DEF 14A 1 a2243039zdef14a.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

    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    
 

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 Annual
Meeting of Stockholders

May 6, 2021

8:30 a.m., Pacific Time

As part of our continuing precautions regarding the Coronavirus Disease (COVID-19), we are holding this year's annual meeting solely by means of remote communication. If we hold an annual meeting in 2022, we expect that we will revert to an in-person meeting, if appropriate.

If you plan to participate in our annual 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/COHR2021.

MATTERS TO BE VOTED ON:

1.
To elect the eight directors named in the accompanying proxy statement;
2.
To approve our amended and restated Employee Stock Purchase Plan;
3.
To ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending October 2, 2021;
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 12, 2021 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
March 19, 2021
  Sincerely,
    GRAPHIC

 

 

Bret DiMarco
Executive Vice President, Chief Legal Officer and
Corporate Secretary

Important Notice Regarding the Availability of Proxy Materials for the Stockholder Meeting to Be Held on May 6, 2021

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

YOUR VOTE IS IMPORTANT


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LOGO

PROXY STATEMENT

2021 ANNUAL MEETING OF STOCKHOLDERS


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  GENERAL INFORMATION ABOUT THE MEETING   3

 

SPOTLIGHT ON GOVERNANCE

 

8

 

PROPOSAL ONE—ELECTION OF DIRECTORS

 

10

 

PROPOSAL TWO—APPROVAL OF OUR AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN

 

22

 

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

 

26

 

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

 

28

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

29

 

OUR EXECUTIVE OFFICERS

 

31

 

COMPENSATION DISCUSSION AND ANALYSIS

 

32

 

SUMMARY COMPENSATION AND EQUITY TABLES

 

51

 

PAY RATIO

 

59

 

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

 

60

 

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

 

61

 

OTHER MATTERS

 

62

 

APPENDIX A—COHERENT, INC. EMPLOYEE STOCK PURCHASE PLAN

 

A-1

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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 May 6, 2021 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/COHR2021, 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 March 19, 2021 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 12, 2021 (the "Record Date"). On the Record Date, 24,463,754 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/COHR2021 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 8:15 a.m. PDT on May 6, 2021. The meeting will begin promptly at 8:30 a.m. PDT on May 6, 2021. We encourage you to log in and ensure you can hear streaming audio prior to the meeting start time.

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.

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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Why Did I Receive a One-Page Notice in the Mail Regarding the Internet Availability of Proxy Materials Instead of a Full Set of Proxy Materials?

In accordance with the Securities and Exchange Commission ("SEC") rules, we are furnishing proxy materials to our stockholders primarily via the Internet, instead of mailing printed copies of those materials to each stockholder. On March 19, 2021, we commenced mailing a Notice Regarding the Availability of Proxy Materials to our stockholders (other than those who had previously requested electronic or paper delivery) containing instructions on how to access our proxy materials, including this proxy statement and our annual report. The Notice Regarding the Availability of Proxy Materials sets forth instructions on how to vote over the Internet and also how to request paper copies if that is your preference.

This process is designed to provide stockholders with easy access to our proxy materials, while reducing the printing, distribution and environmental costs of the proxy process. However, if you would prefer to receive printed proxy materials, please follow the instructions included in the Notice Regarding the Availability of Proxy Materials.

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/COHR2021. 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 May 5, 2021 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.

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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.

Quorum; Broker Non-Votes; Abstentions

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 will have the same effect as a vote "Against" Proposals Two, Three and Four. 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 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") for the annual meeting to be held in fiscal 2022, written materials must be received by our Corporate Secretary at our principal executive offices in Santa Clara, California no later than November 19, 2021. Stockholder proposals must otherwise comply with the requirements of Rule 14a-8 under the Exchange Act.

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 2022, a notice of the nomination or the matter the stockholder wishes to present at the meeting must be received by our Corporate Secretary (see above) at our principal executive offices no later than the 45th day (February 2, 2022), nor earlier than the 75th day (January 3, 2022), 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 April 6, 2022 or after July 5, 2022, in which case, the proposal must be received by our Corporate Secretary 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.

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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 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 2022 annual meeting of stockholders must include the information required under our bylaws and must be received by our Corporate Secretary (see above) at our principal executive offices no later than the close of business on the 120th day (October 20, 2021) and not earlier than the close of business on the 150th day (November 19, 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 April 6, 2022 or after July 5, 2022, in which case, such notice must be received by our Corporate Secretary not earlier than the 90th day prior to the annual meeting and not later than the close of business on the later of (i) the 60th day prior to the annual meeting 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 these proxy access provisions, please refer to our 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.

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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.

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/COHR2021 during the meeting.

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 October 3, 2020 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.

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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 including a number of governance "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;

*
A 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% directors who meet diversity qualification. The proposed slate is 88% independent, with only our CEO serving as an inside director.

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):

  50%

Mid-Term Members (five to ten years):

  25%

Long-Term Members (more than ten years):

  25%

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 2020.

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

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Recent Governance Changes

On and effective as of January 18, 2021, the Board amended and restated our bylaws to designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain proceedings relating to Coherent. We believe that having such court, located in our jurisdiction of incorporation, provides full access to the judicial process for our stockholders for such claims, but at the same time reducing cost to the company of having to address claims in multiple jurisdictions. Ultimately, such additional costs are borne by the company and stockholders as a whole.

If we hold an annual meeting in 2022, we intend to ask stockholders to approve the exclusive forum provision in our bylaws.

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PROPOSAL ONE
ELECTION OF DIRECTORS

Nominees

Eight (8) members of the Board are to be elected at the Annual Meeting, all of whom are standing for re-election. 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 as of March 19, 2021 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. Except as set forth in "Biographical Information" below, each of our directors has been engaged in his or her principal occupation set forth in the table below during the past five years.

Name
Age
Director Since
Principal Occupation

Jay T. Flatley(1)(2)

68 2011 Chairman of the Board of Illumina, Inc.

