder made in writing to Coherent, Inc., 5100 Patrick Henry Drive, Santa Clara, California 95054, Attn: Investor Relations. We will also furnish any exhibit to the annual report on Form 10-K if specifically requested in writing. You can also access our SEC filings, including our annual reports on Form 10-K, and all amendments thereto on the SEC website at www.sec.gov.

Stockholder List

A list of stockholders entitled to vote at the Annual Meeting will be available for examination by stockholders of record at www.virtualshareholdermeeting.com/COHR2020 during the meeting.

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Spotlight on Governance

Our historical business results have been complemented by an approach to corporate governance that has consistently been recognized for best practices, including:

*
Annual Board elections;

*
No classified Board;

*
Stockholders may act by written consent;

*
Independent Board Chair;

*
Majority voting for members of the Board in uncontested elections;

*
"Proxy access" bylaw provisions;

*
An updated clawback policy which applies to all executive officers of the Company;

*
No "blank check" or other classes of preferred stock;

*
Super majority of independent directors on the Board;

*
Executive compensation heavily weighted towards performance;

*
No super majority stockholder approval for mergers or other business combinations in our bylaws or charter;

*
A policy prohibiting executive officers and directors from hedging or pledging Company stock;

*
Age-based Board tenure/refreshment guidelines; and

*
Board, CEO and executive officer stock ownership requirements.

Importantly, the Board has implemented our governance approach with the full support and recommendation of senior management. These governance practices do not result from any stockholder proposals related to them. Rather, they reflect the commitment of the Board and management to maintain common sense and industry-leading governance practices and policies to go along with our strong historical financial performance. The independent director composition of our proposed slate of Board nominees consists of 29% female directors and over 40% diverse directors. The proposed slate is 88% independent, with only our CEO serving as an inside director. Notably, directors Pamela Fletcher and Beverly Kay Matthews and retiring director Susan James were all recently named to the 2019 Most Influential Corporate Directors list by WomenInc. Magazine.

In addition to a diverse background of experiences, the Board believes it is extremely important to have a balance of independent service on the Board, with a mix of new (0-5 years), mid-term (5-10 years) and long-term (more than 10 years) tenures participating. This blend of fresh perspectives and seasoned experience provides the right mix for effective Board oversight for today's modern multinational public company. Our financial performance over the past decade is proof that our stockholders have benefited from having a Board with a strong history of refreshment coupled with tenured members in each of these categories. Given the recent impacts to the global economy related to COVID-19, we believe that it is imperative to have all three categories of tenure on the Board. In general the Board seeks to have the greatest weight towards the new and mid-term categories (which may vary from time to time), which is reflected in the composition of our proposed slate of independent directors:

New Members (five years or less):

  42%

Mid-Term Members (five to ten years):

  29%

Long-Term Members (more than ten years):

  29%

Coherent has also undertaken several less publicized sustainability initiatives, such as the installation of over 1,200 solar panels on our corporate headquarter building in California. This array produces over 400kW of energy per hour and approximately 625,000kW hours annually, significantly improving our headquarter's energy efficiency and reducing our greenhouse gas emissions by approximately 460 tons per year. This installation also allowed us to provide eight electric vehicle charging stations for our employees. Anecdotally, we have seen a significant increase in hybrid and electric powered vehicles in our Northern California employee base. Our most important environmental-related initiative, however, has been our energy-efficient product designs, which over the years have significantly reduced the amount of power and consumable materials needed to operate our products.

While much has been debated about requiring public companies to disclose their "political spending," as we have voluntarily disclosed for several years, we had no such corporate spending in 2019.

Our Board, management and employees take great pride in our financial performance, governance, stockholder relations and global corporate citizenship.

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PROPOSAL ONE
ELECTION OF DIRECTORS

Nominees

Eight (8) members of the Board are to be elected at the Annual Meeting, six (6) of whom are standing for re-election. Ms. Matthews, who was recommended to the Governance and Nominating Committee by the search firm retained by the committee and joined the Board on May 9, 2019 (prior to the end of fiscal 2019), and Andy Mattes, who joined the Board on April 6, 2020 in connection with his appointment as the Company's new President and Chief Executive Officer, are standing for election for the first time at the Annual Meeting. For further discussion on Mr. Mattes' appointment as President, Chief Executive Officer and director, see "Compensation Discussion and Analysis—CEO Transition" below. Unless otherwise instructed, the proxy holders will vote the proxies received by them for the nominees named below. Each nominee has consented to be named a nominee in the proxy statement and to continue to serve as a director, if elected. If any nominee becomes unable or declines to serve as a director, if additional persons are nominated at the meeting or if stockholders are entitled to cumulate votes, the proxy holders intend to vote all proxies received by them in such a manner (in accordance with cumulative voting) as will ensure the election of as many of the nominees listed below as possible, and the specific nominees to be voted for will be determined by the proxy holders.

We are not aware of any reason that any nominee will be unable or will decline to serve as a director. The term of office of each person elected as a director will continue until our next annual meeting of stockholders or until a successor has been elected and qualified or until his or her earlier resignation or removal. There are no arrangements or understandings between any director or executive officer and any other person pursuant to which he or she is or was to be selected as a director or officer.

The names of the nominees, all of whom are currently directors, and certain information about them is set forth below. All of the nominees have been unanimously recommended for nomination by the Board acting on the unanimous recommendation of the Governance and Nominating Committee of the Board. The committee consists solely of independent members of the Board. There are no family relationships among directors or executive officers of Coherent.

Name
  Age
  Director Since
  Principal Occupation

Jay T. Flatley(1)(2)

  67   2011   Chairman of the Board of Illumina, Inc.

Pamela Fletcher(2)

  53   2017   Vice President—eDelivery and Mobility Solutions and Global Innovation at General Motors Company

Andreas ("Andy") W. Mattes

  58   2020   President and Chief Executive Officer

Beverly Kay Matthews(3)

  61   2019   Retired Partner, Ernst & Young

Michael R. McMullen(2)

  59   2018   President and Chief Executive Officer of Agilent Technologies, Inc.

Garry W. Rogerson(1)(3)

  67   2004   Former Chief Executive Officer of Advanced Energy Industries, Inc.

Steve Skaggs(1)(3)

  57   2013   Former Senior Vice President and Chief Financial Officer of Atmel Corporation

Sandeep Vij(2)

  54   2004   Former President and Chief Executive Officer of MIPS Technologies, Inc.
(1)
Member of the Governance and Nominating Committee.

(2)
Member of the Compensation and HR Committee; Mr. McMullen joined the committee in December 2018, and Ms. Fletcher joined the committee in May 2019.

(3)
Member of the Audit Committee; Ms. Fletcher served on the committee until May 2019, and Ms. Matthews joined the committee in July 2019.

Except as set forth below, each of our directors has been engaged in his or her principal occupation set forth above during the past five years.

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Jay T. Flatley.    Since 1999 Mr. Flatley has served as a member of the Board of Directors of Illumina, Inc., a leading developer, manufacturer and marketer of life science tools and integrated systems for the analysis of genetic variation and function and from July 2016 to December 2019, as Illumina's Executive Chairman of the Board of Directors. Since January 2020, he has served as Chairman of the Board of Directors of Illumina. From January 2016 to July 2016, he also served as Illumina's Chairman of the Board of Directors. From 1999 until July 2016, Mr. Flatley was Illumina's Chief Executive Officer. From 1999 to December 2013, Mr. Flatley also served as Illumina's President. Prior to joining Illumina, Mr. Flatley was President, Chief Executive Officer, and a member of the Board of Directors of Molecular Dynamics, Inc., a Nasdaq listed life sciences company focused on genetic discovery and analysis, from 1994 until its sale to Amersham Pharmacia Biotech Inc. in 1998. Additionally, he was a co-founder of Molecular Dynamics and served in various other positions there from 1987 to 1994. Mr. Flatley is also a member of the board of directors of Denali Therapeutics Inc., a biopharmaceutical company. Mr. Flatley previously served on the board of directors of Juno Therapeutics, Inc., a biopharmaceutical company. Mr. Flatley holds a B.A. in Economics from Claremont McKenna College and a B.S. and a M.S. in Industrial Engineering from Stanford University.

Mr. Flatley's years of executive and management experience in the high technology industry, including serving as the chief executive officer of several public companies, his service on the boards of other publicly held companies, and his years of service as a director of Coherent make him an invaluable member of the Board.

Pamela Fletcher.    Ms. Fletcher has served as Vice President—eDelivery and Mobility Solutions and Global Innovation at General Motors Company ("GM"), a global automotive company, since February 2020 (for eDelivery and Mobility Solutions) and October 2018 (for Global Innovation) and was previously Vice President—Global Innovation and R&D Laboratories at GM from January 2019 to February 2020 (for R&D Laboratories). Over a fifteen-plus year career with GM, Ms. Fletcher has served in various roles, including Vice President—Global Electric Vehicle Programs from October 2017 to October 2018; Global Executive Chief Engineer, Autonomous and Electrified Vehicles and New Technology from July 2016 to October 2017; Executive Chief Engineer, Electrified Vehicles from August 2012 to July 2016; Chief Engineer, Chevrolet Volt Propulsion System from 2009 to August 2012; and Assistant Chief Engineer, Hybrid & Electric Propulsion Systems from 2007 to 2008. She holds a B.S. in Engineering from Kettering University and an M.S. in Engineering from Wayne State University.

Ms. Fletcher's years of executive and management experience in the automotive industry, her knowledge of advanced and emerging automotive technologies, and her years of service as a director of Coherent make her an invaluable member of the Board.

Andy Mattes.    Mr. Mattes has served as our Chief Executive Officer and President as well as a member of the Board since his appointment on April 6, 2020. Prior to joining Coherent and beginning in June 2019, he was a Senior Advisor to McKinsey & Company, a leading global management consulting firm, providing corporate and strategic consulting services to various clients of the firm. From January 2018 to May 2019, he was an independent corporate advisor. From 2013 to December 2017, he was the Chief Executive Officer and a member of the board of directors of Diebold Nixdorf Incorporated, a retail and financial services technology systems company. He also served as its President from 2013 to August 2016. Mr. Mattes was the Senior Vice President, Global Strategic Partnerships at Violin Memory, a computer storage systems company, in 2013. He has also held various senior management positions with Hewlett-Packard Co., a computer technologies company. From 2008 to 2011 he was the Senior Vice President and General Manager of Hewlett Packard's Enterprise Services for the Americas. From 2006 to 2008 he was Hewlett Packard's Chief Sales Officer for the Enterprise Business. Mr. Mattes spent the first 20 years of his career (between 1985 and 2005) at Siemens, holding a variety of senior leadership positions. These culminated in his role as chief executive officer of Siemens Communications Inc., USA, in Boca Raton, Florida. He received his Diplom-Kaufmann in business administration from Ludwig Maximilan University.

Mr. Mattes' decades of experience developing and executing business strategies, his prior executive service in public companies, his extensive international experience, his recent appointment as our President and Chief Executive Officer, and his previous service on the board of another publicly held company make him an invaluable member of the Board.

Beverly Kay Matthews.    Ms. Matthews is a certified public accountant and retired from Ernst & Young, LLP ("EY"), a global accounting firm, in June 2019, where she served as Vice Chair and Managing Partner of the West Region since 2008. She joined EY in 1983 and held a number of leadership positions, including Chief Operating Officer and Managing Partner of the Americas' Assurance and Advisory Business Services from 2005 to 2008; Managing Partner of the Assurance Practice of the Gulf Coast Region from 2001 to 2005; Managing Partner of the Austin Office from 1998 to 2001; and served as an audit partner for privately and publicly held companies in the technology, transportation and healthcare industries. She is also a member of the board of directors and audit committee of SVB Financial Group, the parent company of Silicon Valley Bank, and Main Street Capital Corporation. Ms. Matthews holds a Bachelors of Business Administration in Accounting from Texas Tech University.

Ms. Matthews' years in the public accounting industry working with public companies in the technology, transportation and healthcare industries, as well as her service on the boards of other publicly held companies, make her an invaluable member of the Board.

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Michael R. McMullen.    Mr. McMullen has served as Chief Executive Officer of Agilent Technologies, Inc. ("Agilent"), a global leader in Life Sciences and Diagnostics, since March 2015 and as President of Agilent since September 2014. From September 2014 to March 2015, he also served as Agilent's Chief Operating Officer. From September 2009 to September 2014, he served as Senior Vice President, Agilent and President, Chemical Analysis Group at Agilent. From January 2002 to September 2009, he served as Agilent's Vice President and General Manager of the Chemical Analysis Solutions Unit of the Life Sciences and Chemical Analysis Group. Prior to assuming this position, from March 1999 to December 2001, Mr. McMullen served as Country Manager for Agilent's China, Japan and Korea Life Sciences and Chemical Analysis Group. Prior to this position, Mr. McMullen served as the Controller for the Hewlett-Packard Company and Yokogawa Electric Joint Venture from July 1996 to March 1999. Mr. McMullen is also a member of the board of directors of Agilent. Mr. McMullen holds a bachelor's degree in economics and business administration from the University of Delaware and an MBA from the Wharton School of Business.

Mr. McMullen's years of executive and management experience in the high technology industry, including serving as the chief executive officer and on the board of another publicly held company, make him an invaluable member of the Board.

Garry W. Rogerson.    Mr. Rogerson has served as Coherent's Chairman of the Board since June 2007. Since September 2015, Mr. Rogerson has been a private investor. From August 2011 to September 2015, Mr. Rogerson was Chief Executive Officer and a member of the Board of Directors of Advanced Energy Industries, Inc., a provider of power and control technologies for thin film manufacturing and solar-power generation, after which he agreed to serve as a special advisor for a period of time. He was Chairman and Chief Executive Officer of Varian, Inc., a major supplier of scientific instruments and consumable laboratory supplies, vacuum products and services, from February 2009 and 2004, respectively, until the purchase of Varian by Agilent Technologies, Inc. in May 2010. Mr. Rogerson served as Varian's Chief Operating Officer from 2002 to 2004, as Senior Vice President, Scientific Instruments from 2001 to 2002, and as Vice President, Analytical Instruments from 1999 to 2001. Mr. Rogerson received an honours degree and Ph.D. in biochemistry as well as an honorary doctoral science degree from the University of Kent at Canterbury.

Mr. Rogerson's years of executive and management experience in the high technology industry, including serving as the chief executive officer of several public companies, his service on the boards of other publicly held companies, and his years of service as a director of Coherent make him an invaluable member of the Board.

Steve Skaggs.    Mr. Skaggs has been a private investor since April 2016. From May 2013 to April 2016, Mr. Skaggs was Senior Vice President and Chief Financial Officer of Atmel Corporation, a leading supplier of microcontrollers, until its acquisition by Microchip Technology Incorporated. Mr. Skaggs has more than 25 years of experience in the semiconductor industry, including serving as President, Chief Executive Officer and Chief Financial Officer of Lattice Semiconductor, a supplier of programmable logic devices and related software. He was also previously a member of the board of directors of Lattice. Prior to Lattice, Mr. Skaggs was employed by Bain & Company, a global management consulting firm, where he specialized in high technology product strategy, mergers and acquisitions and corporate restructurings. Mr. Skaggs is also a member of the board of directors of IDEX Biometrics, ASA. Mr. Skaggs holds an MBA degree from the Harvard Business School and a B.S. degree in Chemical Engineering from the University of California, Berkeley.

