PREAMBLE

 

This Coherent, Inc. 2005 Deferred Compensation Plan is adopted by Coherent, Inc. for the benefit of certain of its Employees and members of its Board of Directors, effective as of January 1, 2005 (the “Effective Date”).  The purpose of the Plan is to provide supplemental retirement income and to permit eligible Participants the option to defer receipt of Compensation, pursuant to the terms of the Plan.  The Plan is intended to be an unfunded deferred compensation plan maintained for the benefit of a select group of management or highly compensated employees under sections 201(2), 301(a)(3) and 401(a)(1) of ERISA and is intended to comply with Section 409A of the Internal Revenue Code.  Participants shall have the status of unsecured creditors of Coherent, Inc. with respect to the payment of Plan benefits.

 

From and after the Effective Date, this Plan replaces the Coherent, Inc. 1995 Deferred Compensation Plan, the Coherent, Inc. Supplementary Retirement Plan and the Director Deferred Compensation Plan, which have been frozen to new deferrals as of December 31, 2004 so as to qualify these prior plans for “grandfather” treatment under Internal Revenue Code Section 409A.

 

 

TABLE OF CONTENTS

 

		Page
ARTICLE I Definitions		1
1.1	Definitions	1
ARTICLE II Participation		4
2.1	Date of Participation	4
2.2	Resumption of Participation Following Return to Service	4
2.3	Change in Employment Status	5
ARTICLE III		5
Contributions		5
3.1	Deferral Contributions	5
3.2	Accounts	6
3.3	Company Contributions	7
3.4	Cancellation of Elections Due to 401(k) Hardship Withdrawal or Unforeseeable Emergency Distribution	7
ARTICLE IV Participants’ Accounts		8
4.1	Individual Accounts	8
4.2	Accounting for Distributions	8
4.3	Separate Accounts	8
ARTICLE V Investment of Contributions		8
5.1	Manner of Investment	8
5.2	Investment Decisions	9
ARTICLE VI Distributions		9
6.1	Certain Distributions to Participants and Beneficiaries	9
6.2	Subsequent Election to Delay or Change Form of Payment	10
6.3	Lump-Sum Distribution Timing	11
6.4	Installment Amounts	11
6.5	Unforeseeable Emergency Distributions	11
6.6	Scheduled In-Service Distribution	12
6.7	Death	12
6.8	Notice to Trustee	13
6.9	Time of Distribution	13
6.10	Limitation on Distributions to Covered Employees Prior to a Change of Control	13
6.11	Domestic Relations Order Distributions	13
6.12	Conflicts of Interest and Ethics Rules Distributions	13

 

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TABLE OF CONTENTS

 

		Page
6.13	FICA and Related Income Tax Distribution	14
6.14	State, Local and Foreign Tax Distribution	14
6.15	Code Section 409A Distribution	14
6.16	Tax Withholding	14
6.17	Special 2008 Election	14
ARTICLE VII Change of Control		14
7.1	No New Participants Following Change of Control	14
7.2	Discretionary Termination and Accelerated Plan Distributions 30 Days Prior to or Within 12 Months Following a Change in Control	14
ARTICLE VIII Termination Due to Corporate Dissolution or Pursuant to Bankruptcy Court Approval		15
8.1	Corporate Dissolution	15
8.2	Bankruptcy Court Approval	15
ARTICLE IX Amendment and Termination		15
9.1	Amendment by Employer	15
9.2	Retroactive Amendments	15
9.3	Plan Deferral Termination	15
9.4	Distribution upon Certain Plan Terminations	15
ARTICLE X The Trust		16
10.1	Establishment of Trust	16
ARTICLE XI Miscellaneous		16
11.1	Limitation of Rights	16
11.2	Nontransferability; Domestic Relations Orders	16
11.3	Facility of Payment	16
11.4	Information between Employer and Trustee	16
11.5	Notices	16
11.6	Governing Law	17
11.7	No Guarantees Regarding Tax Treatment; Disclaimer	17
ARTICLE XII Plan Administration		17
12.1	Powers and responsibilities of the Administrator	17
12.2	Nondiscriminatory Exercise of Authority	18
12.3	Claims and Review Procedures	18
12.4	Exhaustion of Claims Procedure and Right to Bring Legal Claim	21
12.5	Plan’s Administrative Costs	21

 

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ARTICLE I

Definitions

 

1.1                                  Definitions .  Wherever used herein, the following terms have the meanings set forth below, unless a different meaning is clearly required by the context:

 

(a)                                   “ Account ” means an account established on the books of the Employer for the purpose of recording amounts credited on behalf of a Participant and any expenses, gains or losses included thereon.

 

(b)                                  “ Administrator ” means the Employer, or the Committee, if one has been designated by such Employer.

 

(c)                                   “ Bankruptcy Court Approval ” means the approval of a bankruptcy court pursuant to 11 U.S.C. § 503(b)(1)(A).

 

(d)                                  “ Beneficiary ” means the person or persons entitled under Section 6.7 to receive benefits under the Plan upon the death of a Participant.