Pamela Fletcher(2)

54 2017 Vice President—Global Innovation at General Motors Company

Andreas ("Andy") W. Mattes

59 2020 President and Chief Executive Officer

Beverly Kay Matthews(3)

62 2019 Retired Partner, Ernst & Young

Michael R. McMullen(2)

60 2018 President and Chief Executive Officer of Agilent Technologies, Inc.

Garry W. Rogerson(1)(3)

68 2004 Former Chief Executive Officer of Advanced Energy Industries, Inc.

Steve Skaggs(1)(3)

58 2013 Former Senior Vice President and Chief Financial Officer of Atmel Corporation

Sandeep Vij(2)

55 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.

(3)
Member of the Audit Committee.

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Proposal One    Election of Directors



 


    



 



 



 



 



 



 

Biographical Information

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—Global Innovation at General Motors Company ("GM"), a global automotive company, since October 2018 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 April 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 Maximilian 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 (Texas) 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;

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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 and compensation committees of SVB Financial Group, the parent company of Silicon Valley Bank, a member of the board of directors and audit committee of Main Street Capital Corporation, and a member of the Texas Tech University Jerry S. Rawls College of Business Advisory Council. 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.

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. He currently also serves as a member of the board of directors and chair of the audit committee of IDEX Biometrics, ASA. 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 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.    Mr. Vij has been a private investor since February 2013. 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

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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.

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.

Board Meetings and Committees

The Board held a total of eleven (11) formal meetings and acted two (2) times by unanimous written consent during fiscal 2020. 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 2020, 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 2020.

Audit Committee

The Audit Committee consists of directors Skaggs (Chair), Matthews and Rogerson. The Audit Committee held ten (10) meetings during fiscal 2020. Susan James also served on the committee during fiscal 2020 until her retirement from the Board on April 27, 2020. The Board has determined that directors Skaggs, Matthews and Rogerson 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 eight (8) meetings during fiscal 2020. 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 2020, 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. 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

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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 and Skaggs. The Governance and Nominating Committee held five (5) meetings during fiscal 2020. Susan James also served on the committee during fiscal 2020 until her retirement from the Board on April 27, 2020. 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 2020, 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 the investor relations section of our website (investors.coherent.com) under "Corporate Governance"/"Governance Documents."

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

Although we do not have a formal policy regarding attendance by members of the Board at our annual meeting of stockholders, directors are encouraged, but not required, to attend. Seven of our eight then-current members of the Board attended our annual meeting held on April 27, 2020.

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."

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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 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.

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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.

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.

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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 Chief Legal Officer 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 and works closely with both our Chief Financial Officer and Chief Legal Officer 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 2021 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 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 2020 Director Compensation

During fiscal 2020, 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  

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  

The Governance and Nominating Committee annually reviews Board and committee compensation with the assistance of an independent compensation consultant, which for fiscal 2020 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 in "Compensation Discussion and Analysis") 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. As noted, the Board is compensated with a combination of cash retainers and a fixed 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. Despite the significant increase in Board meetings during fiscal 2020 and the beginning of fiscal 2021, the Board has not had a corresponding increase in compensation.

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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 (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 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). Such awards of RSUs are currently granted under the Coherent Equity Incentive Plan. Prior to the approval of the Coherent Equity Incentive Plan by our stockholders in April 2020, these awards of RSUs were made under the 2011 Equity Incentive Plan.

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 2020:

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

  Stock Awards
($)(2)(3)

  Option Awards
($)(4)

  Total ($)
 

Jay T. Flatley

  76,500   269,724     346,224  

Pamela Fletcher

  70,000   269,724     339,724  

Susan M. James*

  64,625       64,625  

Beverly Kay Matthews

  72,500   269,724     342,224  

Michael R. McMullen

  70,000   269,724     339,724  

Garry W. Rogerson

  146,000   269,724     415,724  

Steve Skaggs

  95,125   269,724     364,849  

Sandeep Vij

  80,000   269,724     349,724  
*
Fees paid in cash to Ms. James reflect the pro-rata amount for her service during the fiscal year. Ms. James retired from the Board effective as of April 27, 2020.

(1)
The chart below summarizes the gross cash amounts earned by non-employee directors for service during fiscal 2020 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         10,000         70,000  

Susan M. James*

  45,000 14,750   4,875 64,625  

Beverly Kay Matthews

    60,000     12,500             72,500  

Michael R. McMullen

  60,000     10,000     70,000  

Garry W. Rogerson

    120,000     12,500         13,500     146,000  

Steve Skaggs

  60,000   28,625   6,500   95,125  

Sandeep Vij

    60,000         20,000         80,000  
*
Retainer amounts for Ms. James are pro-rata for her service during the fiscal year. Ms. James retired from the Board effective as of April 27, 2020.

Reflects pro-rata amounts for service on the Board and the respective committee during the year; the applicable individual did not serve on the applicable committee for the entire fiscal year. In the case of Mr. Skaggs, he was appointed Chair of the Audit Committee in December 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 2020. The assumptions used to calculate the value of these RSUs are set forth in Note 12 "Employee Stock Award and Benefit Plans"

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    of the Notes to the Consolidated Financial Statements in our annual report on Form 10-K for fiscal 2020, filed with the SEC on December 1, 2020.

(3)
The aggregate number of shares underlying unvested RSUs held by each of our non-employee directors as of the end of fiscal 2020 (including the grants made to our non-employee directors during fiscal 2020) was as follows:
Name
  Shares(a)
 

Jay T. Flatley

  2,148(b)  

Pamela Fletcher

    2,148(b)  

Susan M. James

   

Beverly Kay Matthews

    2,898(c)  

Michael R. McMullen

    2,148(b)  

Garry W. Rogerson

  2,148(b)  

Steve Skaggs

    2,148(b)  

Sandeep Vij

    2,148(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 vested on February 15, 2021.

(c)
2,148 shares vested on February 15, 2021, and 750 shares are scheduled to vest on May 9, 2021.
(4)
No stock options have been granted to our non-employee directors since 2011. As of the end of fiscal 2020, none of our non-employee directors held any stock options.

