ITEM 10.
Directors, Executive Officers and Corporate Governance
Our Directors
The names
of our directors and certain information about them as of December 16, 2021 is set forth below. The term of office of each 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.
There are
no family relationships among directors or executive officers of Coherent. Except as set forth below, each of our directors has been
engaged in his or her principal occupation set forth below during the past five years.
Name
|
Age
|
Director
Since
|
Principal
Occupation
|
Jay
T. Flatley(1)(2)
|
69
|
2011
|
Acting
Chief Executive Officer and Chairman of the Board of Zymergen Inc.
|
Pamela
Fletcher(2)
|
55
|
2017
|
Vice
President—Global Innovation at General Motors Company
|
Andreas
(“Andy”) W. Mattes
|
60
|
2020
|
President
and Chief Executive Officer
|
Beverly
Kay Matthews(3)
|
63
|
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)
|
69
|
2004
|
Former
Chief Executive Officer of Advanced Energy Industries, Inc.
|
Steve
Skaggs(1)(3)
|
59
|
2013
|
Former
Senior Vice President and Chief Financial Officer of Atmel Corporation
|
Sandeep
Vij(2)
|
56
|
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.
|
Jay
T. Flatley. Since April 2021, Mr. Flatley has served
as the Chairman of the Board of Directors of Zymergen Inc., a synthetic biology company, and since August 2021, as acting Chief Executive
Officer of Zymergen. From 1999 until May 2021, Mr. Flatley served as a member of the Board of Directors of Illumina, Inc.
(“Illumina”), a leading developer, manufacturer and marketer of life science tools and integrated systems for the analysis
of genetic variation and function, including, from January 2016 until July 2016 and from January 2020 until May 2021,
as Chairman of Illumina’s Board of Directors and, from July 2016 until December 2019, as Executive Chairman of Illumina’s
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
and the audit committee 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 2017. Over a fifteen-plus year
career with GM, Ms. Fletcher has served in various roles, including 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, Munich, Germany.
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 she retired from Ernst & Young, LLP (“EY”), a global accounting firm, in
June 2019, where she served as Vice Chair and Managing Partner of the West Region since 2008. She joined EY in 1983 and held a
number of leadership positions, including Chief Operating Officer and Managing Partner of the Americas’ Assurance and Advisory
Business Services from 2005 to 2008; Managing Partner of the Assurance Practice of the Gulf Coast Region from 2001 to 2005; Managing
Partner of the Austin Office from 1998 to 2001; and served as an audit partner for privately and publicly held companies in the
technology, transportation and healthcare industries. She is also a member of the board of directors and audit, compensation, and
risk committees of SVB Financial Group, the parent company of Silicon Valley Bank, a member of the board of directors and the 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 of Agilent and President, Chemical
Analysis Group at Agilent. From January 2002 to September 2009, he served as Agilent’s Vice President and General Manager
of the Chemical Analysis Solutions Unit of the Life Sciences and Chemical Analysis Group. Prior to assuming this position, from March 1999
to December 2001, Mr. McMullen served as Country Manager for Agilent’s China, Japan and Korea Life Sciences and Chemical
Analysis Group. Prior to this position, Mr. McMullen served as the Controller for the Hewlett-Packard Company and Yokogawa Electric
Joint Venture from July 1996 to March 1999. Mr. McMullen is also a member of the board of directors of Agilent. Mr. McMullen
holds a bachelor’s degree in economics and business administration from the University of Delaware and an MBA from the Wharton
School of Business.
Mr. McMullen’s
years of executive and management experience in the high technology
industry, including serving as the chief executive officer and on the board of another publicly held company, make him an invaluable
member of the Board.
Garry
W. Rogerson. Mr. Rogerson has served as Coherent’s Chairman
of the Board since June 2007. Since September 2015, Mr. Rogerson has been a private investor. From August 2011 to
September 2015, Mr. Rogerson was Chief Executive Officer and a member of the Board of Directors of Advanced Energy Industries, Inc.,
a provider of power and control technologies for thin film manufacturing and solar-power generation, after which he agreed to serve as
a special advisor for a period of time. He was Chairman and Chief Executive Officer of Varian, Inc., a major supplier of scientific
instruments and consumable laboratory supplies, vacuum products and services, from February 2009 and 2004, respectively, until the
purchase of Varian by Agilent Technologies, Inc. in May 2010. Mr. Rogerson served as Varian’s Chief Operating Officer
from 2002 to 2004, as Senior Vice President, Scientific Instruments from 2001 to 2002, and as Vice President, Analytical Instruments
from 1999 to 2001. Mr. Rogerson received an honours degree and Ph.D. in biochemistry as well as an honorary doctoral science degree
from the University of Kent at Canterbury.
Mr. Rogerson’s
years of executive and management experience in the high technology
industry, including serving as the chief executive officer of several public companies, his service on the boards of other publicly held
companies, and his years of service as a director of Coherent, make him an invaluable member of the Board.
Steve
Skaggs. Mr. Skaggs has been a private investor since April 2016.
From May 2013 to April 2016, Mr. Skaggs was Senior Vice President and Chief Financial Officer of Atmel Corporation, a
leading supplier of microcontrollers, until its acquisition by Microchip Technology Incorporated. Mr. Skaggs has more than 25 years
of experience in the semiconductor industry, including serving as President, Chief Executive Officer and Chief Financial Officer of Lattice
Semiconductor Corporation (“Lattice”), 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. He
currently also serves as Director and Audit Committee Chair of IDEX Biometrics, ASA. Mr. Skaggs holds an MBA degree
from the Harvard Business School and a B.S. degree in Chemical Engineering from the University of California, Berkeley.
Mr. Skaggs’
years of executive and management experience in the high technology
industry, including serving as the chief executive officer and chief financial officer of other public companies, his prior service on
the board of another publicly held company and his years of service as a director of Coherent, make him an invaluable member of the Board.
Sandeep
Vij. 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 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. (“Xilinx”), 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.
Our Executive
Officers
The name,
age, position and a brief account of the business experience of our executive officers as of December 16, 2021 are set forth below:
Name
|
Age
|
Office
Held
|
Andreas
(“Andy”) W. Mattes
|
60
|
President
and Chief Executive Officer
|
Kevin
Palatnik
|
64
|
Executive
Vice President and Chief Financial Officer
|
Mark
Sobey
|
61
|
Executive
Vice President and Chief Operating Officer
|
Bret
DiMarco
|
53
|
Executive
Vice President, Chief Legal Officer and Corporate Secretary
|
Please
see “—Our Directors” above for Mr. Mattes’
biographical information.
Kevin
Palatnik. Mr. Palatnik has served as our Executive Vice
President and Chief Financial Officer since February 2016. Prior to that from August 2011 until its acquisition by Knowles
Corporation in July 2015, Mr. Palatnik served as the Chief Financial Officer of Audience, Inc., a provider of
intelligent voice and audio solutions for mobile devices. Prior to that from June 2001 to November 2010, Mr. Palatnik
held various roles at Cadence Design Systems, Inc., an electronic design automation software company, including as its senior
vice president and chief financial officer. Mr. Palatnik is a member of the board of directors and chair of the audit committee
of Parabellum Acquisition Corp., a special purpose acquisition company. 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 April 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.