 

(e)                                   “ Change of Control Event ” means a change in ownership or effective control of the Company or in the ownership of a substantial portion of the Company’s assets, as defined under Code Section 409A.

 

(f)                                     “ Code ” means the Internal Revenue Code of 1986, as amended from time to time.

 

(g)                                  “ Code Section 409A ” means Code Section 409A and the proposed or final (as applicable) Treasury regulations and other official guidance promulgated thereunder.

 

(h)                                  “ Code Section 409A Distribution ” means a distribution pursuant to Section 6.15 hereof.

 

(i)                                      “ Committee ” means the Deferred Compensation Committee composed of three or more individuals appointed by the Compensation Committee of the Board of Directors of the Employer, or following a Change of Control, appointed by the Committee, to function as the Administrator.  Once appointed, the Deferred Compensation Committee shall interpret and administer this Plan and take such other actions as may be specified herein.

 

(j)                                      “ Company ” means the Employer and any of its Subsidiaries.

 

(k)                                   “ Compensation ” means (i) with respect to Eligible Employees, base salary, commissions, variable compensation plan bonuses, and, to the extent that they qualify as Sales Commissions under Code Section 409A, sales commission plan bonuses and sales incentive bonuses, including amounts that are otherwise excludable from the gross income of the Participant

 

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under a salary reduction agreement by reason of the application of Sections 125 or 402(a)(8) of the Code, and (ii) with respect to Outside Directors, all cash retainers and cash meeting fees, excluding expense reimbursements.  Compensation does not include any severance payments or benefits.

 

(l)                                      “ Corporate Dissolution ” means a dissolution of the Company that is taxed under Code Section 331.

 

(m)                                “ Deferral Contributions ” means, for each Participant, the amount deferred pursuant to Section 3.1 hereof.

 

(n)                                  “ Disability ” means the Participant (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan covering Company employees.

 

(o)                                  “ Domestic Relations Order ” means a court order that qualifies as a domestic relations order under Code Section 414(p)(1)(B).

 

(p)                                  “ Eligible Participant ” means (i) any employee with an annual base salary in excess of the amount specified by the Committee, (ii) any Outside Director, and (iii) any other employees designated as eligible by the Committee.

 

(q)                                  “ Employee ” means any employee of the Employer.

 

(r)                                     “ Employer ” means Coherent, Inc. and any successors and assigns unless otherwise provided herein.

 

(s)                                   “ Entry Date ” means (i) January 1 (which is also the Entry Date for employees who are promoted or given a base salary increase so as to become an Eligible Participant for the first time and for re-hires who were previously Eligible Participants), (ii) for new employees who are Eligible Participants (including re-hires who were not previously Eligible Participants), the first day of the next payroll period commencing after the next paydate following receipt of their deferral election by the Company; provided, however, that such new employee’s deferral election must be submitted no later than 30 days following their becoming newly eligible, or (iii) for Non-Employee Directors who are Eligible Participants for the first time, the first day of the next Company fiscal quarter following their becoming a Non-Employee Director; provided, however, that such new Non-Employee Director’s deferral election must be submitted no later than 30 days following their becoming a newly eligible Non-Employee Director.

 

(t)                                     “ ERISA ” means the Employee Retirement Income Security Act of 1974, as from time to time amended.

 

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(u)                                  “ FICA Amount ” means the aggregate Federal Insurance Contributions Act (FICA) tax imposed on any Account under Code Sections 3101, 3121(a) and 3121(v)(2), as applicable and any corresponding tax withholding provisions of applicable state, local or foreign tax laws as a result of the payment of the FICA amount.

 

(v)                                  “ 401(k) Plan ” means the Coherent, Inc. Employee Retirement and Investment Plan.

 

(w)                                “ Outside Director ” means a member of the Board whom is not an Employee.

 

(x)                                    “ Participant ” means any Employee or Outside Director who participates in the Plan in accordance with Article 2 hereof.

 

(y)                                  “ Plan ” means this Coherent, Inc. 2005 Deferred Compensation Plan.

 

(z)                                    “ Plan Year ” means the 12-consecutive month period beginning January 1 and ending December 31.

 

(aa)                             “ Prior Plans ” means the Coherent, Inc. 1995 Deferred Compensation Plan, the Coherent, Inc. Supplementary Retirement Plan and the Director Deferred Compensation Plan.

 

(bb)                           “ Retirement ” means a Participant’s Separation from Service after attaining 50 years of age.

 

(cc)                             “ Sales Commission ”  means “sales commission compensation” as such term is defined in Treasury Regulation §1.409A-2(a)(12)(i).

 

(dd)                           “ Separation From Service ” means a separation from service as defined under Code Section 409A.  For this purpose, the employment relationship will be treated as continuing intact while the Participant is on military leave, sick leave or other bona fide leave of absence, except that if the period of such leave exceeds six (6) months and the Participant does not retain a right to re-employment under an applicable statute or by contract, then the employment relationship will be deemed to have terminated on the first day immediately following such six-month period.  A leave of absence constitutes a bona fide leave of absence only if there is a reasonable expectation that the Participant will return to perform services for the Company.