Mr. Skaggs' years of executive and management experience in the high technology industry, including serving as the chief executive officer and chief financial officer of other public companies, his prior service on the board of another publicly held company and his years of service as a director of Coherent make him an invaluable member of the Board.

Sandeep Vij.    Since February 2013, Mr. Vij has been a private investor. Previously, he held the position of President and Chief Executive Officer and was a member of the board of directors of MIPS Technologies, Inc., a leading provider of processor architectures and cores, from January 2010 until its sale in February 2013. In addition, Mr. Vij had been the Vice President and General Manager of the Broadband and Consumer Division of Cavium Networks, Inc., a provider of highly integrated semiconductor products from May 2008 to January 2010. Prior to that, he held the position of Vice President of Worldwide Marketing, Services and Support for Xilinx Inc., a digital programmable logic device provider, from 2007 to April 2008. From 2001 to 2006, he held the position of Vice President of Worldwide Marketing at Xilinx. From 1997 to 2001, he served as Vice President and General Manager of the General Products Division at Xilinx. Mr. Vij joined Xilinx in 1996 as Director of FPGA Marketing. He is a graduate of General Electric's Edison Engineering Program and Advanced Courses in Engineering. He holds an MSEE from Stanford University and a BSEE from San Jose State University.

Mr. Vij's years of executive and management experience in the high technology industry, including serving as the chief executive officer of another public company, his service on the board of another publicly held company, and his years of service as a director of Coherent make him an invaluable member of the Board.

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Retiring Director

On May 5, 2019, Susan M. James informed the Board that, in accordance with the mandatory retirement age guideline in our Governance Guidelines, she intends to retire from our Board at the end of her current term and not stand for reelection at our Annual Meeting. We are grateful for Ms. James' distinguished service and leadership on the Board and its committees throughout her tenure, including chairing the Audit Committee for over nine years.

The Company's bylaws provide that the number of directors on the Board will be between five (5) and nine (9), and that the Board has the authority to set the number from time to time. In light of Ms. James' retirement, the Board has resolved that the number of directors on the Board will be decreased from nine (9) to eight (8) effective at our Annual Meeting.

CEO Retirement

On April 6, 2020, the Company announced that John Ambroseo retired from his role as President and CEO and a member of the Board, effective April 6, 2020. Upon his retirement, Mr. Ambroseo transitioned to the role of a Special Advisor to the Company. This transition was effected pursuant to a transition and retirement agreement that was entered into by Mr. Ambroseo and the Company in April 2019.

For further discussion of the transition and retirement agreement with Mr. Ambroseo, see "Compensation Discussion and Analysis—CEO Transition."

Message from Garry Rogerson, Chairman of the Coherent Board of Directors

This is a dynamic, challenging and opportunistic time for the Company. On behalf of the Board we want to thank John for his tireless and successful efforts working for, growing and leading Coherent. Following John's announcement last year that he would be retiring no later than Spring of 2021, the Governance and Nominating Committee ran a worldwide search for his successor to lead Coherent into its next phase. We are pleased to announce that Andy Mattes has joined the Company as our new President and Chief Executive Officer. We are also very appreciative of John's continued commitment to Coherent and this transition, by agreeing to serve as Special Advisor to the Company until December 2021. We also extend our deep appreciation to our retiring colleague, Susan James, who has been a key and instrumental voice on the Board for over a decade of service to Coherent and its stockholders. Finally, the Board is pleased that Andy inherits a strong bench of seasoned and talented management colleagues to support the Company and him into the future.

Director Independence

The Board has determined that, with the exception of Mr. Mattes, all of its current members and all of the nominees for director are "independent directors" as that term is defined in the listing rules of the Nasdaq Stock Market.

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Board Meetings and Committees

The Board held a total of six (6) formal meetings and acted two (2) times by unanimous written consent during fiscal 2019. Additionally, from time to time between formal meetings, members of the Board participate in update or status telephone calls and briefings, which are not included in these totals. During fiscal 2019, the Board had three standing committees: the Audit Committee; the Compensation and HR Committee; and the Governance and Nominating Committee. From time to time, the Board may create, and has in the past created, limited ad hoc committees, service on which does not provide additional compensation. Currently, as discussed below, the Board has one ad hoc committee, the Equity Committee, which is designated and overseen by the Compensation and HR Committee. Each of our directors attended at least 75% of the meetings of the Board and the committees on which he or she served during fiscal 2019.

Audit Committee

The Audit Committee consists of directors James (Chair during fiscal 2019), Matthews, Rogerson and Skaggs. The Audit Committee held thirteen (13) meetings during fiscal 2019. Ms. Fletcher served on the committee until May 9, 2019, and Ms. Matthews was appointed to the committee on July 8, 2019. As Ms. James will no longer serve on the committee upon her retirement from the Board, the Board, upon the recommendation of the Audit Committee, accordingly appointed Mr. Skaggs to serve as Chair effective in December 2019. The Board has determined that directors James, Matthews, Rogerson and Skaggs are "audit committee financial experts" as that term is defined in the rules of the SEC. Among other things, the Audit Committee has the sole authority for appointing and supervising our independent registered public accounting firm and is primarily responsible for approving the services performed by our independent registered public accounting firm and for reviewing and evaluating our accounting principles and our system of internal accounting controls.

Compensation and HR Committee

The Compensation and HR Committee consists of directors Vij (Chair), Flatley, Fletcher and McMullen. The Compensation and HR Committee held nine (9) meetings during fiscal 2019. Mr. L. William Krause served on the committee until his retirement from the Board on February 28, 2019. Mr. McMullen was appointed to the committee on December 6, 2018, and Ms. Fletcher was appointed to the committee on May 9, 2019. As noted above, all of the members of the Compensation and HR Committee are "independent" as defined under the listing rules of the Nasdaq Stock Market. The Compensation and HR Committee, among other things, reviews and approves our executive compensation policies and programs and makes equity grants to employees, including officers, pursuant to our equity plan. In fiscal 2019, this committee had the sole authority delegated to it by the Board to make equity grants to employees of the company serving at a level of vice president and above. These equity grants were approved at meetings of the committee rather than by written consent. On September 27, 2018, the Board, at the recommendation of the Compensation and HR Committee, designated an Equity Committee with authority to make grants of restricted stock units, within guidelines recommended by the Compensation and HR Committee, to individuals who are employees serving at a level below that of vice president. The Equity Committee is composed of our CEO, in his capacity as a member of the Board. The Equity Committee reports to the Compensation and HR Committee periodically and upon request of the Compensation and HR Committee. The Equity Committee's designated authority was first effective for fiscal 2019 and is concurrent with and does not supersede the authority of the Compensation and HR Committee. For additional information about the Compensation and HR Committee's processes and procedures for the consideration and determination of executive compensation, see "Compensation Discussion and Analysis."

Governance and Nominating Committee

The Governance and Nominating Committee consists of directors Rogerson (Chair), Flatley, James and Skaggs. Ms. James will no longer serve on the committee upon her retirement from the Board. The Governance and Nominating Committee held seven (7) meetings during fiscal 2019. The Governance and Nominating Committee, among other things, assists the Board by making recommendations to the Board on matters concerning director nominations and elections, board committees and corporate governance, allocation of risk oversight amongst the Board and its committees and compensation for directors. For fiscal 2019, the committee retained an independent compensation consultant to advise it on compensation for service on the Board. Additionally, the committee led the search process for our new chief executive officer and retained a search consultant to assist in such search.

Copies of the charters for each committee of the Board may be found on our website at www.coherent.com under "Company"/"Investor Relations"/"Corporate Governance"/"Governance Documents."

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Attendance at Annual Meeting of Stockholders by the Members of the Board of Directors

All directors are encouraged, but not required, to attend our annual meeting of stockholders. At our annual meeting held on February 28, 2019, all then-current members of the Board attended in person.

Process for Stockholders to Recommend Candidates for Election to the Board of Directors

The Governance and Nominating Committee will consider nominees properly recommended by stockholders. A stockholder that desires to recommend a candidate for election to the Board must direct the recommendation in writing to us at our principal executive offices (Attention: Corporate Secretary) and must include the candidate's name, age, home and business contact information, principal occupation or employment, the number of shares beneficially owned by the nominee and the stockholder making the recommendation, whether any hedging transactions have been entered into by the nominee or on his or her behalf, information regarding any arrangements or understandings between the nominee and the stockholder nominating the nominee or any other persons relating to the nomination, a written statement by the nominee acknowledging that the nominee will owe a fiduciary duty to Coherent if elected, a written statement of the nominee that such nominee, if elected, intends to tender, promptly following such nominee's election or re-election, an irrevocable resignation effective upon such nominee's failure to receive the required vote for re-election at the next meeting at which such nominee would face re-election and upon acceptance of such resignation by the Board in accordance with Coherent's guidelines or policies, and any other information required to be disclosed about the nominee if proxies were to be solicited to elect the nominee as a director.

For a stockholder recommendation to be considered by the Governance and Nominating Committee as a potential candidate at a meeting of stockholders, nominations must be received on or before the deadline for receipt of stockholder proposals for such meeting. In the event a stockholder decides to nominate a candidate for director and solicits proxies for such candidate, the stockholder will need to follow the rules set forth by the SEC and in our bylaws. See "General Information About the Meeting—Deadline for Receipt of Stockholder Proposals or Nominations; Proxy Access."

The Governance and Nominating Committee's criteria and process for evaluating and identifying the candidates that it approves as director nominees are as follows:

the Governance and Nominating Committee regularly reviews the current composition and size of the Board;

the Governance and Nominating Committee reviews the qualifications of any candidates who have been properly recommended by a stockholder, as well as those candidates who have been identified by management, individual members of the Board or, if the Governance and Nominating Committee determines, a search firm. Such review may, in the Governance and Nominating Committee's discretion, include a review solely of information provided to the Governance and Nominating Committee or may also include discussions with persons familiar with the candidate, an interview with the candidate or other actions that the committee deems proper;

the Governance and Nominating Committee evaluates the performance of the Board as a whole and evaluates the qualifications of individual members of the Board eligible for re-election at the annual meeting of stockholders;

the Governance and Nominating Committee considers the suitability of each candidate, including the current members of the Board, in light of the current size and composition of the Board. Except as may be required by rules promulgated by the Nasdaq Stock Market or the SEC, it is the current belief of the Governance and Nominating Committee that there are no specific, minimum qualifications that must be met by any candidate for the Board, nor are there specific qualities or skills that are necessary for one or more of the members of the Board to possess. In evaluating the qualifications of the candidates, the Governance and Nominating Committee considers many factors, including, issues of character, judgment, independence, age, expertise, diversity of experience, length of service, other commitments and the like. While Coherent does not have a formal policy with regard to the consideration of diversity in identifying director

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    nominees, as noted above, diversity of experience is one of many factors that the committee considers;

the Governance and Nominating Committee considers each individual candidate in the context of the current perceived needs of the Board as a whole. While the Governance and Nominating Committee has not established specific minimum qualifications for director candidates, the committee believes that candidates and nominees must reflect a Board that is comprised of directors who (i) are predominantly independent, (ii) are of high integrity, (iii) have qualifications that will increase the overall effectiveness of the Board, and (iv) meet other requirements as may be required by applicable rules, such as financial literacy or financial expertise with respect to audit committee members;

in evaluating and identifying candidates, the Governance and Nominating Committee has the authority to retain and terminate any third party search firm that is used to identify director candidates and has the authority to approve the fees and retention terms of any search firm; and

after such review and consideration, the Governance and Nominating Committee recommends the slate of director nominees to the full Board for its approval.

The Governance and Nominating Committee will endeavor to notify, or cause to be notified, all director candidates, including those recommended by a stockholder, of its decision as to whether to nominate such individual for election to the Board.

Our corporate governance guidelines require that upon a member of the Board turning 72 years old, he or she shall submit a conditional resignation to the Governance and Nominating Committee effective upon the next annual meeting of stockholders. The committee then determines whether to recommend that the Board accept such resignation. As described in "—Retiring Director" above, on May 5, 2019, Ms. James informed the Board that, in accordance with the mandatory retirement age guideline, she intends to retire from the Board at the end of her current term and will not stand for reelection at the Annual Meeting.

Majority Voting and Conditional Resignations from the Board of Directors

Since 2013, we have had a majority vote standard for the election of directors in elections that are not Contested Elections (as defined below). This means that a nominee for director in an uncontested election such as this one shall be elected to the Board if the votes cast "for" such nominee exceed the votes cast "against" such nominee (with abstentions and broker non-votes not counted as a vote cast either "for" or "against" that director's election). However, if the number of nominees exceeds the number of directors to be elected (a "Contested Election"), our bylaws provide that directors shall be elected by a plurality of the votes cast.

The Board has also adopted a policy on majority voting to (i) establish procedures under which any incumbent director who fails to receive a majority of the votes cast in an election that is not a Contested Election shall tender his or her resignation to the Governance and Nominating Committee for consideration; and (ii) provide that the Governance and Nominating Committee will make recommendations to the Board regarding the actions to be taken with respect to all such offers to resign. The Board shall act on the resignation within 90 days following certification of the election results. In the event that the Board does not accept such resignation, then such director shall continue to serve until such time as his or her successor is elected.

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Stockholder Communication with the Board of Directors

While the Board believes that management speaks for Coherent, the Board encourages direct communication from stockholders. Accordingly, any stockholder may contact any member of the Board individually or as a group by writing by mail to our principal executive offices (c/o Corporate Secretary) at 5100 Patrick Henry Dr., Santa Clara, CA 95054.

Any stockholder may report to us any complaints or comments regarding accounting, internal accounting controls, or auditing matters. Any stockholder who wishes to so contact us should send such complaints or comments to the Audit Committee, c/o Corporate Secretary, at our principal executive offices. Additionally, as noted below, our Compensation and HR Committee encourages stockholder communication on matters related to executive compensation.

Any stockholder communications that the Board receives will first go to our Corporate Secretary, who will log the date of receipt of the communication as well as the identity and contact information of the correspondent in our stockholder communications log.

Our Corporate Secretary will review, summarize and, if appropriate, investigate the complaint under the direction of the Board or appropriate committee of the Board in a timely manner. In the case of accounting or auditing related matters, a member of the Audit Committee, or the Audit Committee as a whole, will then review the summary of the communication, the results of the investigation, if any, and, if appropriate, the draft response. The summary and response will be in the form of a memo, which will become part of the stockholder communications log that the Corporate Secretary maintains with respect to all stockholder communications.

Independent Chair and Board Leadership

The Board's leadership structure consists of an independent Board Chair, who is elected by the independent directors, and independent committee chairs. We separate the positions of Chief Executive Officer ("CEO") and Board Chair in recognition of the differences between the two roles. The Board believes this structure provides independent Board leadership and engagement.