Business
Conduct Policy
We have adopted
a worldwide Business Conduct Policy that applies to the members of our Board of Directors, executive officers and other employees. This
policy is posted on our Website at www.coherent.com and may be found as follows:
|
1.
|
From our
main Web page, first click on “Company”.
|
|
2.
|
Next, click
on “Business Conduct Policy”.
|
We intend
to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of this
Business Conduct Policy by posting such information on our Website, at the address and location specified above.
Stockholders
may request free printed copies of our worldwide Business Conduct Policy from:
Coherent, Inc.
Attention:
Investor Relations
5100
Patrick Henry Drive
Santa
Clara, California 95054
Audit Committee
The
Audit Committee consists of directors Skaggs (Chair), Matthews and Rogerson.
The Audit Committee held nine (9) meetings during fiscal year 2021. 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.
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.
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.
ITEM 11.
EXECUTIVE COMPENSATION
Fiscal
Year 2021 Director Compensation
During fiscal
year 2021, 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
|
In addition
to annual cash retainers, non-employee directors are compensated with a fixed value of time-based RSUs for service on the Board. The
Governance and Nominating Committee annually reviews Board and committee compensation with the assistance of an independent compensation
consultant, which for fiscal year 2021 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) 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. Compensia
has not provided any other service for the Company other than as directed by a committee of the Board.
Following
the recommendation of the Governance and Nominating Committee (based upon review by Compensia) in February 2017, the Board adopted
resolutions automatically granting each year without any discretion to each non-employee director an award of RSUs (rounded down to the
nearest whole share) valued at $225,000 (based on the average 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 $225,000 (based on the average trailing thirty day closing price of the Company’s
common stock on the Nasdaq Stock Market measured from the last trading day prior to the date of grant), which RSUs shall vest over two
years (fifty percent on each anniversary of the date of grant). Such awards of RSUs are currently granted under the Coherent Equity Incentive
Plan.
The chart
below presents information concerning the total compensation of our non-employee directors for service (including the Board and, where
applicable, committee service) during fiscal year 2021:
Name
|
Fees
Earned or
Paid in Cash
($)(1)
|
Stock
Awards
($)(2)(3)
|
Option
Awards
($)(4)
|
Total
($)
|
Jay
T. Flatley
|
76,500
|
217,030
|
—
|
293,530
|
Pamela
Fletcher
|
70,000
|
217,030
|
—
|
287,030
|
Beverly
Kay Matthews
|
72,500
|
217,030
|
—
|
289,530
|
Michael
R. McMullen
|
70,000
|
217,030
|
—
|
287,030
|
Garry
W. Rogerson
|
146,000
|
217,030
|
—
|
363,030
|
Steve
Skaggs
|
100,500
|
217,030
|
—
|
317,530
|
Sandeep
Vij
|
80,000
|
217,030
|
—
|
297,030
|
|
|
|
|
|
|
(1)
|
The chart below
summarizes the gross cash amounts earned by non-employee directors for service during fiscal
year 2021 on the Board and its committees:
|
Name
|
Annual
Board
Service
($)
|
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
|
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
|
34,000
|
—
|
6,500
|
100,500
|
Sandeep
Vij
|
60,000
|
—
|
20,000
|
—
|
80,000
|
|
|
|
|
|
|
|
(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 year 2021. The assumptions used to calculate the value of these
RSUs are set forth in Note 12, “Employee Stock Award and Benefit Plans” of the
Notes to the Consolidated Financial Statements in the Original Filing.
|
|
(3)
|
The aggregate
number of shares underlying unvested RSUs held by each of our non-employee directors as of
the end of fiscal year 2021 (including the grants made to our non-employee directors during
fiscal year 2021) was as follows:
|
Name
|
Shares(a)
|
Jay
T. Flatley
|
856
|
Pamela
Fletcher
|
856
|
Beverly
Kay Matthews
|
856
|
Michael
R. McMullen
|
856
|
Garry
W. Rogerson
|
856
|
Steve
Skaggs
|
856
|
Sandeep
Vij
|
856
|
|
|
|
(a)
|
The shares
underlying the RSUs are scheduled to vest on February 15, 2022, subject to continued
service through such date.
|
|
(4)
|
No stock options
have been granted to our non-employee directors since 2011. As of the end of fiscal year
2021, none of our non-employee directors held any stock options.
|
Option
Exercises and Stock Vested during Fiscal Year 2021
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 year 2021, including the aggregate value realized upon such exercise or vesting.
|
Option
Awards
|
Stock
Awards
|
Name
|
Number
of Shares
Acquired on
Exercise
(#)
|
Value
Realized
on Exercise
($)
|
Number
of Shares
Acquired on
Vesting
(#)
|
Value
Realized
on Vesting
($)(1)
|
Jay
T. Flatley
|
—
|
—
|
2,148
|
554,163
|
Pamela
Fletcher
|
—
|
—
|
2,148
|
554,163
|
Beverly
Kay Matthews
|
—
|
—
|
2,898
|
748,638
|
Michael
R. McMullen
|
—
|
—
|
2,148
|
554,163
|
Garry
W. Rogerson
|
—
|
—
|
2,148
|
554,163
|
Steve
Skaggs
|
—
|
—
|
2,148
|
554,163
|
Sandeep
Vij
|
—
|
—
|
2,148
|
554,163
|
|
|
|
|
|
|
(1)
|
Reflects the
market price of our common stock on the vesting date or the last day on which our common
stock traded prior to the vesting date if trading did not occur on the vesting date.
|
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 year 2021: Messrs. Mattes, Palatnik, Sobey, and DiMarco.
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. Significantly the committee is advised by an independent
compensation consultant with regards to its NEO compensation decisions.
Our executive
compensation program for our Named Executive Officers for fiscal year 2021 was generally established prior to Coherent’s entry
into agreements providing for the acquisition of Coherent, including the Agreement and Plan of Merger (the “Merger Agreement”),
dated March 25, 2021, by and among Coherent, II-VI Incorporated (“II-VI”), and Watson Merger Sub Inc., a wholly-owned
subsidiary of II-VI.
Mr. Palatnik,
the Company’s Executive Vice President and Chief Financial Officer, had entered into as of August 20, 2020 a transition agreement
with the Company pursuant to which Mr. Palatnik would retire from the Company no later than February 28, 2021 and be a special
advisor to the Company in connection with the appointment of his successor. In light of the foregoing acquisition, the Company considered
it important to retain Mr. Palatnik in his role and such transition agreement was terminated effective January 18, 2021. In
January 2021, Mr. Palatnik was provided a special equity grant in connection with his agreement to certain restrictive covenants
as described below.
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 the performance of the stock price of companies within
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 stock
price of companies within the Russell 1000 Index (“Russell Index”), by way of a single three-year vesting period.
|
Tie
compensation to
performance of our core
business
|
Payouts
under our fiscal year 2021 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 year 2021. In fiscal year 2021, the Company’s financial results
met the challenging targets established by the committee and, as a result, a 200% payout under our annual cash incentive plan was
made to our NEOs.
|
Align
compensation with
stockholder interests
|
We
generally 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 performance-based RSUs in fiscal
year 2021 have a single vesting date three years from grant solely dependent upon the performance of our stock price measured
against the performance of the stock price of companies within the Russell Index.
|
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 2021 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 remained unchanged as compared to fiscal year 2020.
|
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.