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Proposal One    Election of Directors



 


    



 



 



 



 



 



 

Option Exercises and Stock Vested During Fiscal 2020

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 2020, 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
($)(1)

  Number of Shares
Acquired on
Vesting
(#)

  Value Realized
on Vesting
($)(2)

 

Jay T. Flatley

  24,000   1,468,560   1,805   277,627  

Pamela Fletcher

      1,805   277,627  

Susan M. James

      1,805   277,627  

Beverly Kay Matthews

      750   105,150  

Michael R. McMullen

      2,422   345,386  

Garry W. Rogerson

      1,805   277,627  

Steve Skaggs

      1,805   277,627  

Sandeep Vij

      1,805   277,627  
(1)
Reflects the difference between the exercise price of the option and market price of our common stock on the exercise date.

(2)
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 OUR AMENDED AND RESTATED EMPLOYEE STOCK PURCHASE PLAN

General

We are asking stockholders to approve our amended and restated Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan was initially adopted in 1980 and has been amended several times, most recently in 2012 to increase the number of shares reserved for issuance thereunder (the "Existing Plan"). Following the unanimous recommendation of its Compensation and HR Committee, the Board has determined that it is in the best interests of the Company and its stockholders to amend and restate the Purchase Plan: (i) to authorize additional shares of our common stock for purchase under the Purchase Plan and (ii) to make certain administrative changes including permitting the Company to allow employees who may customarily work less than 20 hours per week to participate. The Board has authorized an increase to the number of shares reserved for issuance thereunder by an additional 250,000 shares to an aggregate of 337,192 shares of our common stock reserved for purchase under the Purchase Plan on or after May 6, 2021 subject to stockholder approval.

As of February 26, 2021, 87,192 shares remained available for issuance under the Existing Plan. The Board expects that with the 250,000 share increase, the number of shares reserved for issuance under the Purchase Plan will be sufficient to operate the plan for at least three years without having to request additional shares. The Board will periodically review actual share consumption under the Purchase Plan and may make an additional request for shares under the Purchase Plan earlier or later than this period as needed.

The Board believes that the Purchase Plan is helpful to the Company in attracting and retaining personnel and the Company's request for an additional 250,000 shares is reasonable and prudent and allows us to continue the Purchase Plan.

If the stockholders approve the Purchase Plan, it will replace the current version of the Existing Plan. If stockholders do not approve the amended and restated Purchase Plan, we will continue to use the current version of the Existing Plan.

Description of the Purchase Plan

The following is a summary of the principal features of the Purchase Plan and its operation. The summary is qualified in its entirety by reference to the Purchase Plan as set forth in Appendix A.

General

The Purchase Plan was adopted by the Board in March 2021, subject to stockholder approval at the Annual Meeting. The purpose of the Purchase Plan is to provide employees of the Company and its subsidiaries with an opportunity to purchase shares of our common stock through payroll deductions.

Eligibility

Each of our employees or the employees of our subsidiaries who is customarily employed with us or one of our subsidiaries for at least twenty hours per week (or such lesser number of hours determined by the Company) is eligible to participate in the Purchase Plan; except that no employee will be granted an option under the Purchase Plan to the extent that (i) immediately after the grant, such employee would own 5% or more of the total combined voting power or value of the Company, (ii) his or her rights to purchase stock under all of our employee stock purchase plans accrues at a rate which exceeds $25,000 worth of stock (determined at the fair market value of the shares at the time such option is granted) for each calendar year, or (iii) the employee is an employee of a subsidiary that we have designated as not participating in the Purchase Plan. As of February 26, 2021, approximately 4,476 employees were eligible to participate in the Purchase Plan. Non-employee directors are not eligible to participate in the Purchase Plan.

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Proposal Two    Approval of Our Amended and Restated
Employee Stock Purchase Plan



 


    



 



 



 



 



 



 

Offering Period

The Purchase Plan is implemented through offering periods—currently two offering periods during each fiscal year, each of six months duration, commencing on or about May 1 and November 1 of each year. To participate in the Purchase Plan, an eligible employee must complete a subscription agreement provided by the Company authorizing payroll deductions and submit such subscription agreement prior to the applicable offering date. Unless otherwise determined by the Company, payroll deductions may not exceed 10% of a participant's base pay which he or she received on a given payday nor be less than a $10 deduction per payday. At the beginning of each offering period, each participant automatically is granted an option to purchase shares of our common stock through such participant's accumulated payroll deductions. Unless a participant withdraws from the Purchase Plan, the option will be automatically exercised at the end of the offering period, and the maximum number of full shares will be purchased at the applicable amount of the accumulated payroll deductions in his or her account.

Purchase Price

Shares of our common stock may be purchased under the Purchase Plan at a purchase price equal to 85% of the lesser of the fair market value of our common stock on (i) the first day of the offering period, or (ii) the last day of the offering period. The fair market value of our common stock on any relevant date will be determined by the Board in good faith.

Payroll Deductions

The purchase price of the shares is accumulated by payroll deductions throughout each offering period. The payroll deductions made by a participant will be credited to his or her account under the Purchase Plan. A participant may not make any additional payments into such account. The maximum number of full shares of our common stock that a participant may purchase in each offering period will be determined by dividing the total amount of payroll deductions withheld from the participant's compensation during that offering period by the purchase price, provided that in no event may a participant purchase during one offering period more than 10,000 shares.

A participant may lower but not increase the rate of his or her payroll deductions during an offering period by filing a new subscription agreement. Unless otherwise determined by the Company, the change in rate will be effective within 15 days following the Company's receipt of the new authorization.

Withdrawal

During the offering period, a participant may discontinue all, but not less than all, of the payroll deductions credited to his or her account at any time prior to the end of an applicable offering period by giving notice to the Company. All the participant's payroll deductions credited to his or her account will be paid promptly after receipt of a withdrawal notice and the option will terminated, and no further payroll deductions will be made during the applicable offering period.

In the event a participant fails to remain employed by the Company or any subsidiary customarily for at least 20 hours per week (or such lesser number of hours determined by the Company) during a given offering period, he or she will be deemed to have elected to withdraw from the Purchase Plan and the payroll deductions credited to his or her account will be returned and the option terminated.