Given that our Chair is an independent director, the Board does not feel the need for a separate "lead independent director," as our independent Chair performs that function. The Board takes its independence seriously and reinforces this standard with seven of the eight director nominees, or 88%, being independent.

The Role of the Board and Its Committees in Risk Oversight

The Board oversees Coherent's risk profile and management's processes for assessing and managing risk, both as a Board and through its committees, with the Governance and Nominating Committee delegated the responsibility for assigning oversight responsibilities to each committee and the Board as a whole. Our senior executive team provides regular updates to the Board and each committee regarding our strategies and objectives and the risks inherent with them.

Each regular meeting of the Board includes a discussion of risks related to the Company's financial results and operations and each committee schedules risk-related presentations regularly throughout the year. In addition, our directors have access to our management to discuss any matters of interest, including those related to risk. Those members of management most knowledgeable of the issues attend Board and committee meetings to provide additional insight on the matters being discussed, including risk exposures. Our Chief Financial Officer and General Counsel both report directly to our CEO, providing him with further visibility to our risk profile. A Corporate Vice President of Finance is the designated officer overseeing our enterprise risk management program

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and works closely with both our Chief Financial Officer and General Counsel on these matters.

These regular meetings also provide our Board members the opportunity to discuss issues of concern directly with management. In general, the Board and its committees oversee the following risk categories:

the Board generally oversees the Company's overall enterprise risk management process and specifically with regard to the areas of strategy, mergers and acquisitions, communications and operations;

the Audit Committee generally oversees risks primarily related to financial controls, IT, accounting, tax, treasury, capital, legal, regulatory and compliance;

the Compensation and HR Committee generally oversees our compensation programs so that they do not incentivize excessive risk taking as well as overseeing human resources related risks; and

the Governance and Nominating Committee oversees the assignment of risk oversight categories by each particular committee and/or the Board as a whole, as well as those risks related to compensation of members of the Board and succession planning for the Board and our CEO.

Management presents an annual assessment of the risks associated with the Company's compensation plans. The Compensation and HR Committee agreed with the conclusion from the first quarter of fiscal 2020 presentation that the risks were within our ability to effectively monitor and manage and that these risks are not reasonably likely to have a material adverse effect on the Company.

Hedging Policy

The Board (acting on the recommendation of the Audit Committee) has approved the Company's Insider Trading Policy (the "Policy"), which applies to all directors, officers and employees of the Company. The Policy includes the following restrictions:

A prohibition against "short sales" (i.e., the sale of a security that must be borrowed to make delivery) and "selling short against the box" (i.e., a sale with a delayed delivery) with respect to Company securities by any director, officer or employee of the Company;

A prohibition against any director, officer or employee of the Company engaging in transactions in publicly traded options, such as puts and calls, and other derivative securities with respect to the Company's securities. This prohibition extends to any hedging or similar transaction designed to decrease the risks associated with holding Company securities;

A prohibition against pledging Company securities as collateral for loans by any director, officer or employee of the Company who is subject to (1) the reporting requirements of Section 16 of the Securities Exchange Act or (2) the Company's blackout periods or pre-clearance requirements under the Policy (a "designated insider"); and

A prohibition against holding Company securities in margin accounts by any director, officer or employee of the Company who is a designated insider.

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Additional Board Governance Matters

The Board (acting on the recommendation of the Governance and Nominating Committee) has approved the Company's Corporate Governance Guidelines, which include, among other items (in addition to those items described elsewhere in this proxy statement), the following provisions:

At each regular meeting of the Board, the independent directors also meet in executive session without the presence of management;

To avoid "over-boarding" we maintain the following limits on service on other boards:

CEO—No more than one (1) other public company board of directors in addition to the Company (note, however, that Mr. Mattes does not currently serve on any public company boards other than ours);

Independent Directors—No more than four (4) other public company boards of directors in addition to the Company;

Audit Committee members—No more than three (3) other public company audit committees in addition to the Company, unless the other independent directors consent;

Each independent member of the Board must, within five years of initial appointment, acquire and thereafter maintain a minimum value of Company stock equal to three times such director's annual Board cash retainer (exclusive of any cash retainer for service as chair or committee service);

The Board is responsible for reviewing the Company's succession planning and senior management development on an annual basis; and

The Board maintains an age-based term limit of 72 (provided, that the Governance and Nominating Committee maintains the flexibility to not apply such limit on a facts and circumstances basis).

Fiscal 2019 Director Compensation

During fiscal 2019, we paid our non-employee directors an annual cash retainer (depending upon position) for service on the Board as follows:

Position
  Annual Retainer
 

Board Member

  $ 60,000  

Board Chair

  $ 60,000 (1)

Audit Committee Chair

  $ 34,000  

Compensation and HR Committee Chair

  $ 20,000  

Governance and Nominating Committee Chair

  $ 13,500  

Audit Committee member (non-Chair)

  $ 12,500  

Compensation and HR Committee member (non-Chair)

  $ 10,000  

Governance and Nominating Committee member (non-Chair)

  $ 6,500  
(1)
On December 6, 2018, after reviewing materials provided by its compensation consultant, the Governance and Nominating Committee approved an increase to the annual retainer of the Board Chair from $50,000 to $60,000 effective as of the beginning of the second quarter of fiscal 2019.

The Governance and Nominating Committee annually reviews Board and committee compensation with the assistance of an independent compensation consultant, which for fiscal 2019 was Compensia. Compensia is separately compensated for this work from the work it does as the Compensation and HR Committee's independent consultant for executive compensation. The annual review includes a comparison to peer companies (which are the same as used for executive compensation as noted on page 42) and market pay practices for service on boards of directors. Compensia advised the committee that the design and pay levels of the director compensation program were aligned with peer market practices, including the increase in the annual retainer of the Board Chair as described in note (1) to the Fiscal 2019 Director Compensation table above. As noted, the Board is compensated with a combination of cash retainers and a fixed

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value of time-based RSUs. As noted elsewhere in this proxy statement, Compensia has not provided any other service for the Company other than as directed by a committee of the Board.

Following the recommendation of the Governance and Nominating Committee (based upon review by Compensia) in February 2017, the Board adopted resolutions automatically granting each year without any discretion to each non-employee director an award of RSUs under the 2011 Equity Incentive Plan (rounded down to the nearest whole share) valued at $225,000 (based on the trailing thirty day closing price of the Company's common stock on the Nasdaq Stock Market measured from the last trading day prior to the date of grant) upon the director's election to the Board at the Company's annual meeting. In addition, the Board determined that upon the initial appointment of a non-employee director, such director will receive an award of RSUs under the 2011 Equity Incentive Plan valued at $225,000 (based on the trailing thirty day closing price of the Company's common stock on the Nasdaq Stock Market measured from the last trading day prior to the date of grant), which RSUs shall vest over two years (fifty percent on each anniversary of the date of grant). This was a change from the historical practice of granting a fixed number of 3,500 RSUs per year.

The chart below presents information concerning the total compensation of our non-employee directors for service (including the Board and, where applicable, committee service) during fiscal 2019:

Name
  Fees Earned or
Paid in
Cash ($)(1)

  Stock Awards
($)(2)(3)

  Option Awards
($)(4)

  Total ($)
 

Jay T. Flatley

  76,500   240,209     316,709  

Pamela Fletcher

  74,375   240,209     314,584  

Susan M. James

  100,500   240,209     340,709  

L. William Krause*

  35,000       35,000  

Beverly Kay Matthews*

  33,125   204,405     237,530  

Michael R. McMullen

  67,500   240,209     307,709  

Garry W. Rogerson

  143,500   240,209     383,709  

Steve Skaggs

  79,000   240,209     319,209  

Sandeep Vij

  80,000   240,209     320,209  
*
Fees paid in cash to Mr. Krause and Ms. Matthews reflect the pro-rata amount for their respective service during the fiscal year. Mr. Krause retired from the Board effective as of February 28, 2019, and Ms. Matthews joined the Board effective as of May 9, 2019.

(1)
The chart below summarizes the gross cash amounts earned by non-employee directors for service during fiscal 2019 on the Board and its committees:
Name
  Annual Board
Service
($)

  Audit
Committee
($)

  Compensation
and HR
Committee
($)

  Governance
and Nominating
Committee
($)

  Total
($)

 

Jay T. Flatley

  60,000     10,000   6,500   76,500  

Pamela Fletcher

    60,000     9,375   5,000       74,375  

Susan M. James

  60,000   34,000     6,500   100,500  

L. William Krause*

    30,000         5,000       35,000  

Beverly Kay Matthews

  30,000 3,125     33,125  

Michael R. McMullen

    60,000         7,500       67,500  

Garry W. Rogerson

  117,500   12,500     13,500   143,500  

Steve Skaggs

    60,000     12,500         6,500     79,000  

Sandeep Vij

  60,000     20,000     80,000  
*
Retainer amounts for Mr. Krause are pro-rata for his service during the fiscal year. Mr. Krause retired from the Board effective as of February 28, 2019.

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Reflects pro-rata amounts for service on the Board and the respective committee during the year; the applicable individual did not serve on the Board or applicable committee for the entire fiscal year. In the case of Ms. Matthews, she joined the Board effective as of May 9, 2019.
(2)
These amounts do not reflect compensation actually received. Rather, these amounts represent the aggregate grant date fair value computed in accordance with ASC 718, for restricted stock units ("RSUs") which were granted in fiscal 2019. The assumptions used to calculate the value of these RSUs are set forth in Note 13 "Employee Stock Award and Benefit Plans" of the Notes to the Consolidated Financial Statements in our annual report on Form 10-K for fiscal 2019. Note that Ms. Matthews' stock awards are at a different value due to the difference in the trailing thirty day closing price of the Company's common stock measured from the last trading day prior to the grant date of her stock awards as compared to the other directors, who received their grants on a different date.

(3)
The aggregate number of shares underlying unvested RSUs held by each of our non-employee directors as of the end of fiscal 2019 (including the grants made to our non-employee directors during fiscal 2019) was as follows:
Name
  Shares(a)
 

Jay T. Flatley

  1,805(b)  

Pamela Fletcher

    1,805(b)  

Susan M. James

  1,805(b)  

L. William Krause

     

Beverly Kay Matthews

  1,500(c)  

Michael R. McMullen

    2,422(d)  

Garry W. Rogerson

  1,805(b)  

Steve Skaggs

    1,805(b)  

Sandeep Vij

  1,805(b)  
(a)
The shares underlying the RSUs will vest to the extent an individual is a member of the Board on the applicable vesting date.

(b)
These shares will vest on February 15, 2020.

(c)
50% of the shares are scheduled to vest on each of May 9, 2020 and May 9, 2021.

(d)
1,805 shares will vest on February 15, 2020 and 617 shares are scheduled to vest on September 28, 2020.
(4)
No stock options have been granted to our non-employee directors since 2011. As of the end of fiscal 2019, Mr. Flatley held outstanding stock options with respect to 24,000 shares, expiring in September 2021, and none of the other non-employee directors held any stock options.

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Option Exercises and Stock Vested during Fiscal 2019

The table below sets forth certain information for each non-employee director regarding the exercise of options and the vesting of stock awards during fiscal 2019, including the aggregate value realized upon such exercise or vesting.

 
  Option Awards   Stock Awards  
Name
  Number of Shares
Acquired on
Exercise
(#)

  Value Realized
on Exercise
($)

  Number of Shares
Acquired on
Vesting
(#)

  Value Realized
on Vesting
($)(1)

 

Jay T. Flatley

      916   117,303  

Pamela Fletcher

      1,375   179,897  

Susan M. James

      916   117,303  

L. William Krause

      916   117,303  

Beverly Kay Matthews

         

Michael R. McMullen

      617   93,500  

Garry W. Rogerson

      916   117,303  

Steve Skaggs

      916   117,303  

Sandeep Vij

      916   117,303  
(1)
Reflects the market price of our common stock on the vesting date or the last day on which our common stock traded prior to the vesting date if trading did not occur on the vesting date.

Vote Required

The affirmative vote of a majority of the votes cast is required for the election of directors. You may vote "FOR," "AGAINST" or "ABSTAIN" with respect to each of the director nominees named in this proxy statement. Pursuant to our bylaws, abstentions and broker non-votes are not considered to be votes cast with respect to the election of directors and, therefore, will not have an effect in determining the outcome of the election of directors. If a quorum is present, each of the eight (8) nominees who receives more "FOR" votes than "AGAINST" votes will be elected.

Every stockholder voting for the election of directors may cumulate such stockholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which the stockholder's shares are entitled. Alternatively, a stockholder may distribute his or her votes on the same principle among as many candidates as the stockholder thinks fit, provided that votes cannot be cast for more than eight (8) candidates. However, no stockholder will be entitled to cumulate votes for a candidate unless (i) such candidate's name has been properly placed in nomination for election at the Annual Meeting prior to the voting and (ii) the stockholder, or any other stockholder, has given notice at the meeting prior to the voting of the intention to cumulate the stockholder's votes. If cumulative voting occurs at the meeting and you do not specify how to distribute your votes, your proxy holders (the individuals named on your proxy card) will cumulate votes in such a manner as will ensure the election of as many of the nominees listed above as possible, and the specific nominees to be voted for will be determined by the proxy holders.

Recommendation

The Board recommends that stockholders vote "FOR" each of the eight nominees presented herein.

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PROPOSAL TWO
APPROVAL OF THE COHERENT EQUITY INCENTIVE PLAN

Our Board believes that we must offer a competitive equity incentive program if we are to continue to successfully attract and retain the best possible candidates for positions of substantial responsibility within Coherent. Our current company-wide equity plan, the 2011 Equity Incentive Plan, expires by its terms in January 2021. We believe it is appropriate to adopt a new company-wide equity plan, which includes limits on director awards as well as employee awards. Accordingly, our Board, at the recommendation of its Compensation and HR Committee, has adopted a new Equity Incentive Plan (the "Plan") to replace the 2011 Equity Incentive Plan, subject to, and effective as of, approval from our stockholders at the Annual Meeting. The purposes of the Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentives and to promote the success of the Company.

Plan Share Reserve

As of March 27, 2020, 1,484,434 shares remained available for issuance under the 2011 Equity Incentive Plan. If stockholders approve the Plan, there will be no further grants of awards under the 2011 Equity Incentive Plan. However, the 2011 Equity Incentive Plan will continue to govern awards previously granted under it.

The maximum aggregate number of shares that may be issued under the Plan is 3,080,000 shares plus any forfeited or cancelled shares subject to outstanding awards under the 2011 Equity Incentive Plan. The share reserve for the Plan is reduced by one share for each share granted pursuant to stock options or stock appreciation rights and by two shares for each share granted pursuant to all other awards with a purchase price lower than the fair market value of a share on the date of grant. As of March 27, 2020, there were outstanding unvested awards under the 2011 Equity Incentive Plan with respect to 408,477 shares (calculated at 100% of target amount for performance awards). Therefore, the maximum number of shares that could be added to the maximum aggregate number of shares under the Plan if all such awards were forfeited or expired unexercised and no additional awards were granted before the adoption of the Plan would be 816,954, assuming all outstanding awards were forfeited or expired unexercised and were added back at the ratio described above.