Individual
NEOs may have a component of their bonus determined by key strategic initiatives for that NEO.
|
Annual
bonus measurement period in fiscal year 2021 was tied to revenue and Adjusted EBITDA achievement. Revenue achievement was weighted
at 25% and Adjusted EBITDA achievement was weighted at 75%. Total payout could range from 0% to 200% of target. For fiscal year 2021,
the Company met the performance targets, resulting in a 200% payout. The key strategic indicator bonus component of gross margin percentage
for one NEO paid out at 100%.
|
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
year 2021 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.
|
Element
|
Variability
|
Objective
|
How
Established
|
Fiscal
Year 2021 for NEOs
|
RSUs—
Performance
Based
|
Performance
Based—Value Tied to Stock Price and Based on Relative Performance to Companies within Russell Index
|
At-risk
performance-based awards provide an incentive opportunity based upon the performance of our
stock price against the stock performance of the companies within 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 companies in the
Russell Index. To achieve 100% payout of the awards, our stock price must achieve 55th
percentile rank. To achieve the maximum payout of 200% payout our stock price must
achieve 90th percentile rank.
If
Coherent’s absolute TSR over the performance period is negative, the payout will be capped at 100% regardless of Coherent’s
percentile ranking. Additionally, the payout cannot exceed 5 times the beginning average value of the target number of shares (5x
value cap).
|
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 year 2021 program.
|
|
|
|
|
|
Stockholder
Engagement
The committee
considers feedback from our stockholders regarding our executive compensation program, including as expressed by the results of our annual
advisory vote on executive compensation, which our stockholders have historically strongly supported. We have strong pay for performance
alignment, and the say-on-pay proposal for fiscal year 2020 compensation was approved by holders of a significant majority of our outstanding
common stock.
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.
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.
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 the Original Filing.
Selected
Business Highlights
We experienced
a significant growth in revenue, Adjusted EBITDA and non-GAAP earnings per share in fiscal year 2021, which exceeded our own internal
growth targets. As a result, you will see in the coming pages that our performance-related executive compensation in our annual
corporate cash program yielded a 200% payout in fiscal year 2021.
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 14% from fiscal year 2019 to fiscal year 2020 and increased 21% from fiscal year 2020 to fiscal year 2021 (dollars in millions):
ANNUAL
REVENUE
Our Adjusted
EBITDA decreased 42% from fiscal year 2019 to fiscal year 2020 and increased 71% from fiscal year 2020 to fiscal year 2021 (dollars in
millions):
ADJUSTED
EBITDA*
Our non-GAAP
earnings per share decreased 49% from fiscal year 2019 to fiscal year 2020 and increased 103% from fiscal year 2020 to fiscal year 2021:
NON-GAAP
EARNINGS PER SHARE*
* For a
reconciliation of earnings per share on a GAAP basis to a non-GAAP basis and net income (loss) on a GAAP basis to Adjusted EBITDA, please
refer to the “Reconciliation Table” at the end of this section.
Compensation
Overview
Compensation
Philosophy. We tie executive total compensation to stockholder value
with two measures: our operational results and the comparative performance of our stock price. This approach provides strong alignment
between executive pay and performance and focuses executives on making decisions that enhance our stockholder value in both the short
and long-term. We design our executive compensation program to achieve the following goals:
|
•
|
Retain
and hire talented executives—Our
executives should have market competitive compensation, and the committee orients our target
total compensation generally near the 50th percentile of the committee’s
selected peer group (as noted below), with actual compensation falling above or below depending
upon Coherent’s financial performance. Additionally, certain compensation components
may be above or below such percentile target and vary by individual executive.
|
|
•
|
Pay
for performance, with both short and long-term measurements—A
significant portion of the annual compensation of our executives is designed to vary with
annual business performance and the long-term relative performance of Coherent’s stock
price in comparison to the stock price of companies within the Russell Index (by way of a
single three-year vesting period). The committee and management set demanding performance
targets. There was generally 200% annual cash bonus paid out for fiscal year 2021 as explained
below. There was generally no annual cash bonus paid out for fiscal year 2020 and fiscal
year 2019.
|
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
Excludes
special strategic operating plan incentive paid to Mr. Mattes in fiscal year 2020.
Payouts under
our annual cash incentive plan, or VCP, over the last seven years have ranged from 0% to 200% as shown in the following chart:
VCP
Payout Percentage
|
•
|
Tie
compensation to performance of our core business— Our
fiscal year 2021 annual cash incentive plan was dependent upon Coherent’s achievement
against two criteria: Adjusted EBITDA 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 year 2021.
|
|
•
|
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 have a single vesting date three years from grant
solely dependent upon the performance of Coherent’s common stock price percentile ranked
against companies in the Russell Index. Performance-based RSU grants made in the first quarter
of fiscal year 2021 measure company stock performance against the stock performance of the
companies within the Russell Index requiring 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. Fiscal year 2021 performance-based RSU design also included two payout caps:
(1) the maximum value of performance-based RSUs at vesting is capped at five times the
average grant date stock price (5x Value Cap) and (2) the vesting of performance-based
RSUs is capped at 100% of target amount if the total stockholder return for the Company is
not positive (greater than 0).
|
The
table and chart below illustrate this structure:
FISCAL
YEAR 2021 PERFORMANCE RSU VESTING
Total
Stockholder Return Percentile Rank
|
Vesting*
|
90% or
greater
|
Maximum
Amount (200% Target Amount)**
|
Between
75% - 90%
|
150%
Target Amount + 3-1/3% Target Amount for Every 1% Total Stockholder Return Percentile Rank above 75%**
|
75%
|
150%
Target Amount**
|
Between
55% - 75%
|
100%
Target Amount + 2-1/2% Target Amount for Every 1% Total Stockholder Return Percentile Rank above 55%**
|
55%
|
100%
Target Amount
|
Between
35% - 55%
|
50%
Target Amount + 2-1/2% Target Amount for Every 1% Total Stockholder Return Percentile Rank above 35%
|
35%
|
50%
Target Amount
|
Below
35%
|
0%
Target Amount
|
*The amount
vesting is capped such that the number of performance-based RSUs vesting will not have a value exceeding five times the value of the
Target Amount based on an average grant date stock price (5x Value Cap).
**Provided
that Total Stockholder Return for the Company is greater than zero (“Positive TSR”); otherwise vesting is capped at 100%
of Target Amount.