Termination of Employment

Upon termination of a participant's employment prior to the end of an offering period for any reason, including retirement or death, he or she will be deemed to have elected to withdraw from the Purchase Plan and the payroll deductions credited to the participant's account will be returned to him or her and such participant's option will automatically be terminated.

Nontransferability

Participants may not assign their rights under the Purchase Plan to any other person other than by will or the laws of descent and distribution.

Changes in Capitalization and Transactions

The Purchase Plan provides for adjustment of the aggregate number of shares that may be issued under the Purchase Plan, as well as the purchase price per share and the number of shares covered by each outstanding option, for changes in our common stock without receipt of consideration by the Company (such as resulting from a stock dividend, stock split, recapitalization, reorganization, merger, consolidation or other similar corporate transaction or event affecting our common stock).

In the event of any corporate transaction, the Board may make such adjustment it deems appropriate to prevent dilution or enlargement of rights in the number, class of or price of shares available for purchase under the Purchase Plan and such other adjustments it deems appropriate. In the event of any corporate transaction, the Board may elect to have the options under the Purchase Plan assumed or such options substituted

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Proposal Two    Approval of Our Amended and Restated
Employee Stock Purchase Plan



 



 


    



 



 



 



 



 



by a successor entity, to terminate all outstanding options either prior to their expiration or upon completion of the purchase of shares on the next purchase date, or to take such other action deemed appropriate by the Board.

Administration

The Board or a committee appointed by the Board (in either case, the "Administrator") administers the Purchase Plan. The administration, interpretation or application of the Purchase Plan by the Administrator will be final, conclusive and binding upon all participants. The Administrator may adopt special rules and procedures regarding operation of the Purchase Plan in jurisdictions outside of the United States including, without limitation, to conform to the particular laws and practices of such countries, treat non-corporate entities as subsidiaries, and treat eligible non-U.S. employees of any participating subsidiary as participating in a subplan outside of an employee stock purchase plan under Section 423 of the Internal Revenue Code (the "Code").

Amendment and Termination of the Plan

The Board may at any time terminate or amend the Purchase Plan, provided that certain amendments such as increasing the number of shares that may be issued under the Purchase Plan require stockholder approval. No such termination can affect previously granted options, and no amendment can make any change in any previously granted option that adversely affects the rights of any participant.

Participation in Plan Benefits

Participation in the Purchase Plan is voluntary and is dependent on each eligible employee's election to participate and his or her determination as to the level of payroll deductions and the eventual purchase price under the Purchase Plan. Accordingly, future purchases under the Purchase Plan are not determinable. Non-employee directors are not eligible to participate in the Purchase Plan. No purchases have been made under the amended and restated Purchase Plan since its adoption by the Board in March 2021. As of March 12, 2021, the closing price of a share of our common stock was $247.90.

Certain Federal Income Tax Consequences

The Purchase Plan, and the right of participants to make purchases thereunder, is generally intended to qualify under the provisions of Sections 421 and 423 of the Code. Under these provisions, no income will be taxable to a participant until the shares purchased under the Purchase Plan are sold or otherwise disposed of.

Upon sale or other disposition of the shares, the participant will generally be subject to tax in an amount that depends upon the holding period. If the shares are sold or otherwise disposed of more than two years from the first day of the applicable offering period and one year from the applicable date of purchase, the participant will recognize ordinary income measured as the lesser of (i) the excess of the fair market value of the shares at the time of such sale or disposition over the purchase price and (ii) an amount equal to 15% of the fair market value of the shares as of the first day of the applicable offering period. Any additional gain will be treated as long-term capital gain.

If the shares are sold or otherwise disposed of before the expiration of these holding periods, the participant will recognize ordinary income generally measured as the excess of the fair market value of the shares on the date the shares are purchased over the purchase price. Any additional gain or loss on such sale or disposition will be long-term or short-term capital gain or loss, depending on how long the shares have been held from the date of purchase. The Company generally is not entitled to a deduction for amounts taxed as ordinary income or capital gain to a participant except to the extent of ordinary income recognized by participants upon a sale or disposition of shares prior to the expiration of the holding periods described above.

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Proposal Two    Approval of Our Amended and Restated
Employee Stock Purchase Plan



 


    



 



 



 



 



 



 

EQUITY COMPENSATION PLAN INFORMATION

The following table provides information as of October 3, 2020 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

  555,019 (2) $ 0.00   3,177,501 (3)

Equity compensation plans not approved by security holders

                   

TOTAL

  555,019   $ 0.00   3,177,501 (4)
(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 of shares includes 530,115 shares outstanding under the 2011 Equity Incentive Plan and 24,904 shares outstanding under the Coherent Equity Incentive Plan.

(3)
This number of shares includes 143,465 shares reserved for future issuance under the Employee Stock Purchase Plan and 3,034,036 shares reserved for future issuance under the Coherent Equity Incentive Plan. This number reflects counting each share issued pursuant to vested RSUs (either service or performance-based) under the Coherent Equity Incentive Plan as 2.0 shares. 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.

(4)
As of February 26, 2021, 87,192 shares remained available for future issuance under the Employee Stock Purchase Plan and 2,409,742 shares remained available for future issuance under the Coherent Equity Incentive Plan.

Vote Required

The affirmative vote of a majority of the shares present, virtually or by proxy, at the Annual Meeting and entitled to vote on the proposal is required to approve the Purchase Plan. You may vote "FOR," "AGAINST" or "ABSTAIN" on this proposal. Abstentions will have the same effect as a vote "Against" this propsal.

Recommendation

The Board of Directors unanimously recommends that stockholders vote "FOR" the approval of our amended and restated Employee Stock Purchase Plan.

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PROPOSAL THREE
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS OUR 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 2, 2021, 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 October 3, 2020, 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 2020 and 2019:

 
  2020
  2019
 

Audit fees(1)

  $ 3,612,428   $ 3,454,348  

Tax fees(2)

    523,716     546,618  

All other fees(3)

  1,895   1,895  

Total

  $ 4,138,039   $ 4,002,861  
(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 Our 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 2020 and 2019, 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 the shares present, virtually or by proxy, at the Annual Meeting and entitled to vote on the proposal is required to ratify the selection of Deloitte & Touche LLP as our independent registered public accounting firm for the fiscal year ending October 2, 2021. You may vote "FOR," "AGAINST" or "ABSTAIN" on this proposal. Abstentions will have the same effect as a vote "Against" this propsal.