If awards granted under the Plan expire or otherwise terminate without having been exercised or settled in full, or if shares subject to forfeiture or repurchase upon failure to vest are forfeited or repurchased, such shares will again become available for issuance under the Plan in proportion to the number of shares by which the Plan reserve was originally reduced at the time of grant or issuance. Shares will not be treated as having been issued under the Plan, and will therefore not reduce the number of shares available for grant, to the extent an award is settled in cash or substitute awards are granted in connection with a transaction. Shares will be treated as having been issued under the Plan to the extent such shares are withheld in satisfaction of tax withholding obligations for stock options or stock appreciation rights or the payment of an award's exercise or purchase price. Upon exercise of stock appreciation rights or net exercise of options, the gross number of shares exercised will be treated as having been issued under the Plan.

Our Board believes that the Plan will be a vital component in helping the Company attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentives and to promote the success of the Company. The Board believes that the Plan will continue the Company's responsible approach with respect to share usage and dilution, as the potential maximum dilution from the shares to be authorized under the Plan will be 13%, based on the total shares outstanding as of September 28, 2019. Accordingly, the Board believes that the Company's request for an additional 3,080,000 shares is reasonable and prudent and allows us to continue our current granting practices in the future and to be able to respond to growth (both organic and inorganic), market competition and potential stock price fluctuations.

On March 27, 2020, the closing price on NASDAQ of a share of Company stock was $103.07.

Why Stockholders Should Approve the Plan

Equity awards are an important component of the Company's compensation program.  The Plan, as described herein, will help the Company to continue to

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    attract and retain the services of qualified employees, officers and non-employee directors.

Equity incentives align the interests of our employees, officers and non-employee directors with those of other stockholders. Equity incentives appropriately encourage recipients to focus on growth in stockholder value.

Our 2011 Equity Incentive Plan will be expiring.  If we do not adopt a new equity plan, then we will not have shares available to grant under a stockholder approved plan after the 2011 Equity Incentive Plan expires in January 2021.

Key Plan Features

Our Board believes that the Plan incorporates and promotes best practices by reinforcing the alignment between equity compensation arrangements for eligible participants and stockholders' interests. The Plan includes the following key features:

No dividend equivalents paid on unvested awards:  No dividend equivalents will be paid to any participant until the award vests.

Clawback/recoupment provision:  The Plan includes a "clawback", or recoupment provision, which provides that awards will be subject to cancellation or forfeiture pursuant to any clawback, recoupment, or similar policy required by law or otherwise adopted by our Board.

Annual limit on non-employee director awards:  The plan establishes an annual limitation of $750,000 on the amount of cash compensation and value of shares awarded to non-employee directors.

Overall annual limit on awards:  The Plan establishes certain annual limits on awards as described below.

Explicit "no repricing" provisions:  The exercise price for an option or stock appreciation rights may not be reduced without stockholder approval.

No transferability:  All awards will be nontransferable except by will or by the laws of descent and distribution.

General Plan Summary

Eligible participants in the Plan are employees and consultants of the Company and its subsidiaries and members of the Board. As of March 27, 2020, approximately 4,948 employees, 44 consultants and eight non-employee directors would be eligible to participate in the Plan if it were approved.

If approved, our Board of Directors or a designated committee, most likely the Compensation and HR Committee (the "administrator") will administer the Plan. The Plan permits the granting of:

Restricted stock units (RSUs).  Awards of RSUs result in a payment to a participant only if the vesting criteria the administrator establishes are satisfied. Upon satisfying the applicable vesting criteria, the participant will be entitled to the payout specified in the award agreement. The administrator, in its sole discretion, may pay earned RSUs in cash, shares, or a combination thereof;

Performance shares.  The administrator will be able to grant performance shares, which are awards that will result in a payment to a participant only if the performance goals or other vesting criteria the administrator may establish are achieved or the awards otherwise vest. The administrator will establish performance or other vesting criteria, which, depending on the extent to which they are met, will determine the number and/or the value of performance shares to be paid out to participants;

Restricted stock.  Awards of restricted stock are rights to acquire or purchase shares of our common stock, which vest in accordance with the terms and conditions established by the administrator;

Options.  Either incentive stock options, which must comply with Section 422 of the Code, or nonqualified stock options may be granted. The Administrator sets option exercise prices and terms, except that the exercise price of stock options granted under the Plan must be at least 100% of the fair market value of the common stock on the date of grant. No incentive stock option may be granted after 10 years from date of the Plan's initial adoption by the Board and ISOs may not be granted with respect to more than the maximum number of shares issuable under the Plan as described above. We note, however, that while no options have been granted to employees since fiscal 2010, it is important to include this element to provide the administrator with flexibility regarding types of equity;

Stock appreciation rights (SARs).  The administrator will be able to grant SARs, which are the rights to receive the appreciation in fair market value of common stock between the exercise date and the date of grant. The appreciation may be paid in cash, common stock of equivalent value, or a combination thereof. SARs will become exercisable at the times and on the terms established by the administrator, subject to the terms of the Plan. The administrator, subject to the terms of the Plan, will determine the terms and conditions of SARs granted under the Plan; provided, however, that the exercise price may not be less than 100% of the fair market value of a share on the date of grant;

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Dividend equivalents.  Dividend equivalents represent the right of a participant to receive amounts based on the dividends declared on shares of common stock as of dividend payment dates during the term of the dividend equivalent right. Dividend equivalents will not be paid to any participant with respect to any unvested award until such award vests but this limitation does not prohibit the payment of dividend equivalent rights attributable to the period while an award was unvested to be paid upon or after the vesting of the award;

Cash-payments to non-employee directors.  Cash retainers and other cash payments for service as a non-employee director are made under the Plan; and

Deferred stock units.  Deferred stock units consist of a restricted stock, RSU, performance share or dividend equivalent right award that the administrator permits to be paid out in installments or on a deferred basis.

The number of awards under the Plan that a participant may receive is limited. Subject to certain capital and transaction adjustments, no participant shall be granted, in any fiscal year, (i) options and stock appreciation rights to purchase more than 500,000 shares; provided, however, that such limit shall be 1,000,000 shares in the participant's first fiscal year of Company service; and (ii) more than 400,000 shares in the aggregate of restricted stock, performance shares, or RSUs; provided, however, that such limit shall be 600,000 shares in the participant's first fiscal year of Company service. In addition, no non-employee director shall be granted in any fiscal year solely with respect to ordinary service as a director on the Board and any standing committee thereof awards that exceed $750,000 in the aggregate value of cash-based and other awards.

The Plan provides that options and stock appreciation rights may not be repriced without stockholder approval. In the event that the successor corporation in the event of a merger or change in control refuses to assume or substitute for the award, the participant will fully vest in and have the right to exercise all of his or her outstanding options or SARs, including shares with respect to awards that would not otherwise be vested or exercisable, all restrictions on restricted stock will lapse, all RSUs will fully vest, and, with respect to awards with performance-based vesting, all performance goals or other vesting criteria will be deemed achieved at the greater of performance through closing and 100% of target levels and all other terms and conditions met unless otherwise expressly provided for in the award agreement.

If certain changes in our stock occur by reason of a stock split, reverse stock split, stock dividend, combination or reclassification, or certain other changes in our capital structure, the number of shares covered by outstanding awards, the number of shares that remain authorized for issuance under the Plan, the exercise or purchase price of outstanding awards and the annual share limits will be proportionately adjusted.

Awards under the Plan are subject to any applicable Company clawback policy and any additional clawback provisions of applicable law or applicable listing standards.

The Board may amend or terminate the Plan but no amendment or termination may materially impair the rights of any participant unless agreed to by the participant.

The description of the Plan in this Proposal Two is a summary and does not purport to be a complete description and is qualified in its entirety by reference to the text of the Plan set forth in Appendix A. See Appendix A for more detailed information regarding the Plan.

Certain Federal Income Tax Consequences

The following is a brief summary of current federal income tax consequences of awards that could be granted under the Plan. The applicable rules are complex and income tax consequences may vary depending upon the particular circumstances of each participant. The summary is very general in nature and does not purport to describe particular consequences to individual plan participants and does not discuss the tax laws of any state, municipality or foreign jurisdiction or gift, estate, excise, payroll or other tax laws, including the impact of Internal Revenue Code Section 280G governing parachute payments.

RSUs:    A holder of an RSU does not recognize taxable income when the RSU is granted. When vested RSUs are settled and shares distributed, the participant will recognize ordinary income equal to the fair market value of shares received.

Performance awards:    No income generally will be recognized upon the grant of a performance award. Upon payment in respect of a performance award, the recipient generally will be required to include as taxable ordinary income in the year of receipt an amount equal to the fair market value of any vested shares of common stock or cash received.

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Restricted stock awards:    For restricted stock awards, unless vested or the recipient elects under Internal Revenue Code Section 83(b) to be taxed at the time of grant or purchase, the recipient will not have taxable income upon the grant, but will recognize ordinary income upon vesting equal to the fair market value of the shares at the time of vesting less the amount paid for such shares (if any). Any gain or loss recognized upon any later disposition of the shares generally will be a capital gain or loss.

Stock options and stock appreciation rights:    A recipient of a stock option or stock appreciation right will not recognize taxable income upon the grant of those awards. For nonqualified stock options and stock appreciation rights, the participant will recognize ordinary income upon exercise in an amount equal to the difference between the fair market value of the shares and the exercise price on the date of exercise. Any gain or loss recognized upon any later disposition of the shares generally will be a capital gain or loss. The acquisition of shares upon exercise of an incentive stock option will not result in any taxable income to the participant, except, possibly, for purposes of the alternative minimum tax. The gain or loss recognized by the participant on a later sale or other disposition of such shares will either be long-term capital gain or loss or ordinary income, depending upon whether the participant holds the shares for the legally required period (currently more than two years from the date of grant and more than one year from the date of exercise). If the shares are not held for the legally required period, the participant will recognize ordinary income equal to the lesser of (i) the difference between the fair market value of the shares on the date of exercise and the exercise price, or (ii) the difference between the sales price and the exercise price. Any additional gain recognized on the sale generally will be short-term or long-term capital gain. The Company will generally be eligible for an income tax deduction equal to the income recognized by the participant in the year of the exercise of a nonqualified stock option or stock appreciation right but will generally not be eligible for an income tax deduction with respect to incentive stock options unless the holding periods described above are not met.

Section 409A:    Section 409A of the Code provides certain requirements for non-qualified deferred compensation arrangements with respect to a participant's deferral and distribution elections and permissible distribution events. Awards granted under the Plan with a deferral feature will be subject to the requirements of Section 409A. If an award is subject to and fails to satisfy the requirements of Section 409A, the recipient of that award may recognize ordinary income on the amounts deferred under the award, to the extent vested, which may be prior to when the compensation actually or constructively is received. Also, if an award that is subject to Section 409A fails to comply with Section 409A's provisions, Section 409A imposes an additional 20% federal income tax on compensation recognized as ordinary income, as well as interest on such deferred compensation.

Section 162(m) limitations:    As a public company, the Company is subject to the tax-deduction rule of Section 162(m) of the Code generally limiting the otherwise allowable deduction to the Company to $1 million for certain executives except to the extent the compensation was pursuant to a written agreement in effect on November 2, 2017 and meets certain requirements.

Awards

Our Board believes that we must offer a competitive equity incentive program if we are to continue to successfully attract and retain the best possible candidates for positions of substantial responsibility within Coherent. Our Board expects that the Plan will be an important factor in attracting, retaining and rewarding the high caliber employees essential to our success and in providing incentive to these individuals to promote the success of the Company.

No awards have yet been made under the Plan. Awards under the Plan would be made at the discretion of the administrator. Therefore, the benefits and amounts that will be received or allocated under the Plan in the future are not determinable at this time. No awards have been granted that are contingent on the approval of the Plan. The Board has previously adopted resolutions automatically granting each year without any discretion to each non-employee director an award of RSUs valued at $225,000 upon the director's election to the Board at the Company's annual meeting. In addition, the Board determined that upon the initial appointment of a non-employee director, such director will receive an award of RSUs valued at $225,000. If the Plan is approved, these RSU grants to directors would be made under the Plan.

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EQUITY COMPENSATION PLAN INFORMATION

The following table provides information as of September 28, 2019 about the Company's equity compensation plans under which shares of our common stock may be issued to employees, consultants or members of the Board:

Plan category
  (a) Number of
securities to be issued
upon exercise of
outstanding options,
warrants and rights

  (b) Weighted-average
exercise price of
outstanding options,
warrants and rights(1)

  (c) Number of securities
remaining available for
future issuance under equity
compensation plans (excluding
securities reflected in column (a))

 

Equity compensation plans approved by security holders

  452,145 (2) $ 44.74 (3) 2,170,187 (4)

Equity compensation plans not approved by security holders

             

TOTAL

  452,145   $ 44.74   2,170,187 (5)
(1)
The weighted average exercise price does not reflect shares that will be issued upon the vesting of outstanding RSUs or upon the exercise of rights under the Employee Stock Purchase Plan.

(2)
This number does not include any options that may be assumed by us through mergers or acquisitions; however, we do have the authority, if necessary, to reserve additional shares of our common stock under these plans to the extent necessary for assuming such options.

(3)
Represents the exercise price for one outstanding option in the amount of 24,000 shares, which had a remaining contractual term of 1.98 years as of September 28, 2019.

(4)
This number of shares includes 250,749 shares of common stock reserved for future issuance under the Employee Stock Purchase Plan and 1,919,438 shares reserved for future issuance under the 2011 Equity Incentive Plan. This number reflects counting each share issued pursuant to vested RSUs (either service or performance-based) as 2.15 shares. If calculated at one share for each share issued, the number would be 4,739,935. Under either calculation, performance-based RSUs are included at 100% of target goal; under the terms of performance-based RSUs, the recipient may earn between 0% and 200% of the award.

(5)
As of March 27, 2020, 1,484,434 shares remained available for future issuance under the 2011 Equity Incentive Plan.

Vote Required

The affirmative vote of a majority of votes present in person or represented by proxy and entitled to vote at the Annual Meeting is required to approve the Plan.

Recommendation

The Board of Directors unanimously recommends that stockholders vote "FOR" the approval of the Equity Incentive Plan.

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PROPOSAL THREE
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee of the Board has selected Deloitte & Touche LLP, an independent registered public accounting firm, to audit our financial statements for the fiscal year ending October 3, 2020, and, along with the full Board, recommends that stockholders vote for ratification of such appointment. Deloitte & Touche LLP has audited our financial statements since the fiscal year ended September 25, 1976. Although ratification by stockholders is not required by law, the Audit Committee has determined that it is desirable to request ratification of this selection by the stockholders as a matter of good corporate practice. Notwithstanding its selection, the Audit Committee, in its discretion, may appoint a new independent registered public accounting firm at any time during the year if the Audit Committee believes that such a change would be in the best interest of Coherent and its stockholders. If stockholders do not ratify the appointment of Deloitte & Touche LLP, the Audit Committee may reconsider its selection. The Audit Committee selected Deloitte & Touche LLP to audit our financial statements for the fiscal year ended September 28, 2019, which was ratified by our stockholders.