Elements
of Executive Compensation. During fiscal year 2021, the
compensation of our NEOs primarily consisted of (i) base salary, (ii) participation in our annual variable compensation
plan (referred to herein as our “annual cash incentive plan” or “VCP”), and (iii) long-term equity
incentive awards divided between time-based RSUs and performance-based RSUs. For fiscal year 2021 approximately 88% of our
CEO’s target compensation and, on average, approximately 81% of our other NEOs’ 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 year 2021 at
target, maximum and actual can be illustrated as follows (dollars in thousands):
CEO
FY2021 CASH PAY MIX
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 year 2021, 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 performance
of companies within the Russell Index over a three-year period, which the committee believes
is a direct connection to long-term total stockholder interests. Fiscal year 2021 grants
require achievement of 55th percentile rank with respect to companies within the Russell
Index to achieve target payout;
|
|
•
|
The committee
is composed entirely of directors who satisfy the standards of independence in Coherent’s
Corporate Governance Guidelines and Nasdaq listing standards;
|
|
•
|
The committee
made decisions regarding CEO compensation without the CEO present;
|
|
•
|
Executive
incentive compensation programs include limits on maximum payouts to contain the risk of
excessive payouts;
|
|
•
|
The committee
utilizes an independent compensation consultant;
|
|
•
|
We have eliminated
material historical perquisites as an element of compensation for our NEOs;
|
|
•
|
We have a
recoupment or “claw-back” policy for all individuals with the title Senior Vice
President and above who report directly to our CEO, 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).
|
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 Chief Financial Officer, 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 year 2021, 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 year 2021 compensation; and
|
|
•
|
Providing
further insight on compensation governance trends.
|
The independent
compensation consultant serves at the discretion of the committee and is not permitted to do other work for Coherent unless expressly
authorized by the committee. Since retention, Compensia has not performed any work for Coherent other than its work with the committee,
the Board or other committees of the Board, such as work with the Governance and Nominating Committee with respect to compensation for
service on the Board and its committees. The committee is focused on maintaining the independence of its compensation consultant and,
accordingly, does not anticipate having its consultant perform any other work for the Company in addition to its direct work for the
committee, the Board, or another committee of the Board. The committee has assessed the independence of Compensia and concluded that
no conflict of interest exists.
The Company
also participates in and maintains a subscription to the Radford Global Technology and Sales surveys. 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 year 2021,
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 year 2021, after consulting with its independent compensation consultant, the committee determined that the following
companies comprise the peer group for fiscal year 2021:
Cabot
Microelectronics (CCMP)
|
MKS
Instruments (MKSI)
|
Ciena
Corporation (CIEN)
|
National
Instruments (NATI)
|
Diodes
(DIOD)
|
Nuance
Communications (NUAN)
|
Dolby
Laboratories (DLB)
|
OSI
Systems (OSIS)
|
Entegris
(ENTG)
|
Pure
Storage (PSTG)
|
F5
Networks (FFIV)
|
Synaptics
(SNYA)
|
FLIR
Systems (FLIR)
|
Teradyne
(TER)
|
II-VI
Incorporated (IIVI)
|
Trimble Inc.
(TRMB)
|
Itron, Inc.
(ITRI)
|
ViaSat
(VSAT)
|
Lumentum
Holdings, Inc. (LITE)
|
Viavi
Solutions (VIAV)
|
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. Cabot Microelectronics, Diodes, Pure Storage, and Viavi Solutions were added to the companies comprising the Company’s
peer group for fiscal year 2021 replacing three companies (Cypress Semiconductor and Finisar, due to acquisition, and Keysight Technologies,
due to being above revenue and market cap ranges for two years in a row) from the fiscal year 2020 peer group.
Components
of Our Executive Compensation Program
The principal
components of our executive officer compensation and employment arrangements during fiscal year 2021 included:
|
•
|
Annual cash
incentive plan;
|
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 year 2021. In maintaining the design for fiscal
year 2021, 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) FY2021
DIRECT COMPENSATION MIX
Base
Salary
Base
salary is the foundation to providing an appropriate total cash compensation package. We use base salary to fairly and competitively
compensate our executives for the jobs we ask them to perform. This is the most stable component of our executive compensation program,
as this amount is not at risk. The committee reviewed market data information provided by Compensia with respect to similarly situated
individuals to assist it in determining the base salary for each NEO, depending upon the particular executive’s experience, skills,
knowledge, performance and contribution. 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 year 2021, Coherent maintained one incentive cash program under which executive officers were eligible to receive annual
cash incentives, the 2021 Variable Compensation Plan (“2021 VCP”).
2021
VCP
The 2021 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 2021 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 2021 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 threshold. 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%.
Fiscal
Year 2021 Variable Compensation Plan Scale for NEOs
Revenue achievement
for fiscal year 2021 was $1,487.5 million, with a corresponding cash bonus payout of 200% of target. Adjusted EBITDA achievement for
fiscal year 2021 was $293.7 million, with a corresponding cash bonus payout of 200% of target.
Fiscal
Year 2021 VCP Scale
Revenue
$ (in millions)
|
Payout
|
$1,487.5
(actual)
|
200%
(actual)
|
$1,080.0
(threshold)
|
0%
|
$1,270.0
(target)
|
100%
|
$1,461.0
|
200%
|
Adjusted
EBITDA $ (in millions)
|
Payout
|
$293.7
(actual)
|
200%
(actual)
|
$148.0
(threshold)
|
0%
|
$185.0
(target)
|
100%
|
$222.0
|
200%
|
20% of Dr. Sobey’s
target bonus was based upon a key strategic indicator, gross margin percentage. For fiscal year 2021, our gross margin percentage achievement
was approximately 100% of target (40% as set forth in our annual operating plan), resulting in a total bonus payment at 180% of target
for Dr. Sobey.
The table
below describes for each NEO under the 2021 VCP (i) the target percentage of base salary and (ii) the actual award earned for
fiscal year 2021. The potential award range for each NEO is 0% to 200% of the target award percentage of base salary.
Fiscal
Year 2021
Named
Executive Officer
|
Target
Percentage
of Salary
|
Actual
Payout ($)
|
Actual
Payout as a
Percentage
of Target
|
Andy
Mattes
|
120%
|
2,116,808
|
200%
|
Kevin
Palatnik
|
75%
|
793,728
|
200%
|
Mark
Sobey(1)
|
80%
|
747,279
|
180%
|
Bret
DiMarco
|
70%
|
639,825
|
200%
|
|
(1)
|
20%
of Dr. Sobey’s target bonus was based upon a key strategic indicator,
gross margin percentage. For fiscal year 2021, our gross margin percentage achievement was 100% of target (40% as set forth in our annual operating plan), resulting in a total
bonus payment at 180% of target for Dr. Sobey.
|
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 year 2021, 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
Year 2021 Equity Grants
For fiscal
year 2021, 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 percentile rank performance of Coherent’s
stock price in comparison to that of the other companies in 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 generally 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
RSU grants in fiscal year 2021 vest solely upon the performance of Coherent’s common stock price percentile ranked against each
company in the Russell Index. To achieve 100% vesting of the awards, our stock price must achieve a percentile rank among companies in
the Russell Index of 55% (above median). If 90th percentile rank is achieved vesting is at 200%, which is the maximum. If
percentile rank is below the 35th percentile there is no payout and 0% of shares vest. If Coherent’s absolute TSR over the performance
period is negative, the payout will be capped at 100% regardless of Coherent’s percentile ranking. Additionally, the payout cannot
exceed 5 times the value of the target number of shares based on an average grant date stock price (5x value cap).
The following
table summarizes some of the key features of our annual fiscal year 2021 equity grants:
Fiscal
Year 2021 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 percentile ranking among companies in the Russell Index
|
Minimum
vest: zero
|
PRSU
Metrics
|
Target
vest: 55th percentile rank
|
Maximum
vest: 200% of target
|
For our CEO,
more than half of his total equity awards are performance-based. Approximately 66% of his equity awards granted
in fiscal 2021 are performance-based and at maximum achievement that percentage increases to approximately 80%.