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 2, 2021.

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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 2020 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 the shares present, virtually or by proxy, at the Annual Meeting and entitled to vote on the proposal is required to approve the compensation of our named executive officers disclosed in this proxy statement. You may vote "FOR," "AGAINST" or "ABSTAIN" on this proposal. Abstentions will have the same effect as a vote "Against" this propsal.

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

he following table sets forth, as of February 26, 2021, certain information with respect to the beneficial ownership of our common stock by (i) any person (including any "group" as that term is used in Section 13(d)(3) of 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




 
3,118,324   12.75%

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

    2,242,232   9.17%

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



 
2,214,576   9.05%

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

    1,745,792   7.14%

The Hartford Mutual Funds, Inc. on behalf of:
Hartford Midcap Fund and Hartford Midcap Value Fund(6)
690 Lee Road
Wayne, PA 19087




 
1,589,206   6.50%

Andreas W. Mattes(7)

    7,934   *

John R. Ambroseo(8)

  187,283   *

Kevin Palatnik

    31,437   *

Mark Sobey

  12,477   *

Bret DiMarco(9)

    22,717   *

Thomas Merk(10)

  7,819   *

Jay T. Flatley(11)

    42,162   *

Pamela Fletcher

  3,738   *

Beverly Kay Matthews

    2,898   *

Michael R. McMullen

  5,187   *

Garry W. Rogerson(12)

    16,662   *

Steve Skaggs

  13,662   *

Sandeep Vij(13)

    9,662   *

All current directors and executive officers as a group (11 persons)(14)

  163,147   *
*
Represents less than 1%.

(1)
Based upon 24,463,754 shares of common stock outstanding as of February 26, 2021. 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

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Security Ownership of Certain Beneficial Owners and Management



 



 


    



 



 



 



 



 



 

    computing the number of shares beneficially owned by a person and the percentage ownership of that person, each share of common stock subject to options held by that person that are currently exercisable or will be exercisable within 60 days of February 26, 2021 and all RSUs held by that person that will vest within 60 days of February 26, 2021. Such shares are not deemed outstanding for the purpose of computing the percentage ownership of any other person.

(2)
According to the information reported by Wellington Management Group LLP, Wellington Group Holdings LLP, Wellington Investment Advisors Holdings LLP and Wellington Management Company LLP on a Schedule 13G/A jointly filed with the SEC on February 4, 2021, (a) each of Wellington Management Group LLP, Wellington Group Holdings LLP, and Wellington Investment Advisors Holdings LLP beneficially owns an aggregate of 3,118,824 shares, which consists of (i) 2,744,965 shares as to which it has shared voting power and (ii) 3,118,324 shares as to which it has shared dispositive power, and (b) Wellington Management Company LLP beneficially owns an aggregate of 3,026,761 shares, which consists of (i) 2,689,216 shares as to which it has shared voting power and (ii) 3,026,761 shares as to which it has shared dispositive power.

(3)
According to the information reported by The Vanguard Group ("Vanguard") on a Schedule 13G/A filed with the SEC on February 10, 2021, Vanguard beneficially owns an aggregate of 2,242,232 shares, which consists of (i) 18,263 shares as to which it has shared voting power, (ii) 2,205,184 shares as to which it has sole dispositive power, and (iii) 37,048 shares as to which it has shared dispositive power.

(4)
According to the information reported by BlackRock, Inc. ("BlackRock") on a Schedule 13G/A filed with the SEC on January 29, 2021, BlackRock beneficially owns an aggregate of 2,214,576 shares, which consists of (i) 2,131,397 shares as to which it has sole voting power and (ii) 2,214,576 shares as to which it has sole dispositive power.

(5)
According to the information reported by Victory Capital Management Inc. ("Victory Capital") on a Schedule 13G/A filed with the SEC on February 5, 2021, Victory Capital beneficially owns an aggregate of 1,745,792 shares, which consists of (i) 1,673,292 shares as to which it has sole voting power and (ii) 1,745,792 shares as to which it has sole dispositive power.

(6)
According to the information reported by The Hartford Mutual Funds, Inc. on behalf of Hartford Midcap Fund and Hartford Midcap Value Fund ("Hartford") on a Schedule 13G filed with the SEC on February 9, 2021, Hartford beneficially owns an aggregate of 1,589,206 shares, as to which it has shared voting and dispositive power.

(7)
Includes 5,389 shares issuable upon vesting of RSUs within 60 days of February 26, 2021.

(8)
Shares are held by the Ambroseo-Lacorte Family Trust, of which Mr. Ambroseo is a trustee.

(9)
Shares are held by the DiMarco Family Trust, of which Mr. DiMarco is a trustee.

(10)
Mr. Merk's employment terminated on December 31, 2020. We have provided his ownership information based on the last information known to us.

(11)
Shares are held by the Flatley Family Trust, of which Mr. Flatley is a trustee.

(12)
Shares are held by the 2000 Rogerson Family Revocable Living Trust, of which Mr. Rogerson is a trustee.

(13)
Shares are held by the Vij Family 2001 Trust, of which Mr. Vij is a trustee.

(14)
Includes an aggregate of 5,389 shares issuable upon vesting of RSUs within 60 days of February 26, 2021.

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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 March 19, 2021 are set forth below:

Name
  Age
  Office Held

Andreas ("Andy") W. Mattes

  59   President and Chief Executive Officer

Kevin Palatnik

 
63
 
Executive Vice President and Chief Financial Officer

Mark Sobey

 
61

 

Executive Vice President and Chief Operating Officer

Bret DiMarco

 
52
 
Executive Vice President, Chief Legal Officer and Corporate Secretary

Andy Mattes.    For Mr. Mattes' biography, please see "Proposal One—Election of Directors—Biographical Information" above.