Representatives of Deloitte & Touche LLP are expected to be present at the meeting and will be afforded the opportunity to make a statement if they desire to do so. The representatives of Deloitte & Touche LLP are also expected to be available to respond to appropriate questions.

Principal Accounting Fees and Services

The following table sets forth fees for services provided by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, "Deloitte") during fiscal 2019 and 2018:

 
  2019
  2018
 

Audit fees(1)

  $ 3,454,348   $ 3,589,147  

Tax fees(2)

    546,618     931,017  

All other fees(3)

  1,895   1,895  

Total

  $ 4,002,861   $ 4,522,059  
(1)
Represents fees for professional services provided in connection with the integrated audit of our annual financial statements and internal control over financial reporting and review of our quarterly financial statements, advice on accounting matters that arose during the audit and audit services provided in connection with other statutory or regulatory filings.

(2)
Represents tax compliance and related services.

(3)
Represents the annual subscription for access to the Deloitte Accounting Research Tool, which is a searchable on-line accounting database.

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Proposal Three    Ratification of the Appointment of Deloitte &
Touche LLP as Independent Registered
Public Accounting Firm



 



 


    



 



 



 



 



 



Pre-Approval of Audit and Non-Audit Services

The Audit Committee has determined that the provision of non-audit services by Deloitte is compatible with maintaining Deloitte's independence. In accordance with its charter, the Audit Committee approves in advance all audit and non-audit services to be provided by Deloitte. In other cases, the Chairman of the Audit Committee has the delegated authority to pre-approve certain additional services, and such pre-approvals are communicated to the full Audit Committee at its next meeting. During fiscal years 2019 and 2018, 100% of the services were pre-approved by the Audit Committee in accordance with this policy.

Vote Required

The affirmative vote of a majority of votes present in person or represented by proxy and entitled to vote at the Annual Meeting is required to ratify the selection of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending October 3, 2020.

Recommendation

The Audit Committee and the Board recommends that stockholders vote "FOR" the ratification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending October 3, 2020.

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PROPOSAL FOUR
APPROVAL ON A NON-BINDING, ADVISORY BASIS, OF OUR NAMED EXECUTIVE OFFICER COMPENSATION

At our annual meeting in March 2017, our stockholders indicated they would like to have an annual advisory vote on executive compensation. Accordingly, the Board proposes that stockholders provide advisory (non-binding) approval of the compensation of our named executive officers, as disclosed pursuant to the compensation disclosure rules of the SEC, including the Compensation Discussion and Analysis, the Fiscal 2019 Summary Compensation Table and related tables and disclosure.

As described in our Compensation Discussion and Analysis, we have adopted an executive compensation philosophy designed to provide alignment between executive pay and performance and to focus executives on making decisions that enhance our stockholder value in both the short and long term. Executives are compensated in a manner consistent with Coherent's strategy, competitive practices, stockholder interest alignment, and evolving compensation governance standards.

Vote Required

The affirmative vote of a majority of votes present in person or represented by proxy and entitled to vote at the Annual Meeting is required to approve the compensation of our named executive officers disclosed in this proxy statement. The vote is an advisory vote and, therefore, not binding. The Board values the opinions of our stockholders and to the extent there is any significant vote against our named executive officer compensation as disclosed in this proxy statement, the Board will consider our stockholders' concerns and the Compensation and HR Committee will evaluate whether any actions are necessary to address those concerns.

Recommendation

The Board recommends that stockholders vote "FOR" the approval, on a non-binding, advisory basis of our named executive officer compensation disclosed in this proxy statement.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of March 3, 2020, certain information with respect to the beneficial ownership of Coherent common stock by (i) any person (including any "group" as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange Act")) known by us to be the beneficial owner of more than 5% of our voting securities, (ii) each director and each nominee for director, (iii) each of the executive officers named in the Summary Compensation Table appearing herein, and (iv) all current executive officers and directors as a group. We do not know of any arrangements, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change of control. Unless otherwise indicated, the address of each stockholder in the table below is c/o Coherent, Inc., 5100 Patrick Henry Drive, Santa Clara, California 95054.

Name and Address
  Number
of Shares

  Percent of
Total(1)

Wellington Management Group LLP(2)
c/o Wellington Management Company LLP
280 Congress Street
Boston, MA 02210




 
2,490,193   10.30%

Vanguard Group Inc.(3)
100 Vanguard Blvd.
Malvern, PA 19355

    2,261,774   9.36%

Blackrock Inc.(4)
55 East 52nd Street
New York, NY 10055



 
2,256,984   9.34%

Victory Capital Management Inc.(5)
4900 Tiedeman Rd. 4th Floor
Brooklyn, OH 44144

    1,265,659   5.24%

John R. Ambroseo(6)

  187,195   *

Andreas W. Mattes

      *

Kevin Palatnik

  27,231   *

Mark Sobey

    8,816   *

Bret DiMarco(7)

  19,743   *

Paul Sechrist(8)

    13,878   *

Jay T. Flatley(9)

  40,014   *

Pamela Fletcher

    3,180   *

Susan M. James

  8,014   *

Beverly Kay Matthews

      *

Michael R. McMullen

  2,422   *

Garry W. Rogerson(10)

    14,514   *

Steve Skaggs

  12,514   *

Sandeep Vij(11)

    7,514   *

All current directors and executive officers as a group (13 persons)(12)

  148,822   *
*
Represents less than 1%.

(1)
Based upon 24,166,669 shares of Coherent common stock outstanding as of March 3, 2020. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to the securities. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, each share of Coherent common stock subject to options held by that person that are currently exercisable or will be exercisable within 60 days of March 3, 2020 and all RSUs held by that person that will vest within 60 days of March 3, 2020,

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Security Ownership of Certain Beneficial Owners and Management



 


    



 



 



 



 



 



 

    are deemed outstanding. Such shares are not deemed outstanding for the purpose of computing the percentage ownership of any other person.

(2)
Based on a Schedule 13G/A filed on January 8, 2020.

(3)
Based on a Schedule 13G/A filed on February 12, 2020.

(4)
Based on a Schedule 13G/A filed on February 5, 2020.

(5)
Based on a Schedule 13G filed on January 31, 2020.

(6)
Includes 1,206 shares issuable upon vesting of RSUs within 60 days of March 3, 2020 and 185,989 shares owned by the Ambroseo-Lacorte Family Trust, of which Mr. Ambroseo is a trustee.

(7)
Includes 19,743 shares owned by the DiMarco Family Trust, of which Mr. DiMarco is a trustee.

(8)
Includes 13,878 shares owned by the Sechrist Family Trust, of which Mr. Sechrist is a trustee.

(9)
Includes 24,000 shares issuable upon exercise of vested options held by Mr. Flatley and 16,014 shares held by the Flatley Family Trust, of which Mr. Flatley is a trustee.

(10)
Includes 14,514 shares held by the 2000 Rogerson Family Revocable Living Trust, of which Mr. Rogerson is a trustee.

(11)
Includes 7,514 shares held by the Vij Family 2001 Trust, of which Mr. Vij is a trustee.

(12)
Includes an aggregate of 24,000 shares issuable upon exercise of vested options.

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OUR EXECUTIVE OFFICERS

The name, age, position and a brief account of the business experience of our executive officers as of April 6, 2020 are set forth below:

Name
  Age
  Office Held

Andreas ("Andy") W. Mattes(1)

  58   President and Chief Executive Officer

Kevin Palatnik(2)

 
62
 
Executive Vice President and Chief Financial Officer

Mark Sobey(2)

 
60

 

Executive Vice President and Chief Operating Officer

Bret DiMarco(2)

 
51
 
Executive Vice President, General Counsel and Corporate Secretary

Thomas Merk

 
57

 

Executive Vice President and General Manager, Industrial Lasers & Systems
(1)
Mr. Mattes joined Coherent on April 6, 2020. Accordingly, Mr. Mattes is not a "Named Executive Officer" for purposes of our Compensation Discussion and Analysis.

(2)
"Named Executive Officer" for purposes of our Compensation Discussion and Analysis.

Please see "Proposal One—Election of Directors—Nominees" above for Mr. Mattes' biographical information.

Kevin Palatnik.    Mr. Palatnik has served as our Executive Vice President and Chief Financial Officer since February 2016. Prior to that from August 2011 until its acquisition by Knowles Corporation in July 2015, Mr. Palatnik served as the Chief Financial Officer of Audience, Inc., a provider of intelligent voice and audio solutions for mobile devices. Prior to that from June 2001 to November 2010, Mr. Palatnik held various roles at Cadence Design Systems, Inc., an electronic design automation software company, including as its senior vice president and chief financial officer. Mr. Palatnik also serves as a member of the board of directors and chair of the audit committee of Adesto Technologies, Inc., a provider of innovative, application-specific semiconductors and embedded systems that comprise the essential building blocks of Internet of Things (IoT) edge devices. Mr. Palatnik received a B.S. in Industrial Engineering and Operations Research and a M.B.A. from Syracuse University.

Mark Sobey.    Dr. Sobey has served as our Executive Vice President and Chief Operating Officer since his appointment on April 6, 2020. Dr. Sobey previously served as our Executive Vice President and General Manager of OEM Laser Sources (OLS) from November 2016 to April 2020, Executive Vice President and General Manager of Specialty Laser Systems (SLS) from April 2010 to November 2016, and Senior Vice President and General Manager of SLS from joining Coherent in July 2007 until April 2010. Prior to Coherent, Dr. Sobey spent over 20 years in the Laser and Fiber Optics Telecommunications industries, including Senior Vice President roles in Product Management at Cymer and Global Sales at JDS Uniphase. He received his PhD in Engineering and BSc in Physics from the University of Strathclyde in Scotland.

Bret DiMarco.    Mr. DiMarco has served as our Executive Vice President and General Counsel since June 2006 and our Corporate Secretary since February 2007. From February 2003 until May 2006, Mr. DiMarco was a member and from October 1995 until January 2003 was an associate at Wilson Sonsini Goodrich & Rosati, P.C., a law firm. Mr. DiMarco received a Bachelor's degree from the University of California at Irvine and a Juris Doctorate degree from the Law Center at the University of Southern California. Additionally, Mr. DiMarco is a member and chair of the Nasdaq Listing and Hearing Review Council and an adjunct professor at the University of California, Hastings College of the Law.

Thomas Merk.    Mr. Merk was appointed Executive Vice President and General Manager, Industrial Lasers & Systems in December 2016. Prior to that, Mr. Merk was Chief Executive Officer and President of Rofin-Sinar Technologies Inc. and a member of its board of directors from July 2015 to November 2016, when the acquisition of Rofin by Coherent was completed. From December 2005 to July 2015 Mr. Merk was the Chief Operating Officer of the Rofin Micro and Marking Business and a Managing Director of Carl Baasel Lasertechnik GmbH & Co. KG. from May 2000 to November 2016. He started his career in 1989 at Boehringer Werkzeugmaschinen Vertriebs GmbH, a machine tool company, and remained there until 2000, most recently serving as managing director. Mr. Merk holds a Master's Degree in mechanical engineering from the Technical University of Stuttgart, Germany.

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COMPENSATION DISCUSSION AND ANALYSIS

Introduction

In this section, we describe the material components of our executive compensation program for our "Named Executive Officers" or "NEOs" for fiscal 2019: Messrs. Ambroseo, Palatnik, Sobey, DiMarco and Sechrist. Messrs. Ambroseo and Sechrist are no longer executive officers of the Company. Effective April 6, 2020, Mr. Ambroseo retired from his position as our President and Chief Executive Officer and as a member of our Board, transitioning to the role of Special Advisor, and Mr. Mattes was appointed by our Board to serve as President, Chief Executive Officer and a member of the Board (see "—CEO Transition" below). Effective as of the beginning of fiscal 2020, Mr. Sechrist transitioned from the role of Executive Vice President, Worldwide Sales and Services to the role of Special Advisor to the CEO. References in this Compensation and Discussion Analysis to our CEO refer to Mr. Ambroseo, our former CEO, who served as CEO for all of fiscal 2019.

We also provide an overview of our executive compensation philosophy, principal compensation policies and practices by which the Compensation and HR Committee, or the committee, arrives at its decisions regarding NEO compensation.

   

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NEO Compensation Overview

The following chart sets forth our compensation philosophy and design principles:

Compensation Philosophy
  Compensation Design Principles
Retain and hire talented executives   Our executives should have market competitive compensation and the committee orients our target total compensation generally near the 50th percentile of the committee's selected peer group, with actual compensation falling above or below depending upon our financial performance and the performance of our stock price against an index over a three-year vesting period. Compensation components may be above or below such percentile target and vary by individual executive.
Pay for performance, with both short and long-term measurements   A significant portion of the annual compensation of our executives is designed to vary with annual business performance and a significant portion of long-term equity compensation is based on the long-term relative performance of our stock price in comparison to the Russell Index (as defined below), by way of a single three-year vesting period.
Tie compensation to performance of our core business   Payouts under our fiscal 2019 annual cash incentive plan were dependent upon corporate achievement of two performance targets: revenue and Adjusted EBITDA dollars. The committee determined that these were the most effective metrics for tying management's compensation directly to our core operating results for fiscal 2019. In fiscal 2019, the Company's financial results did not meet the challenging targets established by the committee and, as a result, no pay out under our annual cash incentive plan was made to our NEOs.
Align compensation with stockholder interests   Our stockholders benefit from strong operating performance by the Company, and we believe that having a significant portion of compensation tied to equity with both time and performance-based vesting requirements directly aligns management to stockholder returns. Performance-based RSUs make up the largest potential portion of the equity grants for our CEO, and make up half of the equity grants of our other NEOs at target. The grants are fully at risk and the executive may not receive any shares at the end of the vesting period. Grants of performance-based RSUs in fiscal 2019 have the same measurement period consistent with historical practice: a single vesting date three years from grant solely dependent upon the performance of our common stock price measured against the Russell Index. In fiscal 2019, target was increased from meeting the Russell Index performance to exceeding the Russell Index performance. Prior to fiscal 2018, we used the Russell 2000 Index to compare our stock price performance, but due to an increase in our market cap, the Company was moved up to the Russell 1000 Index, and, accordingly, for grants made since the first quarter of fiscal 2018, the committee compares our stock price performance against the performance of the Russell 1000 Index. We refer to the applicable Russell Index as the "Russell Index."