As
an example, our performance-based design was seen in the vesting of the PRSU grants made in November 2017, which vested in the first
quarter of fiscal year 2021. Our common stock declined 50.6% as compared to the Russell Index, which gained 34.5% over the defined measurement
periods at the beginning and end of the three-year vesting period. This under-performance resulted in zero (0%) PRSU vesting. Under
the PRSU grants made in November 2018, which vested in the first quarter of fiscal year 2022, our common stock price gained 53.7%
as compared to the Russell Index, which gained 59.8% over the defined measurement periods at the beginning and end of the three-year
vesting period. This performance resulted in 72% 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 stock performance of Coherent in comparison to the Russell Index (or companies therein) through the date of the
change of control and such performance-based shares would, subject to the terms of the Change of Control Plan (described below), 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 year 2021 to our CEO, at target and at maximum achievement under the terms of the performance-based
grants:
FY
2021 CEO EQUITY GRANT COMPONENTS
The
following table reflects equity grants made to the NEOs during fiscal year 2021. Since Mr. Palatnik had entered into a
transition agreement pursuant to which he would have retired no later than February 28,
2021, no time-based or performance-based RSUs were granted to him when equity grants were made to the other NEOs in October, 2020.
Mr. Palatnik’s time-based RSUs were granted to him in January 2021 in connection with an agreement to certain
restrictive covenants including a noncompete for 18 months. Mr. Palatnik’s 5,514 time-based RSUs granted on
January 20, 2021 have a vest date as to 2,757 RSUs of the earlier of the closing date of the acquisition of the Company or
January 20, 2022 and a vest date as to the remaining 2,757 RSUs of January 20, 2023.
Named
Executive Officer
|
Time-Based
RSU
Grants
|
Performance-Based
RSU
Grants at Target
|
Performance-Based
RSU Grants
Range (vesting dependent upon
achievement)
|
Andy
Mattes
|
16,599
|
31,141
|
0
- 62,282
|
Kevin
Palatnik
|
5,514
|
|
|
Mark
Sobey
|
12,584
|
11,804
|
0
- 23,608
|
Bret
DiMarco
|
6,067
|
5,691
|
0
- 11,382
|
|
|
|
|
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 year 2010.
In
fiscal year 2021 the committee and the Equity Committee granted an aggregate of 358,343 shares subject to time-based and performance-based
restricted stock units (at maximum), representing approximately 1.72% of Coherent’s outstanding common stock as of October 2,
2021 (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
has adopted mandatory stock ownership guidelines requiring our CEO to hold at least five times base salary and our Executive Vice Presidents
and Senior Vice Presidents reporting to the CEO to hold at least one times such individual’s base salary. In the event that our
CEO or other officers do 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 NEOs exceeded the minimum stock ownership guidelines as of December 31, 2021.
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 year 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 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 John Ambroseo’s intention
to retire as our President and CEO, the Company’s Change of Control Plan was amended in fiscal year 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
a new CEO was appointed, which occurred on 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.
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
The Company’s
clawback policy provides for potential recoupment of cash and equity incentive compensation from 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 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.
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 Amendment No. 1.
Respectfully
submitted by the Compensation and HR Committee
Sandeep Vij,
Chair
Jay Flatley
Pamela Fletcher
Michael McMullen
RECONCILIATION
TABLE—NON-GAAP EARNINGS PER SHARE
|
Fiscal
Year
|
|
2021
|
2020
|
2019
|
GAAP
NET INCOME (LOSS) PER DILUTED SHARE
|
$
|
(4.38)
|
$
|
(17.18)
|
$
|
2.22
|
Stock-based
compensation
|
1.46
|
1.61
|
1.30
|
Amortization
of intangible assets
|
0.38
|
0.90
|
1.81
|
Restructuring
charges and other
|
0.53
|
0.12
|
0.66
|
Non-recurring
tax expense (benefit)
|
0.54
|
(0.01)
|
(0.04)
|
Merger
and acquisition costs
|
7.43
|
—
|
—
|
Goodwill
and other impairment/asset charges (recoveries)
|
—
|
17.56
|
(0.04)
|
Purchase
accounting step up
|
0.04
|
—
|
0.01
|
NON-GAAP
NET INCOME PER DILUTED SHARE
|
$
|
6.10
|
$
|
3.00
|
$
|
5.92
|
RECONCILIATION
TABLE—ADJUSTED EBITDA
|
Fiscal
Year
|
(in
millions)
|
2021
|
2020
|
2019
|
GAAP
NET INCOME (LOSS)
|
$
|
(106.7)
|
$
|
(414.1)
|
$
|
53.8
|
Income
tax expense (benefit)
|
(8.8)
|
(28.6)
|
6.2
|
Interest
and other income (expense), net
|
22.1
|
18.9
|
24.4
|
Depreciation
and amortization
|
55.0
|
76.8
|
116.4
|
Merger
and acquisition costs
|
236.0
|
—
|
—
|
Restructuring
charges and other
|
17.6
|
3.6
|
22.7
|
Goodwill
and other impairment/asset charges (recoveries)
|
—
|
449.7
|
(1.3)
|
Stock-based
compensation
|
41.4
|
44.8
|
36.5
|
Purchase
accounting step up
|
1.4
|
—
|
0.4
|
ADJUSTED
EBITDA
|
$
|
258.0
|
$
|
151.1
|
$
|
259.1
|
|
|
|
|
Compensation
Committee Interlocks and Insider Participation
During fiscal
year 2021, 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.
Summary
Compensation and Equity Tables
Fiscal
Year 2021 Summary Compensation Table
The table
below presents information concerning the total compensation of our NEOs for the fiscal years ended October 2, 2021, October 3,
2020, and September 28, 2019.
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,
|
2021
|
882,706
|
0
|
5,539,961
|
2,116,808
|
11,600
|
8,551,075
|
|
President
and
|
2020
|
375,967
|
500,000
|
5,713,268
|
170,003
|
5,600
|
6,764,838
|
|
Chief
Executive Officer(6)
|
|
|
|
|
|
|
|
|
Kevin
Palatnik,
|
2021
|
529,632
|
0
|
1,099,933
|
793,728
|
11,600
|
2,434,893
|
|
Executive
Vice President
|
2020
|
507,132
|
0
|
2,641,428
|
0
|
11,348
|
3,159,908
|
|
and
Chief Financial Officer
|
2019
|
484,439
|
0
|
1,247,657
|
0
|
11,146
|
1,743,242
|
|
Mark
Sobey,
|
2021
|
519,242
|
0
|
2,799,924
|
747,279
|
11,600
|
4,078,045
|
|
Executive
Vice President
|
2020
|
477,604
|
0
|
2,287,515
|
0
|
11,348
|
2,776,467
|
|
and
Chief Operating Officer
|
2019
|
445,200
|
0
|
2,702,495
|
0
|
11,146
|
3,158,841
|
|
Bret
DiMarco,
|
2021
|
456,926
|
0
|
1,349,906
|
639,825
|
11,600
|
2,458,257
|
|
Executive
Vice President,
|
2020
|
432,311
|
0
|
1,504,001
|
0
|
11,348
|
1,947,660
|
|
Chief
Legal Officer and
|
2019
|
398,081
|
0
|
2,507,454
|
0
|
11,146
|
2,916,681
|
|
Corporate
Secretary
|
|
|
|
|
|
|
|
|
|
(1)
|
Reflects
the dollar amount of salary earned in the applicable fiscal year.
|
|
(2)
|
For fiscal
year 2020, reflects a signing bonus.
|
|
(3)
|
Amounts
shown reflect the grant date fair value of awards granted in accordance with Financial Accounting
Standards Board (FASB) Accounting Standards Codification (ASC) Topic 718. Reflects unvested
time-based and performance-based restricted stock units; there is no guarantee that the recipients
will ultimately receive this amount, or any amount. Amounts in this column may not equal
the sum of the awards included in the Grants of Plan-Based Awards table due to rounding.