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 served 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 from September 2015 until July 2020 when the company was sold to Dialog Semiconductor. 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 Chief Legal Officer since October 2020. Mr. DiMarco previously served as our Executive Vice President and General Counsel from June 2006 to October 2020 and he has served as 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.

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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 2020: Messrs. Mattes, Ambroseo, Palatnik, Sobey, DiMarco and Merk. Messrs. Ambroseo and Merk 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. Mr. Merk also transitioned from his executive officer role after the end of fiscal 2020 (see "—Transitions" below). In addition, on August 20, 2020, the Company and Mr. Palatnik entered into an executive transition services agreement whereby Mr. Palatnik was to retire from his role as Executive Vice President and Chief Financial Officer no later than February 28, 2021; however, in conjunction with the Company's execution of an Agreement and Plan of Merger, dated as of January 18, 2021, with Lumentum Holdings Inc., Mr. Palatnik and the Company terminated the executive transition services agreement.

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 2020 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 2020. In fiscal 2020, the Company's financial results did not meet the challenging targets established by the committee and, as a result, no payout under our annual cash incentive plan was made to our NEOs. In connection with the COVID pandemic, we thought it important to incentivize our executives through a special equity performance award based on fiscal 2020 free cash flow because cash flow is essential to maintaining a healthy business.
Align compensation with stockholder interests   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 generally 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 regular performance-based RSUs in fiscal 2020 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 2020 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 2020 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 generally 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.   Annual bonus measurement period in fiscal 2020 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 2020, 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 2020 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 2020 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).
    Performance Based—Value Tied to Free Cash Flow   At-risk performance-based awards provide an incentive opportunity based upon generating cash as essential to maintaining a healthy business particularly during the COVID pandemic.   Target total value of awards using market data and the executive officer's responsibilities and contributions.   Performance award measured by achievement of annual free cash flow. Vesting capped at 100% of target award.
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 2020 program.

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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 2019 compensation was approved by an overwhelming majority of our stockholders.

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. In addition, in preparation for our annual meeting of stockholders held in April 2020, our CFO and CLO contacted each of our top five stockholders and were able to meet with two of them to discuss the Company's compensation practices and the equity plan proposal that was included in our proxy statement for such meeting.

As a result of these efforts, our CEO and CFO met with over 45 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 2020.

The Board, the committee and the Company's management greatly value the feedback from those meetings, and 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. 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.

Transitions

Appointment of New CEO

On April 6, 2020, Mr. Mattes became President and CEO of the Company, as well as a member of the Board.

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. Pursuant to his employment agreement, Mr. Mattes received a signing bonus of $500,000, subject to repayment to the Company if within the first year of his employment, he terminates employment without good reason or the Company terminates his employment for cause.

The employment agreement also provided for equity grants within 30 days after his commencement of employment which were made as described below in "Equity Awards."

Under his employment agreement, Mr. Mattes is 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 is 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.

Retirement of CEO

Mr. 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

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of Mr. Ambroseo's employment through December 1, 2021, with a continuation of his 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. Because performance thresholds were not achieved, neither Mr. Ambroseo nor any other executive vested in performance-based restricted stock units that were eligible to be earned in November 2020. 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.

Other Transition

Mr. Merk also transitioned from his executive officer role after the end of fiscal year 2020 and entered into an agreement that provided him with the same level of benefits as the Leadership Change severance benefits under our Change of Control and Leadership Change Severance Plan as described below in "Other Benefits—Severance and Change of Control Arrangements" and in the section entitled "Potential Payments Upon Termination or Change of Control" below.

Key Design Changes to Executive Compensation

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.

As disclosed in the Company's fiscal 2019 proxy statement, the committee made the following changes to the design of executive compensation in fiscal 2019 continuing through fiscal 2020:

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

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

The committee made changes to the design of performance-based RSUs granted in fiscal 2021:

Measured Company stock performance against the stock performance of the companies within the Russell Index rather than the Russell Index itself requiring the Company stock performance to be at the 55th percentile (above the median) with respect to the companies within the Russell Index to achieve target vesting;

Capped the maximum value of performance-based RSUs at vesting at five times the grant date stock price; and

Capped vesting of performance-based RSUs at 100% of target amount if the total stockholder return for the Company is not positive (greater than 0).

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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 for fiscal 2020, filed with the SEC on December 1, 2020.

Selected Business Highlights

We experienced a significant decrease in year-over-year revenue, Adjusted EBITDA and non-GAAP earnings per share in fiscal 2020 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 2020.

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

Our revenue decreased 25% from fiscal 2018 to fiscal 2019 and decreased 14% from fiscal 2019 to fiscal 2020 (dollars in millions):


ANNUAL REVENUE

GRAPHIC

Our Adjusted EBITDA decreased 53% from fiscal 2018 to fiscal 2019 and decreased 42% from fiscal 2019 to fiscal 2020 (dollars in millions):


ADJUSTED EBITDA

GRAPHIC

Our non-GAAP earnings per share from continuing operations decreased 57% from fiscal 2018 to fiscal 2019 and decreased 49% from fiscal 2019 to fiscal 2020:


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 (loss) from continuing operations on a GAAP basis to Adjusted EBITDA, please refer to the "Reconciliation Table" at the end of this section.

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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 annual cash bonus paid out for fiscal 2020 as explained below. To incentivize conservation of cash during the COVID pandemic, the committee granted performance RSUs based on achievement of free cash flow which were earned.

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


PAYOUT PERCENTAGE UNDER
ANNUAL CASH INCENTIVE PLAN

GRAPHIC

Payouts under our annual cash incentive 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 2020 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 2020.

Align compensation with stockholder interests—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

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    outperform the Russell Index by at least 52%. The table and chart below illustrate this structure:


FISCAL 2020 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 2020, 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"), (C) long-term equity incentive awards divided between time-based RSUs and performance-based RSUs and (D) special performance-based equity incentive awards based on achievement of free cash flow metrics during the COVID pandemic. For fiscal 2020, on average, approximately 78% of our NEO's target compensation and approximately 88% of our CEO's target compensation was delivered through our annual 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 CEO during fiscal 2020 at target, maximum and actual can be illustrated as follows (dollars in thousands):


CEO FY2020 CASH PAY MIX*

GRAPHIC

      *Actual excludes sign-on bonus of $500,000 and includes special strategic operating plan incentive.