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The following chart sets forth our principal elements of NEO compensation:


Executive Compensation Program Overview—Elements of Compensation

Element
  Variability
  Objective
  How Established
  Fiscal Year 2019 for NEOs
Base Salary   Fixed   Provide a competitive fixed component of compensation that, as part of a total cash compensation package, enables us to attract and retain top talent.   Reviewed against executive officer's skill, experience and responsibilities, and for competitiveness against our compensation peer group.   Base salary increased for 2019 for NEOs to more closely align with peers and market data provided by the committee's compensation consultant.
Annual Cash Incentive   Performance Based   Offer a variable cash compensation opportunity once per fiscal year based upon the level of achievement of corporate performance targets.   Target payouts set by measuring total cash compensation opportunity against the peer group. Corporate performance targets based on meeting operational goals tied to the Company's operating budget for the applicable fiscal year.   Changed from a semi-annual bonus in fiscal 2018 to an annual bonus measurement period in fiscal 2019 tied to revenue and Adjusted EBITDA achievement. Revenue achievement weighted at 25% and Adjusted EBITDA achievement weighted at 75%. Total payout can range from 0% to 200% of target. For fiscal 2019, the Company did not meet the performance targets, and as a result, there was no cash bonus payout.
RSUs—Service Based   Value Tied to Stock Price   Align long-term management and stockholder interests and strengthen retention with three-year vesting. Service-based awards create long-term retention.   Target total value of annual awards using market data (reviewed against our compensation peer group for competitiveness) and the executive officer's responsibilities, contributions and criticality to ongoing success.   Fiscal 2019 service-based awards vest 1/3 per year over three years, with the first vesting date occurring on the one year anniversary of the grant date.

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Element
  Variability
  Objective
  How Established
  Fiscal Year 2019 for NEOs
RSUs—Performance Based   Performance Based—Value Tied to Stock Price and Based on Relative Performance to Russell Index   At-risk performance-based awards provide an incentive opportunity based upon the performance of our stock price against the performance of the Russell Index. This component directly aligns NEO pay to our stockholders' interests.   Target total value of annual awards using market data (reviewed against our compensation peer group for competitiveness) and the executive officer's responsibilities, contributions and criticality to ongoing success.   Performance award measured by comparing our stock price performance against that of the Russell Index. To achieve 100% vesting of the awards, our stock price must outperform the Russell Index by 2% during the defined performance period. If our stock outperforms that target, the award is increased 2% for each percentage point of outperformance (with a cap of a 200% vesting). If our stock underperforms the target, the award is decreased 2% for each of the first two percentage points of underperformance, and decreased 4% for each additional percentage point of underperformance (with a floor of a 0% vesting).
Other Benefits   Primarily Fixed   Provide competitive employee benefits. We do not view this as a significant component of our executive compensation program.   Reviewed for competitiveness.   No significant changes for fiscal 2019 program.

Stockholder Engagement

The committee considers feedback from our stockholders regarding our executive compensation program, including as expressed by the results of our annual advisory vote on executive compensation, which our stockholders have historically strongly supported. We have strong pay for performance alignment, and the say-on-pay proposal for fiscal 2018 compensation was approved by an overwhelming majority.

Beyond the results of our annual say-on-pay vote, our stockholder engagement program is designed to foster an on-going dialogue with our stockholders. The principal form of engagement in this program consists of our CEO and CFO regularly meeting with our stockholders throughout the year. These meetings are primarily focused on financial and business matters related to the Company, and they allow our stockholders the opportunity to raise questions on a variety of topics, including our executive compensation design philosophy and principles. We believe this regular engagement has been productive and has allowed for a helpful exchange of ideas and perspectives for both management and our stockholders.

As a result of these efforts, our CEO and CFO met with over 45 unique stockholders (in many cases speaking to a particular investor multiple times throughout the year), representing approximately 60% of our outstanding shares as of the end of fiscal 2019.

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The Board, the committee and the Company's management greatly value the feedback from those meetings, and each consider such feedback in deliberations on important topics, such as executive compensation design and principles, throughout the year.

Also as part of our stockholder engagement program, we encourage our stockholders to directly express their views to the committee as described in this proxy statement under the heading "Stockholder Communication with the Board of Directors." The committee welcomes direct stockholder feedback and considers such feedback as well as our historical "say-on-pay" results in its deliberations on executive compensation.

We strongly urge our stockholders to read this Compensation Discussion and Analysis in conjunction with Proposal Four.

CEO Transition

Retirement of CEO

On April 6, 2020, the Company announced that John Ambroseo retired from his role as President and CEO and a member of the Board, effective April 6, 2020. Upon his retirement, Mr. Ambroseo transitioned to the role of a Special Advisor to the Company. This transition was effected pursuant to a transition and retirement agreement that was entered into by Mr. Ambroseo and the Company in April 2019. The transition and retirement agreement provides for continuation of Mr. Ambroseo's employment through December 1, 2021, with a continuation of his then current compensation through April 13, 2021 and a base salary of $10,000 per month thereafter through December 1, 2021, continued vesting in outstanding equity awards through December 1, 2021 and eligibility for change of control benefits if a change of control occurs by such date. The transition and retirement agreement also includes customary confidentiality, proprietary information and indemnification provisions and includes a release by Mr. Ambroseo. The terms of the agreement were extensively reviewed and discussed with Compensia, the committee's independent compensation consultant. Both Mr. Ambroseo and the committee strongly believed that entering this agreement was in the best interest of Coherent and our stockholders by further supporting the upcoming transition.

In addition, in the first quarter of fiscal 2020, the committee determined to make an automatic grant of time-based RSUs with a value of approximately $200,000 to Mr. Ambroseo on the first day of each fiscal quarter in which he was still serving as CEO, with each such grant vesting on the last day of the fiscal quarter in which it was granted. Mr. Ambroseo received three such grants, which ceased once he was no longer CEO. The committee determined to make these quarterly grants in lieu of granting Mr. Ambroseo any additional time or performance-based RSUs in fiscal 2020.

Retention Grants

The committee, in consultation with Mr. Ambroseo and Compensia, further determined that it was in the best interests of our stockholders to grant one-time retention grants of time-based RSUs to Messrs. Sobey and DiMarco to provide additional support and certainty during the CEO transition. These retention grants have a single vest date three years from the date of grant.

Appointment of New CEO

On April 6, 2020, the Company announced that the Board appointed Mr. Andreas ("Andy") W. Mattes to serve as President and CEO of the Company, as well as a member of the Board. Mr. Mattes assumed these roles on April 6, 2020.

In connection with Mr. Mattes' appointment as President and CEO, the Company and Mr. Mattes entered into an employment agreement on March 31, 2020 providing for, among other things, a base salary of $850,000 per year and a 2020 fiscal year target bonus of 120% of his base salary. Mr. Mattes will receive a signing bonus of $500,000, subject to repayment to the Company if within the first 18 months of his employment, he terminates employment without good reason or the Company terminates his employment for cause.

The employment agreement also provides that within 30 days after his commencement of employment, Mr. Mattes will be granted equity awards based on an aggregate value of $5,200,000, with such equity awards determined based on a 30-day average stock price for time-based RSUs and an estimated Monte-Carlo value for performance-based RSUs. One-third of such equity awards will be time-based RSUs with equal amounts vesting annually over three years and two-thirds of the equity awards will be performance-based RSUs. The performance-based RSUs will have a three-year performance period from his date of employment with the performance metric based on the relative performance of the Company's stock price in comparison to the Russell Index, consistent with the Company's general performance-based RSU structure.

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Under his employment agreement, Mr. Mattes will be eligible for a severance payment equal to twice the sum of his annual salary and target bonus as well as a benefit allowance if his employment is terminated without cause or he terminates his employment for good reason. Mr. Mattes will be covered by the Company's change of control plan and entitled to participate in employee benefit plans generally applicable to senior executives of the Company. Mr. Mattes also entered into the Company's standard form of indemnification and confidentiality agreements.

Key Design Changes to Executive Compensation in Fiscal Years 2019 and 2020

As disclosed in the Company's fiscal 2018 proxy statement, the compensation committee made the following changes to the design of executive compensation in fiscal 2019:

Redesigned the measurement of the Company's performance-based RSUs to require performance above the Russell Index in order to achieve target vesting levels;

Moved the annual cash Variable Compensation Plan to a single one year measurement period; and

Considered internal pay equity between the CEO and other NEOs as a factor in determining compensation.

In addition, the committee closely reviewed the Company's executive compensation recoupment (or "clawback") policy in light of the state of applicable law, governance trends and practices of other public companies.

In fiscal 2020, the Board, at the recommendation of the committee and management, adopted a new clawback policy, expanding potential recoupment of cash and equity compensation to include all NEOs, as well as all employees of the Company holding the title of Senior Vice President or higher who report directly to our CEO. As described further below, the new clawback policy allows the committee to recoup excess incentive compensation from such covered individuals in the event of a restatement of the Company's financial results, regardless of whether the covered executive played a role in the need for the restatement.

Executive Summary

Our Business

Founded in 1966, Coherent, Inc. is one of the leading providers of lasers and laser-based technology for scientific, commercial and industrial customers. Our common stock is listed on the Nasdaq Global Select Market and is part of several indexes, including the Russell 1000 and Standard & Poor's MidCap 400 Index. For more information about our business, please read the sections captioned "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our annual report on Form 10-K filed with SEC on November 26, 2019.

Selected Business Highlights

We experienced a significant decrease in year-over-year revenue, Adjusted EBITDA and non-GAAP earnings per share in fiscal 2019 and accordingly failed to meet our internal targets. As a result, you will see in the coming pages that our performance-related executive compensation in our annual cash program yielded no payout (zero %) in fiscal 2019.

Set forth below are tables reflecting several performance metrics from the last three fiscal years that impact the compensation for our NEOs.

Our revenue increased 10% from fiscal 2017 to fiscal 2018 and decreased 25% from fiscal 2018 to fiscal 2019 (dollars in millions):


ANNUAL REVENUE

GRAPHIC

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Our Adjusted EBITDA increased 6% from fiscal 2017 to fiscal 2018 and decreased 53% from fiscal 2018 to fiscal 2019 (dollars in millions):


ADJUSTED EBITDA*

GRAPHIC

Our non-GAAP earnings per share from continuing operations increased 9% from fiscal 2017 to fiscal 2018 and decreased 57% from fiscal 2018 to fiscal 2019:


NON-GAAP EARNINGS PER SHARE*

GRAPHIC

For a reconciliation table of earnings per share on a GAAP basis to non-GAAP basis and net income from continuing operations on a GAAP basis to Adjusted EBITDA, please refer to the "Reconciliation Table" at the end of this section.

Compensation Overview

Compensation Philosophy.    We tie executive total compensation to stockholder value with two measures: our operational results and the comparative performance of our stock price. This approach provides strong alignment between executive pay and performance, and focuses executives on making decisions that enhance our stockholder value in both the short and long-term. We design our executive compensation program to achieve the following goals:

Retain and hire talented executives—Our executives should have market competitive compensation, and the committee orients our target total compensation generally near the 50th percentile of the committee's selected peer group (as noted below), with actual compensation falling above or below depending upon Coherent's financial performance. Additionally, certain compensation components may be above or below such percentile target and vary by individual executive.

Pay for performance, with both short and long-term measurements—A significant portion of the annual compensation of our executives is designed to vary with annual business performance and the long-term relative performance of Coherent's stock price in comparison to the Russell Index (by way of a single three-year vesting period). The committee and management set demanding performance targets. For example, there was no bonus paid out for fiscal 2019 as explained below. The performance of the Company's stock as measured against the Russell Index, however, resulted in shares issued under the performance-based RSUs above target levels in fiscal 2019, due to the growth in the price of the Company's stock.

The following chart shows the payout percentages as compared to the committee's selected target for each of the last three fiscal years under our annual cash bonus plan:


ANNUAL PAYOUT PERCENTAGE UNDER
CASH INCENTIVE PLAN

GRAPHIC

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Payouts under our annual cash bonus plan over the last seven years have ranged from 0% to 200% as shown in the following chart:


VCP Payout Percentage

GRAPHIC

Tie compensation to performance of our core business—Our fiscal 2019 annual cash incentive plan was dependent upon Coherent's achievement against two criteria: Adjusted EBITDA dollars and revenue. The committee determined that these were the most effective metrics for tying management's compensation directly to Coherent's core operating results for fiscal 2019.

Align compensation with stockholder interests—Our stockholders benefit from continued strong operating performance by the Company, and we believe that having a significant portion of compensation tied to equity, with both time and performance-based vesting requirements, directly aligns management to stockholder interests. The performance-based RSUs make up the largest potential portion of the equity grants for our CEO. Grants of performance-based RSUs historically have the same measurement period: a single vesting date three years from grant solely dependent upon the performance of Coherent's common stock price measured against the Russell Index. Prior to fiscal 2019, the performance target was equal to meeting the index's performance. As mentioned above, the committee modified the design of the performance-based RSU grants made in the first quarter of fiscal 2019 and going forward to require performance two percentage points above the Russell Index to achieve the targeted vesting. If our stock outperforms that target during the defined performance period, the award is increased 2% for each percentage point of outperformance (up to a maximum cap of 200% of target). If our stock underperforms the target, the award is decreased 2% for each of the first two percentage points of underperformance, and decreased 4% for each additional percentage point of underperformance (with a floor of a 0% vesting). As a result, compensation decreases faster for failing to outperform the Russell Index than it increases for exceeding the target. If Coherent's stock underperforms the Russell Index by more than 24%, then there is no payout, but in order to hit the maximum possible payout, Coherent's stock has to outperform the Russell Index by at least 52%. The table and chart below illustrate this structure:


FISCAL 2019 PERFORMANCE RSU VESTING

 
   
   
   
   
 
  Relative Performance
Percentage against the
Russell Index

   
  Vesting Percentage of Target
Amount

   

 

 

152% or more

      200% (maximum vesting)    

 

 

102%

      100%    

 

 

100%

      96%    

 

 

85%

      36%    

 

 

77%

      4%    

 

 

76% or less

      0% (no PRSUs vest)    

GRAPHIC

Elements of Executive Compensation.    During fiscal 2019, the compensation of our NEOs primarily consisted of (A) base salary, (B) participation in our annual variable compensation plan (referred to herein as our "annual cash incentive plan" or "VCP"), and (C) long-term equity incentive awards divided between time-based RSUs and performance-based RSUs. For fiscal 2019, on average, approximately 83% of our NEO's target compensation and approximately 86% of our CEO's target compensation was delivered through our cash incentive plan and long-term equity incentives (both time and performance RSUs).

As a demonstration of how executive cash compensation is tied to company performance, the cash compensation for our

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CEO during fiscal 2019 at target, maximum and actual can be illustrated as follows (dollars in thousands):


CEO FY 2019 CASH PAY MIX

GRAPHIC

Compensation Governance.    "Pay for performance" has been and remains at the core of Coherent's executive compensation coupled with appropriately managing risk and aligning our compensation programs with long-term stockholder interests. We accomplish this primarily by having a majority of our NEOs' potential compensation being "at risk" through a combination of (i) a fiscal year variable cash incentive program tied to achievement of financial metrics and (ii) equity grant vesting tied to achievement of a performance metric. The committee monitors and considers evolving governance approaches and standards in executive compensation, as well as communications it receives directly from stockholders.