Assuming achievement of the highest level of performance under PRSU awards granted in fiscal
year 2021, the value of such PRSUs awards at the date of grant was $7,386,645, $2,799,909
and $1,266,248 for Messrs. Mattes, Sobey, and DiMarco, respectively. See footnote 2
to the Grants of Plan-Based Awards table for additional information. No stock options were
granted to the NEOs in fiscal years 2021, 2020 and 2019.
|
|
(4)
|
Reflects
the dollar amounts earned under the Variable Compensation Plan (VCP) during the applicable
fiscal years.
|
|
(5)
|
Reflects
a 401(k) company match earned during the applicable fiscal year for Messrs. Mattes,
Palatnik, Sobey, and DiMarco.
|
|
(6)
|
Mr. Mattes
joined the Company as our President and Chief Executive Officer effective April 6, 2020.
|
Grants
of Plan-Based Awards in Fiscal Year 2021
The following
table shows all plan-based equity and non-equity incentive awards granted to our NEOs during fiscal year 2021. Our NEOs did not receive
any option awards during fiscal year 2021.
|
|
|
Estimated
Future Payouts Under
Non-Equity Incentive Plan Awards
|
Actual
Payouts
Under Non-
Equity
Incentive
Plan Awards
($)(1)
|
Estimated
Future Payouts Under
Equity Incentive Plan Awards
|
|
|
Name
|
Type
|
Grant
Date
|
Thresh-
hold ($)
|
Target
($)
|
Maximum
($)
|
Thresh-
hold (#)
|
Target
(#)
|
Maximum
(#)
|
All
Other
Stock
Awards: #
of Shares
of Stock
or Units
(#)
|
Grant
Date
Fair Value
($)(2)
|
Andy Mattes
|
PRSU
|
10/05/2020
|
|
|
|
|
0
|
31,141
|
62,282
|
|
3,464,436
|
|
RSU
|
10/05/2020
|
|
|
|
|
|
|
|
16,599
|
1,846,639
|
|
Annual bonus
|
|
0
|
1,020,015
|
1,870,028
|
170,003
|
|
|
|
|
|
Kevin Palatnik
|
RSU
|
01/20/2021
|
|
|
|
|
|
|
|
5,514
|
1,099,933
|
|
Annual bonus
|
|
0
|
382,512
|
765,024
|
0
|
|
|
|
|
|
Mark Sobey
|
PRSU
|
10/05/2020
|
|
|
|
|
0
|
11,804
|
23,608
|
|
1,313,195
|
|
RSU
|
10/05/2020
|
|
|
|
|
|
|
|
12,584
|
1,399,970
|
|
Annual bonus
|
|
0
|
375,008
|
750,017
|
0
|
|
|
|
|
|
Bret DiMarco
|
PRSU
|
10/05/2020
|
|
|
|
|
0
|
5,961
|
11,382
|
|
633,124
|
|
RSU
|
10/05/2020
|
|
|
|
|
|
|
|
6,067
|
674,954
|
|
Annual bonus
|
|
0
|
308,002
|
616,004
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
For fiscal
year 2021, the corporate bonus paid out under the 2021 VCP was 200%. 20% of Dr. Sobey’s
target bonus was based upon a key strategic indicator, gross margin percentage. For fiscal
year 2021, our gross margin percentage achievement was 100% of target, resulting in a total
bonus payment at 180% of target for Dr. Sobey.
|
|
(2)
|
Reflects
the dollar amount recognized for financial statement reporting purposes (disregarding an
estimate of forfeitures related to service-based vesting conditions) for fiscal year 2021
in accordance with ASC 718, and includes grants made in fiscal year 2021. The assumptions
used in the valuation of these awards are set forth in Note 12 “Employee Stock
Award and Benefit Plans” of the Notes to the Consolidated Financial Statements in the
Original Filing. For informational purposes, if the maximum level of performance for the
PRSU awards was achieved, the value, calculated by multiplying the closing price of the Company’s
common stock on the date of grant by the number of shares issuable upon achievement of the
maximum level of performance under the PRSU granted on October 5, 2020 is $7,386,645,
$2,799,909 and $1,266,248, for Messrs. Mattes, Sobey, and DiMarco, respectively. These
amounts do not correspond to the actual value, if any, that will be recognized by the NEOs.
See “Compensation Discussion and Analysis—Equity Awards” for a description
of the PRSUs.
|
Option
Exercises and Stock Vested in Fiscal Year 2021
The
table below sets forth certain information for each NEO regarding the exercise of options and the vesting of stock awards during fiscal
year 2021, including the aggregate value realized upon such exercise or vesting.
|
Option
Awards
|
Stock
Awards
|
Name
|
Number
of
Shares
Acquired on
Exercise (#)
|
Value
Realized
on Exercise ($)
|
Number
of
Shares
Acquired on
Vesting (#)
|
Value
Realized
on Vesting ($)(1)
|
Andy
Mattes
|
—
|
—
|
8,977
|
1,881,378
|
Kevin
Palatnik
|
—
|
—
|
6,189
|
747,760
|
Mark
Sobey
|
—
|
—
|
5,599
|
676,870
|
Bret
DiMarco
|
—
|
—
|
4,307
|
520,927
|
|
|
|
|
|
|
(1)
|
Reflects
the market price of our common stock on the vesting date.
|
Outstanding
Equity Awards at Fiscal 2021 Year-End
The following
table presents information concerning outstanding equity awards held by each NEO as of October 2, 2021.