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) an annual cash incentive plan tied to achievement of financial metrics and (ii) equity award 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 2020, 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 2020 grants require achievement in excess of the Russell Index to achieve target payout;

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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;

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

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

Role of Management

The committee regularly met with the CEO to obtain recommendations with respect to the compensation programs, practices and packages for our NEOs other than the CEO. Additionally, Mr. Palatnik, our Executive Vice President and CFO, Mr. DiMarco, our Executive Vice President, Chief Legal Officer 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 2020, 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 2020 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.

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The Company also participates in and maintains a subscription to the Radford Global Technology and Sales surveys. These surveys provide 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' interests. In fiscal 2020, 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.

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 considers 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.

For pay decisions made for fiscal 2020, after consulting with its independent compensation consultant, the committee determined that the following companies comprise the peer group for fiscal 2020:

Ciena Corporation (CIEN)   Lumentum Holdings Inc. (LITE)
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)
II-VI Inc. (IIVI)   Trimble Inc. (TRMB)
Itron, Inc. (ITRI)   ViaSat (VSAT)
Keysight Technologies (KEYS)    

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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, but does not necessarily remove a peer company from the peer group the first year it ceases to meet the criteria. II-VI Inc. was added to the companies comprising the Company's peer group for fiscal 2020 replacing one company (Microsemi, due to acquisition) from the fiscal 2019 peer group.

Components of Our Executive Compensation Program

The principal components of our executive officer compensation and employment arrangements during fiscal 2020 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 2020. In maintaining the design for fiscal 2020, 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) FY2020
DIRECT COMPENSATION MIX*

GRAPHIC

      *Excludes special one-time RSU & PRSU grants and performance-based RSUs measured by achievement of annual free cash flow.

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,

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knowledge, performance and contribution. The committee increased the base salaries of our NEOs in the first quarter of fiscal 2020, as supported by compensation analysis provided by Compensia, from 0% to 10.0% to more closely align their base salary with the base salary of peers. In addition, in connection with Mr. Sobey's promotion to Chief Operating Officer in April 2020, his annual base salary increased to $500,000 to reflect the expansion of his role. According to information provided by the committee's compensation consultant, our CEO's base salary was approximately at the 50th percentile of our peer group companies. The base salaries for our other NEOs ranged from approximately the 40th percentile to the 60th percentile of our peer group companies.

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 2020, Coherent maintained one incentive cash program under which executive officers were eligible to receive annual cash incentives, the 2020 Variable Compensation Plan ("2020 VCP").

2020 VCP

The 2020 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 2020 VCP, participants were eligible to receive a bonus based on annual fiscal year performance. 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 2020 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 impact of mergers and acquisitions to determine if any adjustments in VCP are required.

The annual award had a potential payout range between zero and 200%.

In addition to a 100% target bonus based on the factors described above, the committee provided our CEO an additional target bonus of 20% of base salary based on the strategic operating plan process, which he met. The maximum payout under such additional target bonus was capped at 20%. The committee determined that Mr. Mattes earned this 20% of base salary target bonus.

Fiscal 2020 VCP Scale for NEOs

Revenue achievement for fiscal 2020 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 2020 was $259.1 million, which fell short of the threshold for a cash bonus payout and resulted in no cash bonus.

Fiscal 2020 VCP Scale

Revenue ($ in millions)

  Payout

$1,229.0 (actual)

  0% (actual)

$1,420.0 (threshold)

  0%

$1,480.0 (target)

  100%

$1,154.0

  200%

 

Adjusted EBITDA ($ in millions)

  Payout

$151.1 (actual)

  0% (actual)

$250.0 (threshold)

  0%

$291.0 (target)

  100%

$333.0

  200%

The table below describes for each NEO under the 2020 VCP (i) the target percentage of base salary and (ii) the actual award earned for fiscal 2020. The potential award range for each NEO is 0% to 200% of the target award percentage of base salary.

Named
Executive
Officer

  Target
Percentage
of Salary

  Actual
Payout
($)

  Actual
Payout as a
Percentage
of Target

 

Andy Mattes

  100% (1) 0   0%  

Kevin Palatnik

    75%     0     0%  

Mark Sobey

  75%   0   0%  

Bret DiMarco

    70%     0     0%  

John Ambroseo

  100%   0   0%  

Thomas Merk

    65%     0     0%  
(1)
Consists of VCP at 100% and 20% based on individual goals. Mr. Mattes earned $170,003 based on achievement of his individual goals.

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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 2020, our long-term incentive program included the grant of time-based RSUs and performance-based RSUs. These components provide a reward for 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. 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 2020 Equity Grants

For fiscal 2020, 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 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 strengthen retention 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 threshold is met, in a single cliff vesting after a three-year period.

Performance-based standard RSU grants in fiscal 2020 vest solely 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 2020 equity grants:


Fiscal 2020 Standard 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 61% of his equity awards are performance-based and at maximum achievement that percentage increases to approximately 76%.

As an example, our performance-based design was seen in the vesting of the PRSU grants made in November 2016, which vested in the first quarter of fiscal 2020. Our common stock gained 39% as compared to the Russell Index, which gained 25% over the defined measurement periods at the beginning and end of the three-year vesting period. This out-performance resulted in 128% 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 2020 to our CEO, at target and at maximum achievement under the terms of the performance-

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based grants (excluding PRSUs measured by achievement of annual free cash flow):

GRAPHIC

The following table reflects equity grants made to the NEOs during fiscal 2020. The table includes a special one-time retention RSU with respect to 3,209 shares and with a single two-year cliff vest made to Mr. Palatnik in November 2019 as our CFO while the search for a CEO to succeed Mr. Ambroseo upon his retirement was underway. The table also includes PRSU grants made to Messrs. Sobey, DiMarco, and Palatnik made at the same time and the same performance measures as the PRSU grants made to Mr. Mattes as the new CEO in April 2020. These PRSU 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 with Mr. Mattes as our new 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)