As more fully discussed below, recent examples of how this philosophy is applied and changes made pursuant to compensation practices as well as governance practices in effect during fiscal 2019, include:

We have minimum share ownership requirements for our CEO and members of the Board as well as Executive Vice Presidents and Senior Vice Presidents who report to the CEO;

Our performance-based RSU program is measured by the Company's stock price achievement against the Russell Index over a three-year period, which the committee believes is a direct connection to long-term total stockholder interests. Fiscal 2019 grants require achievement in excess of the Russell Index to achieve target payout;

The committee is composed entirely of directors who satisfy the standards of independence in Coherent's Corporate Governance Guidelines and Nasdaq listing standards;

The committee made decisions regarding CEO compensation without the CEO present;

Executive incentive compensation programs include limits on maximum payouts to contain the risk of excessive payouts;

The committee utilizes an independent compensation consultant;

We have eliminated material historical perquisites as an element of compensation for our NEOs;

We had a recoupment or "claw-back" policy for our CEO and CFO, and, in fiscal 2020, our Board, at the recommendation of the committee, adopted an updated policy extending coverage to all individuals with the title Senior Vice President and above, as described below;

We have in place a policy prohibiting executive officers and directors from hedging or pledging Company stock, as described above;

Change-of-control payments occur solely in "double-trigger" circumstances, that is a change of control coupled with a termination of employment within a defined time period;

None of our NEOs are entitled to any "gross-up" to offset the impact of IRS Code Sections 280G or 4999 in connection with a change of control; and

Other than the transition agreements for Messrs. Ambroseo and Sechrist, none of our NEOs have employment agreements.

Our stockholders have historically strongly supported our executive compensation philosophy and design as seen in the significant majorities approving our "say-on-pay" proposal (does not include broker non-votes; rounded).


SAY-ON-PAY STOCKHOLDER VOTES

GRAPHIC

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Role of Management

The committee regularly met with Mr. Ambroseo to obtain recommendations with respect to the compensation programs, practices and packages for our NEOs other than Mr. Ambroseo. Additionally, Mr. Palatnik, our Executive Vice President and CFO, Mr. DiMarco, our Executive Vice President, General Counsel and Corporate Secretary, and members of our human resources department are regularly invited to meetings of the committee or otherwise asked to assist the committee.

The assistance of these individuals includes providing financial information and analysis for the committee and its compensation consultant, taking minutes of the meeting or providing legal advice, developing compensation proposals for consideration, and providing insights regarding our employees (executive and otherwise) and the business context for the committee's decisions. NEOs attend portions of committee meetings when invited by the committee, but leave the meetings when matters potentially affecting them are discussed.

Role of the Committee's Compensation Consultant

The committee utilizes the services of an independent compensation consultant and in fiscal 2019, engaged Compensia as its independent compensation consultant. Compensia assisted the committee by:

Reviewing and analyzing our executive compensation program, including providing NEO tally sheets to the committee;

Providing market data for fiscal 2019 compensation; and

Providing further insight on compensation governance trends.

The independent compensation consultant serves at the discretion of the committee and is not permitted to do other work for Coherent unless expressly authorized by the committee. Since retention, Compensia has not performed any work for Coherent other than its work with the committee, the Board or other committees of the Board, such as work with the Governance and Nominating Committee with respect to compensation for service on the Board and its committees. The committee is focused on maintaining the independence of its compensation consultant and, accordingly, does not anticipate having its consultant perform any other work for the Company in addition to its direct work for the committee, the Board, or another committee of the Board. The committee has assessed the independence of Compensia and concluded that no conflict of interest exists.

The Company also participates in and maintains a subscription to the Radford Global Technology and Sales surveys. This survey provides benchmark data and compensation practices reports of a broad cross-section of technology companies similar in size to Coherent to assist us with employee compensation generally.

Pay Positioning Strategy and Benchmarking of Compensation

Philosophically the committee initially orients target total compensation for our NEOs generally near the 50th percentile of our peers (as measured by our designated peer group and compiled by the committee's independent compensation consultant and, when applicable, including, for example, when there are few comparable positions reported in the proxy data of our peer group companies, data from the Radford Global Technology Survey), resulting in targeted total compensation that is competitive for performance that meets the objectives established by the committee. Each NEO's actual salary, cash incentive compensation opportunity and equity compensation grant value may fall below or above the target position based on the individual's performance, contributions, scope of role, experience, skills and knowledge, as well as the historical pay structure for each executive, Company performance and the proportion of compensation at risk. These factors are weighed by the committee in its judgment, and no single factor takes precedence over others nor is any formula used in making these decisions nor was the impact of any factor on the determination of compensation quantifiable. In general the committee will balance between cash and equity compensation elements to have more compensation in equity for each NEO in order to more closely align NEO compensation directly with that of the performance of the Company and with stockholders. In fiscal 2019, the committee also asked its independent compensation consultant to review and report on internal pay equity between the CEO and the other NEOs as a factor when approving compensation.

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The CEO's review of the performance of the other NEOs is considered by the committee in making individual pay decisions. With respect to the CEO, the committee additionally considered the performance of Coherent as a whole and the views of other members of the Board regarding the CEO's performance. Actual realized pay is higher or lower than the targeted amounts for each individual based primarily on the Company's performance.

In analyzing our executive compensation program relative to target market positioning, the committee reviews information provided by its independent compensation consultant, which includes an analysis of data from peer companies' proxy filings with respect to similarly situated individuals at the peer companies (when available) and the Radford Global Technology Survey (as a supplement when peer group company data is unavailable). It is important to note that these are the peers selected by the committee. The committee uses criteria as described below in determining the appropriate peer group. There are proxy advisory services that use their own criteria to select peers for the Company and, accordingly, stockholders should be aware that these advisory services do not, in fact, follow the same methodology of the committee and there may be wide variances between the different peer groups used by these services. Any comparison of company performance or market data for executive compensation using a completely different peer group will, therefore, naturally result in a different analysis. We encourage our stockholders to consider the peer group used in any comparisons and direct any questions to the committee regarding such comparisons or any other matters when considering how to vote on Proposal Four.

For pay decisions made for fiscal 2019, after consulting with our independent compensation consultant, the committee determined that the following companies comprise the peer group for fiscal 2019:

Ciena Corporation (CIEN)   Microsemi Corporation (MSCC)
Cypress Semiconductor Corporation (CY)   MKS Instruments (MKSI)
Dolby Laboratories (DLB)   National Instruments (NATI)
Entegris (ENTG)   Nuance Communications (NUAN)
F5 Networks (FFIV)   OSI Systems (OSIS)
Finisar (FNSR)   Synaptics (SNYA)
FLIR Systems (FLIR)   Teradyne (TER)
Itron, Inc. (ITRI)   Trimble Inc. (TRMB)
Keysight Technologies (KEYS)   ViaSat (VSAT)
Lumentum Holdings, Inc. (LITE)    

Several factors are considered in selecting the peer group, the most important of which are:

Primary Criteria

Industry (primarily companies in the Electronic equipment, Semiconductor and communications equipment sub-industry classifications defined by the Global Industry Classification Standard (GICS) system); and

Revenue level (primarily companies with annual revenues between 0.5x-2.0x that of Coherent).

Secondary Criteria

Market capitalization between 0.25x and 3.0x of Coherent;

Market capitalization as a multiple of revenues of greater than 1.5x; and

A disclosed peer of a peer company.

The committee reviews the composition of the peer group annually to ensure it is the most relevant set of companies in light of the foregoing criteria to use for comparison purposes. Ciena Corporation, Cypress Semiconductor Corporation, Itron, Inc. and Trimble Inc. were added to the companies comprising the Company's peer group for fiscal 2019 replacing three companies (Infinera, Maxim Integrated Products and Plantronics) from the fiscal 2018 peer group.

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Components of Our Executive Compensation Program

The principal components of our executive officer compensation and employment arrangements during fiscal 2019 included:

Base salary;

Annual cash incentive plan;

Equity awards; and

Other benefits.

These components were selected because the committee believes that a combination of salary, incentive pay and benefits is necessary to help us attract and retain the executive talent on which Coherent's success depends. The following table shows the components of total direct compensation at target and maximum for our NEOs as a group for fiscal 2019. In maintaining the design for fiscal 2019, the committee recognized the significant support received from the Company's stockholders for the compensation program design, as reflected in the continued strong vote totals in favor of our executive compensation through our annual "say-on-pay" proposal.


CEO AND NEO (OTHER THAN CEO) FY2019
DIRECT COMPENSATION MIX*

GRAPHIC

Base Salary

Base salary is the foundation to providing an appropriate total cash compensation package. We use base salary to fairly and competitively compensate our executives for the jobs we ask them to perform. This is the most stable component of our executive compensation program, as this amount is not at risk. The committee reviewed market data information provided by Compensia with respect to similarly situated individuals to assist it in determining the base salary for each NEO, depending upon the particular executive's experience, skills, knowledge, performance and contribution. The committee increased the base salaries of our NEOs in fiscal 2019, as supported by compensation analysis provided by Compensia, from 2.6% to 12.5% to more closely align their base salary with the base salary of peers. According to information provided by the committee's compensation consultant, none of the increases brought base salary above the 50th percentile of our peer group companies. For several of our NEOs, base salary remained below the 50th percentile of our peer group. Our CEO received a base salary increase in fiscal 2019 of 3% and has not received a base salary increase in seven of the last ten years.

Variable Cash Incentive Compensation

A substantial portion of each individual's potential short-term compensation is in the form of variable incentive cash compensation tied to committee-established goals. In fiscal 2019, Coherent maintained one incentive cash program under which executive officers were eligible to receive annual cash incentives, the 2019 Variable Compensation Plan ("2019 VCP").

2019 VCP

The 2019 VCP was designed as an "at risk" bonus compensation program to promote a focus on Coherent's growth and profitability. It provided an incentive compensation opportunity in line with targeted market rates to our NEOs. Under the 2019 VCP, participants were eligible to receive one bonus based on annual fiscal year performance, which is a change from bi-annual bonuses in prior years. In setting the performance goals at the beginning of the fiscal year, the committee assessed the anticipated difficulty and importance to Coherent's success of achieving the performance goals.

The actual awards (if any) payable for the annual period depend on the extent to which actual performance met, exceeded or fell short of the goals approved by the committee. The 2019 VCP goals were tied to Coherent achieving targeted levels of revenue and Adjusted EBITDA dollars, with revenue weighted at 25% and Adjusted EBITDA weighted at 75%. Each performance metric is measured and paid out independently, but the revenue payout is capped at 100% achievement until Adjusted EBITDA reaches a minimum dollar target. Adjusted EBITDA is defined as operating income adjusted for VCP payouts, depreciation, amortization, stock compensation expenses, major restructuring charges and certain non-operating income or expense items, such as costs related to acquisitions. The committee also reviews the financial

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impact of mergers and acquisitions to determine if any adjustments in VCP are required.

The measurement period had a potential payout range of between zero and 200%, with a target at 100% of the executive's participation rate.

In addition, the committee reserved a one-time discretionary bonus for our CEO for fiscal 2019, which did not result in any payout.

Fiscal 2019 Variable Compensation Plan Scale for NEOs

Revenue achievement for fiscal 2019 was $1,430.6 million, which fell short of the threshold for a cash bonus payout and resulted in no cash bonus. Adjusted EBITDA achievement for fiscal 2019 was $259.1 million, which fell short of the threshold for a cash bonus payout and resulted in no cash bonus.

Fiscal 2019 VCP Scale

Revenue $ (in millions)

  Payout

$1,430.6 (actual)

  0% (actual)

$1,680.0 (threshold)

  0%

$1,740.0 (target)

  100%

$1,800.0

  200%


Adjusted EBITDA $ (in millions)

  Payout

$259.1 (actual)

  0% (actual)

$450.0 (threshold)

  0%

$495.0 (target)

  100%

$540.0

  200%

The tables below describe for each NEO under the 2019 VCP (i) the target percentage of base salary and (ii) the actual award earned for fiscal 2019. The potential award range for each NEO is 0% to 200% of the target award percentage of base salary.

Fiscal 2019

Named
Executive
Officer

  Target
Percentage
of Salary

  Actual
Award
($)

  Actual
Award as a
Percentage
of Target
Award

 

John Ambroseo

  120% (1) 0   0%  

Kevin Palatnik

    75%     0     0%  

Mark Sobey

  70%   0   0%  

Bret DiMarco

    65%     0     0%  

Paul Sechrist

  70%   0   0%  
(1)
Consists of VCP at 100% and a one-time discretionary bonus of 20%.

Equity Awards

We believe that equity awards provide a strong alignment between the interests of our executives and our stockholders. We seek to provide equity award opportunities that are consistent with our compensation philosophy, with the potential for increase for exceptional financial performance, consistent with the reasonable management of overall equity compensation expense and stockholder dilution. Finally, we believe that long-term equity awards are an essential tool in promoting executive retention. For fiscal 2019, our long-term incentive program included the grant of time-based RSUs and performance-based RSUs. These components provide a reward for past corporate and individual performance and an incentive for future performance.

Our performance-based RSU grants are tied to the Company's performance and, as a result, may fluctuate from no vesting to vesting up to a maximum of 200% of target. When making its compensation decisions, the committee reviews a compensation overview prepared by its independent compensation consultant which reflects potential realizable value under current short and long-term compensation arrangements for the CEO. In addition, the committee reviews a compensation overview prepared by its compensation consultant reflecting the intrinsic value of unvested equity awards and performance-based RSUs at target and projected values for all of the NEOs.

Fiscal 2019 Equity Grants

For fiscal 2019, the committee based the annual equity program on a combination of time-based and performance-based RSUs over a three-year period. In particular, the committee determined to measure achievement for the performance RSUs by the relative performance of Coherent's stock price in comparison to the Russell Index. The committee believed that using the Russell Index (in which Coherent was

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a member at the time of grant) as a proxy of total stockholder return directly aligns executive compensation with stockholder interests. The committee determined that both the performance-based and time-based RSU grants provide a further retention tool in that the time-based grants vest over three years with pro rata annual vesting and the performance-based RSU grants vest, assuming the performance thresholds are met, in a single cliff vesting after a three-year period.

Performance-based RSU grants in fiscal 2019 vest solely dependent upon the performance of Coherent's common stock price measured against the Russell Index. To achieve 100% vesting of the awards, our stock price must outperform the Russell Index by 2% during the defined performance period. If our stock outperforms that target, the award is increased 2% for each percentage point of outperformance (with a cap of a 200% vesting). If our stock underperforms the target, the award is decreased 2% for each of the first two percentage points of underperformance, and decreased 4% for each additional percentage point of underperformance (with a floor of a 0% vesting). As a result, vesting decreases faster for failing to outperform the Russell Index than it increases for exceeding the target. The performance-based RSUs make up the largest potential portion of the equity grants for our CEO.

The following table summarizes some of the key features of our annual fiscal 2019 equity grants:


Fiscal 2019 Equity Grants

    Type     RSUs and performance-based RSUs (PRSUs)  
 
    Vesting for RSUs       One-third each grant anniversary    
 
    Vesting for PRSUs     Single vesting date three years from grant  
 
            100% tied to Russell Index    
            Minimum vest: zero  
    PRSU Metrics       Target vest: 2% above Russell Index    
            Maximum vest: 200% of target  
 

For our CEO, more than half of his total equity awards are performance-based. Approximately 66% of his equity awards are performance-based and at maximum achievement that percentage increases to approximately 80%.