|
|
Option
Awards
|
Stock
Awards
|
Name
|
Grant Date
|
Number of
Securities
Underlying
Unexercised
Options (#)
exercisable
|
Number of
Securities
Underlying
Unexercised
Options (#)
unexerciseable
|
Option
Exercise
Price ($)
|
Option
Expiration
Date
|
Number
of Shares
or Units
of Stock
That Have
Not
Vested
(#)(1)
|
Market Value
of Shares or
Units of
Stock That
Have Not
Vested ($)(2)
|
Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or Other
Rights That Have
Not Vested (#)
|
Equity Incentive Plan
Awards: Market or
Payout Value of
Unearned Shares,
Units or Other Rights
That Have Not Vested
($)
|
Andy
Mattes
|
10/05/2020
|
—
|
—
|
—
|
—
|
—
|
—
|
62,282(3)
|
15,764,820
|
|
10/05/2020
|
—
|
—
|
—
|
—
|
16,599
|
4,201,539
|
—
|
—
|
|
04/17/2020
|
—
|
—
|
—
|
—
|
—
|
—
|
50,114(4)
|
12,684,856
|
|
04/17/2020
|
—
|
—
|
—
|
—
|
10,776
|
2,727,621
|
—
|
—
|
Kevin
Palatnik
|
01/20/2021
|
—
|
—
|
—
|
—
|
5,514
|
1,395,704
|
—
|
—
|
|
04/17/2020
|
—
|
—
|
—
|
—
|
—
|
—
|
3,614(4)
|
914,776
|
|
11/15/2019
|
—
|
—
|
—
|
—
|
—
|
—
|
8,908(6)
|
2,254,793
|
|
11/15/2019
|
—
|
—
|
—
|
—
|
3,209
|
812,262
|
—
|
—
|
|
11/15/2019
|
—
|
—
|
—
|
—
|
3,636
|
920,344
|
—
|
—
|
|
11/13/2018
|
—
|
—
|
—
|
—
|
—
|
—
|
10,184(5)
|
2,577,774
|
|
11/13/2018
|
—
|
—
|
—
|
—
|
1,757
|
444,732
|
—
|
—
|
Mark
Sobey
|
10/05/2020
|
—
|
—
|
—
|
—
|
—
|
—
|
23,608(3)
|
5,975,657
|
|
10/05/2020
|
—
|
—
|
—
|
—
|
12,584
|
3,185,262
|
—
|
—
|
|
04/17/2020
|
—
|
—
|
—
|
—
|
—
|
—
|
7,228(4)
|
1,829,551
|
|
11/15/2019
|
—
|
—
|
—
|
—
|
—
|
—
|
8,384(6)
|
2,122,158
|
|
11/15/2019
|
—
|
—
|
—
|
—
|
3,422
|
866,177
|
—
|
—
|
|
04/12/2019
|
—
|
—
|
—
|
—
|
11,062
|
2,800,013
|
—
|
—
|
|
11/13/2018
|
—
|
—
|
—
|
—
|
—
|
—
|
7,956(5)
|
2,013,823
|
|
11/13/2018
|
—
|
—
|
—
|
—
|
1,372
|
347,281
|
—
|
—
|
Bret
DiMarco
|
10/05/2020
|
—
|
—
|
—
|
—
|
—
|
—
|
11,382(3)
|
2,881,012
|
|
10/05/2020
|
—
|
—
|
—
|
—
|
6,067
|
1,535,679
|
—
|
—
|
|
04/17/2020
|
—
|
—
|
—
|
—
|
—
|
—
|
3,614(4)
|
914,776
|
|
11/15/2019
|
—
|
—
|
—
|
—
|
—
|
—
|
5,764(6)
|
1,458,984
|
|
11/15/2019
|
—
|
—
|
—
|
—
|
2,352
|
595,338
|
—
|
—
|
|
04/12/2019
|
—
|
—
|
—
|
—
|
11,062
|
2,800,013
|
—
|
—
|
|
11/13/2018
|
—
|
—
|
—
|
—
|
—
|
—
|
6,364(5)
|
1,610,856
|
|
11/13/2018
|
—
|
—
|
—
|
—
|
1,098
|
277,926
|
—
|
—
|
|
(1)
|
Generally,
time-based RSU grants vest 1/3 per year on each anniversary of the grant date. Mr. Palatnik’s
3,209 time-based RSUs granted on November 15, 2019 have a November 15, 2021 vest
date, and Messrs. Sobey and DiMarco’s 11,062 time-based RSUs granted on April 12,
2019 have an April 12, 2022 vest date. Mr. Palatnik’s 5,514 time-based RSUs
granted on January 20, 2021 have a vest date as to 2,757 RSUs of the earlier of the
closing date of the acquisition of the Company or January 20, 2022 and a vest date as
to the remaining 2,757 RSUs of January 20, 2023.
|
|
(2)
|
Market value
is determined by multiplying the number of shares by $253.12, the closing price of our common
stock on October 1, 2021, the last trading day of fiscal year 2021.
|
|
(3)
|
The performance-based
RSU vesting determination date is October 5, 2023. The performance-based RSUs will vest
in an amount equal to 0-200% subject to the achievement of certain performance metrics. The
amount reflected in the table is the maximum amount of 200%.
|
|
(4)
|
The performance-based
RSU vesting determination date is April 6, 2023. The performance-based RSUs will vest
in an amount equal to 0-200% subject to the achievement of certain performance metrics. The
amount reflected in the table is the maximum amount of 200%.
|
|
(5)
|
The performance-based
RSU vesting determination date was November 13, 2021. The performance-based RSUs could
have vested in an amount equal to 0-200% subject to the achievement of certain performance
metrics. The amount reflected in the table is the maximum amount of 200%; however, such performance-based
RSUs vested at 72% of target.
|
|
(6)
|
The performance-based
RSU vesting determination date is November 15, 2022. The performance-based RSUs will
vest in an amount equal to 0-200% subject to the achievement of certain performance metrics.
The amount reflected in the table is the maximum amount of 200%.
|
Fiscal
Year 2021 Non-Qualified Deferred Compensation
For a description
of our Deferred Compensation Plan, see “Compensation Discussion and Analysis—Retirement Plans.” The following table
presents information regarding the non-qualified deferred compensation activity for each NEO during fiscal year 2021:
Name
|
Executive
Contributions
in Last FY
($)(1)
|
Registrant
Contributions
in Last FY
($)(2)
|
Aggregate
Earnings
(Loss) in
Last FY
($)
|
Aggregate
Withdrawals/
Distributions
($)
|
Aggregate
Balance at
Last FYE
($)(3)
|
Andy
Mattes
|
39,231
|
—
|
34,437
|
—
|
156,480
|
Kevin
Palatnik
|
—
|
—
|
289,552
|
—
|
1,132,152
|
Mark
Sobey
|
—
|
—
|
(3,608)
|
(16,560)
|
1,929,021
|
Bret
DiMarco
|
—
|
—
|
50,906
|
—
|
226,204
|
|
|
|
|
|
|
|
(1)
|
All
amounts reported as executive contributions are executive elective deferrals included in
the Fiscal Year 2021 Summary Compensation Table, as salary for fiscal year 2021.
|
|
(2)
|
Company
contributions to our Deferred Compensation Plan were terminated on December 31, 2010.
|
|
(3)
|
The
deferred compensation in a participant’s account is fully vested and is credited with
positive or negative investment results based upon plan investment options selected by the
participant. The balance reflects contributions previously reported in the Fiscal Year 2021
Summary Compensation Table to the extent the executive was an NEO at the
time of such contributions.
|
Potential
Payments Upon Termination or Change of Control
The
following table shows the potential payments and benefits that we (or our successor) would be obligated to make or provide upon termination
of employment of our current executive officers pursuant to the terms of the Change of Control and Leadership Change Severance Plan and
our CEO’s employment agreement. For purposes of this table, it is assumed that such NEO's employment terminated at the close of
business on October 1, 2021 (the last business day of fiscal year 2021). These payments are conditioned upon the execution of a
form release of claims by the NEO in favor of us. The amounts reported below do not include the nonqualified deferred compensation distributions
that would be made to the NEOs following a termination of employment (for those amounts and descriptions, see the prior table) nor amounts
that were earned as of the end of fiscal year 2021 such as the cash incentive. The Merger Agreement provides for a
prorated payout of cash incentive at the greater of target achievement or actual level of achievement of the applicable performance metrics
after the consummation of the proposed transaction. There can be no assurance that a triggering event would produce the same or similar
results as those estimated below if such event occurs on any other date or at any other price, or if any other assumption used to estimate
potential payments and benefits is not correct. Due to the number of factors that affect the nature and amount of any potential payments
or benefits, any actual payments and benefits may be different. These are aggregate payments and do not reflect such individual's net
after tax benefit. No officer is entitled to any "gross up" to offset the impact of IRS Code Section 280G.