 

Andy Mattes

  16,165   25,057   0 - 50,114  

Kevin Palatnik

    8,663     6,261     0 - 12,522  

Mark Sobey

  5,133   7,806   0 - 15,612  

Bret DiMarco

    3,529     4,689     0 - 9,378  

Thomas Merk

  2,567   2,096   0 - 4,192  

In addition to the standard time and performance-based RSUs described above, the committee in consultation with its independent compensation consultant determined in April 2020 that it was important during the COVID pandemic to provide performance-based RSUs based on the Company's free cash flow. The committee set $40 million free cash flow (net cash provided by operating activities reduced by purchases of property and equipment) for fiscal year 2020 as the target for earning these performance-based RSUs. No vesting of such performance-based RSUs could occur unless more than the threshold of $20 million free cash flow was achieved. Potential vesting with respect to free cash flow above the threshold $20 million free cash flow target was linear to the target free cash flow amount.

The Company exceeded the target $40 million free cash flow for fiscal 2020 and therefore the NEOs earned the target performance-based RSUs as set forth below:

Named
Executive
Officer

  Performance-Based RSU
Grants Tied to Free
Cash Flow at Target

 

Andy Mattes

  3,588  

Kevin Palatnik

    1,615  

Mark Sobey

  1,583  

Bret DiMarco

    1,300  

Thomas Merk

  1,066  

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.

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In fiscal 2020 the committee and the Equity Committee granted an aggregate of 403,689 shares subject to time-based and performance-based restricted stock units (at maximum), representing approximately 1.66% of Coherent's outstanding common stock as of October 3, 2020 (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.

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 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. Mr. Mattes has until 2025 to meet the minimum stock ownership guidelines. Our other current NEOs exceeded the minimum stock ownership guidelines as of December 31, 2020.

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 cash bonus pay 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.

In the first quarter of fiscal 2019, the committee reviewed and adopted substantially the same Change of Control Plan as adopted four years previously 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

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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 Vice Presidents 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, which was April 6, 2020. 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. As described in "Potential Payments Upon Termination or Change of Control" below, one NEO who is transitioning will be receiving severance in accordance with such transition severance benefits.

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.

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 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 2019 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.

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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  
 
  2020
  2019
  2018
 

GAAP NET INCOME (LOSS) PER DILUTED SHARE FROM CONTINUING OPERATIONS

  $ (17.18 ) $ 2.22   $ 9.95  

Stock-based compensation

    1.61     1.30     1.11  

Amortization of intangible assets

  0.90   1.81   1.72  

Restructuring charges and other

    0.12     0.66     0.12  

Non-recurring tax expense (benefit)

  (0.01 ) (0.04 ) 0.66  

Costs related to acquisitions

            0.03  

Goodwill and other impairment/asset charges (recoveries)

  17.56   (0.04 ) 0.03  

Purchase accounting step up

        0.01     0.02  

NON-GAAP NET INCOME PER DILUTED SHARE FROM CONTINUING OPERATIONS

  $ 3.00   $ 5.92   $ 13.64  

RECONCILIATION TABLE—ADJUSTED EBITDA

 
  Fiscal Year  
(in millions)
  2020
  2019
  2018
 

GAAP NET INCOME (LOSS) FROM CONTINUING OPERATIONS

  $ (414.1 ) $ 53.8   $ 247.4  

Income tax expense

    (28.6 )   6.2     114.2  

Interest and other income (expense), net

  18.9   24.4   36.5  

Depreciation and amortization

    76.8     116.4     113.4  

Costs related to acquisitions

      0.7  

Restructuring charges and other

    3.6     22.7     3.9  

Goodwill and other impairment/asset charges (recoveries)

  449.7   (1.3 ) 0.8  

Stock-based compensation

    44.8     36.5     32.7  

Purchase accounting step up

    0.4   0.8  
     

ADJUSTED EBITDA

  $ 151.1   $ 259.1   $ 550.4  

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Compensation Committee Interlocks and Insider Participation

During fiscal 2020, the Compensation and HR Committee of the Board consisted of directors Vij (Chair), Flatley, Fletcher, and McMullen. 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" as defined in Rule 16b-3 under the Exchange Act, and (iii) an "independent outside director" as that term is defined by Institutional Shareholder Services.

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SUMMARY COMPENSATION AND EQUITY TABLES

Fiscal 2020 Summary Compensation Table

The table below presents information concerning the total compensation of our NEOs for the fiscal years ended October 3, 2020, September 28, 2019 and September 29, 2018.

Name and Principal Position
  Fiscal
Year

  Salary
($)(1)

  Bonus
($)(2)

  Stock
Awards
($)(3)

  Non-Equity
Incentive Plan
Compensation
($)(4)

  All Other
Compensation
($)(5)

  Total
($)

 

Andy Mattes,

  2020   375,967   500,000   5,713,268   170,003   5,600   6,764,838  

President and Chief Executive Officer(6)

                             

John Ambroseo,

    2020     825,011     0     599,881     0     11,348     1,436,240  

Former President and

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

Chief Executive Officer(7)

    2018     800,010     0     7,867,051     853,885     10,946     9,531,892  

Kevin Palatnik,

  2020   507,132   0   2,641,428   0   11,348   3,159,908  

Executive Vice President

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

and Chief Financial Officer(8)

  2018   438,083   0   1,568,031   306,283   10,946   2,323,343  

Mark Sobey,

    2020     477,604     0     2,287,515     0     11,348     2,776,467  

Executive Vice President

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

and Chief Operating Officer

    2018     420,390     0     1,463,443     276,121     10,946     2,170,900  

Bret DiMarco,

  2020   432,311   0   1,504,001   0   11,348   1,947,660  

Executive Vice President,

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

Chief Legal Officer and

  2018   387,116   0   1,149,941   235,280   10,946   1,783,283  

Corporate Secretary

                             

Thomas Merk,

    2020     402,531     0     926,352     0     15,994     1,344,877  

Former Executive Vice President and General Manager, Industrial Lasers & Systems(9)