As an example, our performance-based design was seen in the vesting of the PRSU grants made in November 2015, which vested in the first quarter of fiscal 2019. Our common stock gained 283% as compared to the Russell Index, which gained 140% over the defined measurement periods at the beginning and end of the three-year vesting period. This out-performance resulted in 200% PRSU vesting.

In the event of a change of control of the Company, the performance-based grants will be measured, with respect to performance periods not yet completed, by the relative stock performance of Coherent in comparison to the Russell Index through the date of the change of control and such performance-based shares would, subject to the terms of the Change of Control Severance Plan, then convert to time-based vesting with a single vesting date at the three year anniversary of the grant.

The following charts show the aggregate composition of equity grants for fiscal 2019 to our CEO, at target and at

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maximum achievement under the terms of the performance-based grants:

GRAPHIC

The following table reflects the number of shares subject to equity grants made to the NEOs during fiscal 2019. The table includes special one-time retention RSU grants made to Messrs. Sobey and DiMarco. These grants have a single three-year vest and were made by the committee, in consultation with its independent compensation consultant, to further support a successful transition period in connection with the Company's announcement of Mr. Ambroseo's intention to retire as our President and CEO.

Named
Executive
Officer

  Time-Based
RSU Grants

  Performance-Based
RSU Grants
at Target

  Performance-Based
RSU Grants Range
(vesting dependent
upon achievement)

 

John Ambroseo

  11,472   22,499   0 - 44,998  

Kevin Palatnik

    5,271     5,092     0 - 10,184  

Mark Sobey*

  15,180   3,978   0 - 7,956  

Bret DiMarco*

    14,356     3,182     0 - 6,364  

Paul Sechrist

  6,588   0   0 - 0  
*
Includes the special one-time retention grant.

Equity Award Practices

Equity grants to our employees are driven by our annual review process. Grant guidelines are based on competitive market practices. Typically, an eligible employee is granted equity at the first committee meeting after beginning employment and may be eligible for periodic grants thereafter. Eligibility for and the size of grants are influenced by the then-current guidelines for non-executive officer grants and the individual's performance or particular requirements at the time of hire. No option grants have been made to an employee since fiscal 2010.

In fiscal 2019 the committee and the Equity Committee granted an aggregate of 274,433 shares subject to time-based and performance-based restricted stock units (at maximum), representing approximately 1.14% of Coherent's outstanding common stock as of September 28, 2019 (excluding automatic and initial grants to directors). With the assistance of Compensia, the committee has reviewed this burn rate relative to peer practices and proxy advisory firm guidance and found that the total dilution was consistent with the median of peer practices and such guidance.

During fiscal 2019 all equity grants to individuals at the Vice President level and above were made at meetings of the committee.

CEO and Executive Minimum Stock Ownership Guidelines

The committee adopted mandatory stock ownership guidelines for our CEO during fiscal 2012. During the first quarter of fiscal 2018, the committee adopted enhanced stock ownership guidelines increasing the value of shares our CEO must hold to at least five times base salary and making our Executive Vice Presidents and Senior Vice Presidents reporting to the CEO subject to stock ownership guidelines of one times such individual's base salary. In the event that our CEO or other officer does not satisfy the minimum

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requirements, then 50% of the net after-tax shares (e.g., exercised options/shares received on the vesting of RSUs) are required to be held until the guidelines are met. As of December 31, 2019, Mr. Ambroseo held outstanding stock worth more than 35 times his base salary and, accordingly, significantly exceeded the minimum stock ownership guidelines. Our other NEOs also exceeded the minimum stock ownership guidelines as of December 31, 2019.

Other Benefits

Retirement Plans

U.S. based executive officers are eligible to participate in our 401(k) Retirement Plan on the same terms as all other U.S. employees, including a 4% Company matching contribution. Our 401(k) Retirement Plan is intended to be a tax-qualified plan and therefore is subject to certain Internal Revenue Code limitations on the dollar amounts of deferrals and Company contributions that can be made to plan accounts. These limitations apply to our more highly-compensated employees (including the NEOs).

We maintain a Deferred Compensation Plan for certain employees and members of the Board. The Deferred Compensation Plan permits eligible participants to defer receipt of compensation pursuant to the terms of the plan. The Deferred Compensation Plan permits participants to contribute, on a pre-tax basis, up to 75% of their base salary earnings, up to 100% of their bonus pay and commissions and up to 100% of directors' annual retainer earned in the upcoming plan year. We provide no matching or other additional contributions to such Deferred Compensation Plan. Plan participants may designate investments for deferrals in a variety of different deemed investment options. To preserve the tax-deferred status of deferred compensation plans, the IRS requires that the available investment alternatives be "deemed investments." Participants do not have an ownership interest in the funds they select; the funds are only used to measure the gains or losses that are attributed to the participant's deferral account over time.

The committee considers the Deferred Compensation Plan to be a reasonable and appropriate program because it promotes executive officer retention by offering a deferred compensation plan that is comparable to and competitive with what is offered by our peer group of companies.

Employee Stock Purchase Plan

Our stockholders have approved an employee stock purchase plan whereby employees can purchase shares for a discount, subject to various participation limitations. As employees, our NEOs are eligible to participate in this plan.

Severance and Change of Control Arrangements

Our Change of Control and Leadership Change Severance Plan (the "Change of Control Plan") provides certain benefits in the event of a change of control of Coherent for certain executives, including each of our NEOs. Benefits are provided if there is a change in ownership of Coherent, a change in effective control of Coherent, or a change in ownership of a substantial portion of Coherent's assets (in each case as construed under Section 409A of the Internal Revenue Code and the regulations thereunder) (a "change of control") and within two years thereafter (or within two months prior thereto) the participant's employment is terminated without cause or voluntarily terminates following a constructive termination event. The plan's provisions are, therefore, of the variety commonly referred to as "double-trigger." Importantly, the plan does not include any "gross up" provisions for the participants for the tax effects caused by any such benefits. The committee believes the Change of Control Plan serves as an important retention tool in the event of a pending change of control transaction.

The committee completed its review of the provisions of the Change of Control Plan during fiscal 2015 and determined to review the plan again in four years. In the first quarter of fiscal 2019, the committee reviewed and adopted substantially the same Change of Control Plan and determined to review the plan again in four years. Compensia assisted the committee in its review and analysis of the Change of Control Plan. The committee believes that reviewing the Change of Control Plan every four years allows for the right balance in providing certainty for the participants while providing the committee with the opportunity to revise the plan consistent with corporate governance best practices, evolving peer group practices and regulatory changes.

In addition, in connection with the succession planning process related to the Company's announcement of Mr. Ambroseo's intention to retire as our President and CEO, the Company's Change of Control Plan was amended in fiscal 2019 to include a time-limited severance benefit for those executive officers and Senior Vice Presidents reporting directly to Mr. Ambroseo at the time of his announcement if their employment is terminated without cause or they terminate for good reason within the two-year period after the new CEO was appointed. The severance benefit includes 18 months of base and bonus pay, an 18-month benefit stipend, 24 months of additional vesting credit for equity awards and a pro rata annual incentive for the year of termination. The Board believed that it was in the best interests of stockholders and the Company to adopt this change to reinforce continuity during a time of transition.

The committee does not consider the potential payments and benefits under these arrangements when making compensation decisions for our NEOs. These arrangements serve specific purposes unrelated to the determination of the NEOs' total direct compensation for a specific year.

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Tax and Accounting Considerations

Accounting for Stock-Based Compensation—We account for stock-based compensation in accordance with the requirements of ASC 718. We also take into consideration ASC 718 and other generally accepted accounting principles in determining changes to policies and practices for our stock-based compensation programs.

Section 162(m) of the Internal Revenue Code—Section 162(m) generally limits our income tax deduction for compensation we pay to certain executive officers up to $1 million during any fiscal year for any such officer. The officers covered by Section 162(m) include, but are not necessarily limited to, our chief executive officer, chief financial officer, our next three most highly compensated named executive officers other than our chief executive officer and chief financial officer, and certain individuals to whom the Section 162(m) deductibility limit applied for our fiscal year 2018 or later. Certain grandfathered payments pursuant to written binding contracts in effect on November 2, 2017 may still be fully deductible to the Company even if total compensation to a covered officer exceeds $1 million in a fiscal year. Although the committee may consider the impact of Section 162(m) as well as other tax and accounting consequences when developing and implementing executive compensation programs, the committee intends to design and administer compensation programs in the way the committee believes is appropriate and in the best interests of the stockholders after taking various factors into consideration, including business conditions and the performance of the Company and the executive officer.

Section 409A of the Internal Revenue Code—Section 409A imposes additional significant taxes in the event that an executive officer, director or service provider received "deferred compensation" that does not satisfy the requirements of Section 409A. We consider Section 409A in the design and operation of any plans.

Other Compensation Policies

To further align our executive compensation program with the interests of our stockholders, at the end of fiscal 2009, a committee of the Board approved a clawback policy for our CEO and CFO. This clawback policy provided that, in the event that there is an accounting restatement and there is a finding by the Board that such restatement was due to the gross recklessness or intentional misconduct of the CEO or CFO and it caused material noncompliance with any financial reporting requirement, then Coherent shall seek disgorgement of any portion of the bonus or other incentive or equity-based compensation related to such accounting restatement received by such individual during the 12-month period following the originally filed financial document.

As disclosed in the Company's fiscal 2018 proxy statement, the committee reviewed the Company's existing clawback policy during fiscal 2019 and, as a result of that review, recommended a new policy to the Board, which the Board adopted in fiscal 2020. The new clawback policy expands potential recoupment of cash and equity incentive compensation to include all NEOs, as well as all employees of the Company holding the title of Senior Vice President or higher who report directly to our CEO. The new policy allows for the committee to recoup excess incentive compensation from such covered individuals in the event of a restatement of the Company's financial results if the committee determines that during the three-years prior to such restatement the covered individuals would have received less incentive compensation if it had been calculated based on the restated financials.

In addition, under our Insider Trading Policy, we have established a policy with respect to hedging or pledging Coherent securities (see "Hedging Policy" above).

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Compensation and HR Committee Report

The Compensation and HR Committee of the Board has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation and HR Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.

Respectfully submitted by the Compensation and HR Committee

Sandeep Vij, Chair
Jay Flatley
Pamela Fletcher
Michael McMullen

RECONCILIATION TABLE—NON-GAAP EARNINGS PER SHARE FROM CONTINUING OPERATIONS

 
  Fiscal Year  
 
  2019
  2018
  2017
 

GAAP NET INCOME PER DILUTED SHARE FROM CONTINUING OPERATIONS

  $ 2.22   $ 9.95   $ 8.42  

Stock-based compensation

    1.30     1.11     0.94  

Amortization of intangible assets

  1.81   1.72   1.72  

Restructuring charges

    0.66     0.12     0.34  

Non-recurring tax expense (benefit)

  (0.04 ) 0.66   (0.05 )

Costs related to acquisitions

        0.03     0.70  

Interest expense on Barclays debt commitment

      0.07  

Gain on hedge of Barclays debt commitment

            (0.29 )

Gain on business combination

      (0.14 )

Impairment (asset recoveries) and other charges

    (0.04 )   0.03     0.08  

Purchase accounting step up

  0.01   0.02   0.77  

NON-GAAP NET INCOME FROM CONTINUING OPERATIONS PER DILUTED SHARE

  $ 5.92   $ 13.64   $ 12.57  

RECONCILIATION TABLE—ADJUSTED EBITDA

 
  Fiscal Year  
(in millions)
  2019
  2018
  2017
 

GAAP NET INCOME FROM CONTINUING OPERATIONS

  $ 53.8   $ 247.4   $ 208.6  

Income tax expense

    6.2     114.2     93.4  

Interest and other income (expense), net

  24.4   36.5   27.4  

Depreciation and amortization

    116.4     113.4     104.5  

Costs related to acquisitions

    0.7   17.6  

Gain on business combination

            (5.4 )

Restructuring charges

  22.7   3.9   12.3  

Impairment (asset recoveries) and other charges

    (1.3 )   0.8     2.9  

Stock-based compensation

  36.5   32.7   30.4  

Purchase accounting step up

    0.4     0.8     26.8  

ADJUSTED EBITDA

  $ 259.1   $ 550.4   $ 518.5  

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Compensation Committee Interlocks and Insider Participation

During fiscal 2019, the Compensation and HR Committee of the Board consisted of directors Vij (Chair), Flatley, Krause (until February 2019), Fletcher (beginning June 2019) and McMullen (beginning December 2018). None of the members of the committee has been or is an officer or employee of Coherent. None of our executive officers serve on the board of directors or compensation committee of a company that has an executive officer that serves on our Board or Compensation and HR Committee. No member of our Board is an executive officer of a company in which one of our executive officers serves as a member of the board of directors or compensation committee of that company.

Committee Independence

Each of the members of the committee qualifies as (i) an "independent director" under the requirements of The Nasdaq Stock Market, (ii) a "non-employee director" under Rule 16b-3 of the Securities Exchange Act of 1934 (the "1934 Act"), (iii) an "outside director" under Section 162(m) of the Code and (iv) an "independent outside director" as that term is defined by ISS.

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SUMMARY COMPENSATION AND EQUITY TABLES

Fiscal 2019 Summary Compensation Table

The table below presents information concerning the total compensation of our NEOs for the fiscal years ended September 28, 2019, September 29, 2018 and September 30, 2017.

Name and Principal Position
  Fiscal
Year

  Salary ($)(1)
  Stock Awards
($)(2)

  Non-Equity
Incentive Plan
Compensation
($)(3)

  All Other
Compensation
($)(4)

  Total ($)
 

John Ambroseo,

  2019   820,203   4,056,096   0   11,146   4,887,445  

Former President and

  2018   800,010   7,867,051   853,885   10,946   9,531,892  

Chief Executive Officer(5)

  2017   766,358   7,488,106   1,760,021   10,754   10,025,239  

Kevin Palatnik,           

    2019     484,439     1,247,657     0     11,146     1,743,242  

Executive Vice President

    2018     438,083     1,568,031     306,283     10,946     2,323,343  

and Chief Financial Officer

    2017     426,747     1,613,899     645,029     10,754     2,696,429  

Mark Sobey,

  2019   445,200   2,702,495 (6) 0   11,146   3,158,841  

Executive Vice President and

  2018   420,390   1,463,443   276,121   10,946   2,170,900  

General Manager of OEM Laser Sources

  2017   396,467   1,413,369   521,304   10,754   2,341,894  

Bret DiMarco,

    2019     398,081     2,507,454 (6)   0     11,146     2,916,681  

Executive Vice President,

    2018     387,116     1,149,941     235,280     10,946     1,783,283  

General Counsel and Corporate Secretary

    2017     368,947     1,351,551     450,004     10,754     2,181,256  

Paul Sechrist,

  2019   417,130   812,037   0   11,146   1,240,313  

Former Executive Vice President

  2018   399,246   1,306,720   263,135   10,946   1,980,047  

Worldwide Sales and Services(7)

  2017   371,543   1,464,189   450,004   10,754   2,296,490