NEO
|
Nature
of Benefit
|
Termination
Other Than for
Change of
Control or
Leadership
Change
($)
|
Leadership
Change
Termination
($)
|
Change
of
Control
Termination
($)
|
Andy
Mattes
|
Salary
Severance(1)
|
1,764,006
|
—
|
2,637,190
|
|
Bonus
Severance(1)
|
2,116,808
|
—
|
3,164,627
|
|
Time-Based
Equity Compensation Acceleration(2)
|
—
|
—
|
6,929,160
|
|
Performance-Based
Equity Compensation Acceleration
|
—
|
—
|
14,224,838
|
|
Aggregate
Healthcare Related Monthly Payment(3)
|
49,500
|
—
|
99,000
|
|
TOTAL
BENEFIT
|
3,930,314
|
—
|
27,054,815
|
Kevin
Palatnik
|
Salary
Severance(1)
|
—
|
793,728
|
1,058,304
|
|
Bonus
Severance(1)
|
—
|
595,296
|
793,728
|
|
Time-Based
Equity Compensation Acceleration(2)
|
—
|
2,837,053
|
3,573,042
|
|
Performance-Based
Equity Compensation Acceleration
|
—
|
2,512,783
|
2,512,783
|
|
Aggregate
Healthcare Related Monthly Payment(3)
|
—
|
49,500
|
66,000
|
|
TOTAL
BENEFIT
|
—
|
6,788,360
|
8,003,857
|
Mark
Sobey
|
Salary
Severance(1)
|
—
|
778,502
|
1,038,003
|
|
Bonus
Severance(1)
|
—
|
498,242
|
830,403
|
|
Time-Based
Equity Compensation Acceleration(2)
|
—
|
6,137,148
|
7,198,733
|
|
Performance-Based
Equity Compensation Acceleration
|
—
|
5,605,664
|
5,688,659
|
|
Aggregate
Healthcare Related Monthly Payment(3)
|
—
|
49,500
|
66,000
|
|
TOTAL
BENEFIT
|
—
|
13,069,056
|
14,821,798
|
Bret
DiMarco
|
Salary
Severance(1)
|
—
|
685,526
|
914,035
|
|
Bonus
Severance(1)
|
—
|
479,868
|
639,825
|
|
Time-Based
Equity Compensation Acceleration(2)
|
—
|
4,697,232
|
5,208,956
|
|
Performance-Based
Equity Compensation Acceleration
|
—
|
3,167,280
|
3,207,294
|
|
Aggregate
Healthcare Related Monthly Payment(3)
|
—
|
49,500
|
66,000
|
|
TOTAL
BENEFIT
|
—
|
9,079,406
|
10,036,110
|
|
|
|
|
|
|
(1)
|
Reflects
salary as in effect as of October 1, 2021. Bonus severance is based on target bonus
as a percentage of salary as in effect as of October 1, 2021. The multiplier for a Change
of Control Termination is 2.99 for the CEO and 2.0 for other NEOs. The multiplier for a Leadership
Change Termination is 1.5.
|
|
(2)
|
Equity Compensation
Acceleration represents the value of time-based restricted stock units and performance-based
restricted stock units, in each case at the closing stock price ($253.12) on October 1,
2021 (the last trading day of fiscal year 2021) that would become vested because of a termination
of employment on October 1, 2021 assuming a Change in Control or Leadership Change.
100% of the time-based restricted stock units with respect to a Change of Control Termination
and those time-based restricted stock units that would vest within 24 months after the Leadership
Change Termination are accelerated. The value of accelerated restricted stock units is calculated
by multiplying the number of unvested restricted stock units subject to acceleration by the
closing stock price on October 1, 2021. This assumes vesting of the performance-based
restricted stock units with a performance period ending in November 2022 and November 2023
at target achievement and in the event of a Leadership Change Termination, pro rata vesting
of such restricted stock units with a performance period ending October 2023reflecting
an additional 24 month period after employment. The amounts reflected for Equity Compensation
Acceleration reflects 72% of target value for the performance-based restricted stock units
with a performance period ending in November 2021 based on the performance for such
period. The Merger Agreement provides that vesting of the performance-based restricted stock
units and their conversion into time-based restricted stock would occur at the greater of
performance achievement as of the closing date of the proposed transaction and target achievement.
The amounts reflected for Equity Compensation Acceleration do not reflect any applicable
taxes, just gross proceeds. Since the table assumes a triggering event as of the last business
day of the fiscal year, only those restricted stock units outstanding to which the executives
did not have a right as of that date are included in the table.
|
|
(3)
|
Aggregate
Healthcare Related Monthly Payment is a monthly payment of $2,750 in lieu of receiving Company-subsidized
COBRA benefits, life insurance premiums and/or other welfare benefits, multiplied by 36 months
for our CEO and for our other NEOs, 24 months in a Change of Control Termination or 18 months
in a Leadership Change Termination .
|
Pay Ratio
As provided
for by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC adopted a rule requiring companies to disclose the
ratio of the median employee's total annual compensation relative to total annual compensation of the CEO. As disclosed in the “Total”
column of the Fiscal Year 2021 Summary Compensation Table, fiscal year 2021 total compensation for our CEO was $8,551,075. We estimate
that the fiscal year 2021 total annual compensation for the median of all employees, excluding our CEO, was $69,823. The resulting ratio
of our CEO's total annual compensation to that of the median of all employees, excluding our CEO, for fiscal year 2021 is approximately
122 to 1.
For purposes
of reporting annual total compensation and the ratio of annual total compensation of the CEO to the median employee, both the CEO and
median employee's annual total compensation were calculated consistent with the disclosure requirements of executive compensation under
the Fiscal Year 2021 Summary Compensation Table.
The median
employee whose compensation is reported above is the same employee whose compensation was reported in our prior year pay ratio disclosure.
We determined that it is appropriate to use the same employee in this year’s disclosure because there were no significant changes
in compensation arrangements or employee
population that would significantly impact the compensation of the median employee, allowing
for the re-use of the median employee from the prior year.
For fiscal
year 2020, we identified the median employee by (i) aggregating for each employee employed on October 3, 2020 (our fiscal year
end) (A) annual base salary for salaried employees (or hourly rate multiplied by estimated work schedule, for hourly and seasonal
employees) and (B) target incentive compensation, (ii) converting amounts from local currency to U.S. dollars and (iii) ranking
this compensation measure for our employees other than our CEO from lowest to highest. Because we had an even number of employees (excluding
our CEO) on the determination date, two employees were identified as the median compensated employees. We reviewed the compensation of
these two employees as well as the compensation of five employees immediately above and below, to further analyze employee median compensation
for consistency with that of other employees near the median. For these twelve employees, we calculated total annual compensation for
such employees using the same methodology used to calculate the "Total" column of the Company’s Summary Compensation
Tables. We then selected from among the two median compensated employees, a United States employee whose compensation was consistent
with that of the twelve employees reviewed.
The pay ratio
reported above is a reasonable estimate calculated in a manner consistent with SEC rules based on our internal records and the methodology
described above. The SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee's
total annual compensation allow companies to adopt a variety of methodologies, to apply certain exclusions, and to make reasonable estimates
and assumptions that reflect their employee populations and compensation practices. Therefore, the pay ratio reported by other companies
may not be comparable to the pay ratio reported above, as other companies have different employee populations and compensation practices
and may utilize different methodologies, exclusions, estimates, and assumptions in calculating their own pay ratios.