 

(ee)                             “ Specified Employee ” means a Participant who, as of the date of his or her Separation from Service, is a key employee of the Company.  For this purpose, a Participant is a key employee if he or she meets the requirements of Code section 416(i)(1)(A)(i), (ii) or (iii) (disregarding Code section 416(i)(5)).  As of 2008, this generally includes (i) the top fifty (50) Company officers with compensation greater than $150,000 per year, (ii) a 5% owner of the Company, or (iii) a 1% owner of the Company with compensation greater than $150,000 per year.  For purposes of the preceding sentence, “compensation” means compensation as such term is defined in the 401(k) Plan for Code section 415 purposes.  The determination of who is a Specified Employee shall be made on December 31 of each year and shall include any employee who qualified

 

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as a Specified Employee at any time during the preceding twelve-month period.  Once so determined, the list of Specified Employees shall be initially effective on the following April 1 and shall remain effective for twelve months (i.e., through March 31 of the following year).

 

(ff)                                 “ Subsidiary ” means a subsidiary of the Employer, as such term is defined in Code section 424(f).

 

(gg)                           “ Trading Day ” means a day upon which the major U.S. national stock exchanges are open for trading.

 

(hh)                           “ Trust ” means the trust fund established pursuant to the terms of the Plan.

 

(ii)                                   “ Trustee ” means the corporation or individuals named in the agreement establishing the Trust and such successor and/or additional trustees as may be named in accordance with the Trust Agreement.

 

(jj)                                   “ Unforeseeable Emergency ” means (a) a severe financial hardship to a Participant resulting from an illness or accident of the Participant or his or her spouse, beneficiary or dependent (as defined in section 152 of the Code, but without regard to subsections (b)(1), (b)(2) and (d)(1)(B) thereof), (b) loss of the Participant’s property due to casualty (including the need to rebuild a home following damage to a home not otherwise covered by insurance, for example, not as a result of a natural disaster), or (c) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.

 

(kk)                             “ Year of Service ” means a period of 12 consecutive months during which the Participant is employed by the Employer or serves as a Board member.  Service commences on the date the Participant first commences service for the Employer and ends on the date that the Participant quits, retires, is discharged, is determined to be Totally Disabled or dies.

 

(ll)                                   “ Valuation Date ” means (i) for re-allocations of amounts previously deferred, the date of re-allocation, or, if that date is not a Trading Day, then the next Trading Day, (ii) for distributions hereunder, the last day of the preceding month, or, if that day is not a Trading Day, then the most recently concluded Trading Day,  and (iii) for allocations of deferrals, the next Trading Day following the payday to which the deferral relates.

 

ARTICLE II

Participation

 

2.1                                  Date of Participation .  Each Eligible Participant shall be become a Participant as of the Entry Date next following their timely filing of an election to defer Compensation in accordance with Section 3.1.

 

2.2                                  Resumption of Participation Following Return to Service .  If a Participant ceases to be an Employee or Outside Director and thereafter returns to the service of the Employer he or she

 

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will again become a Participant as of the Entry Date following the date on which he or she re-commences service with the Employer, provided he or she is an Eligible Participant and has timely filed an election to defer Compensation pursuant to Section 3.1.  Any scheduled Plan payments the Participant has been receiving shall continue to be paid as previously scheduled.

 

2.3                                  Change in Employment Status .  If any Employee Participant continues in the employ of the Employer but ceases to be an Eligible Participant, the individual shall continue to be a Participant until the entire amount of his benefit is distributed; provided, however, the individual shall not be entitled to make Deferral Contributions during subsequent Plan Years in which he or she is not an Eligible Participant.  In the event an Employee Participant ceases to be an Eligible Participant, if such individual has not undergone a Separation From Service, he or she shall continue to make Deferral Contributions under the Plan through the end of the Plan Year in which he or she ceases to be an Eligible Participant.  Thereafter, such individual shall not make any further Compensation deferral contributions to the Plan unless or until he or she again becomes an Eligible Participant.  In the event that the individual subsequently again becomes an Eligible Participant, the individual may resume full participation on the next Entry Date in accordance with Section 3.1.

 

ARTICLE III

Contributions

 

3.1                                  Deferral Contributions .

 

(a)                                   Annual Open Enrollment .  Prior to the beginning of each Plan Year, each Eligible Participant (including newly eligible Eligible Participants who were formerly Eligible Participants) may elect to execute a compensation reduction agreement with the Employer to reduce his Compensation by a specified percentage not exceeding, (i) for Eligible Employees, 75% of their base salary and 100% of their other Compensation, and (ii) for Outside Directors, 100% of their Compensation, equal in either case to whole number multiples of one (1) percent, and in a scheduled amount of not less than $10,000.  Such agreement shall become irrevocable as of the last day of the calendar year in which it is made and shall be effective, with respect to Eligible Employees, with the first payday in the following Plan Year and with respect to Outside Directors, with the first day of service in the following Plan Year.  Except with respect to payroll periods that cross-over from one calendar year to the next, the election shall not be effective with respect to Compensation relating to services already performed.  With respect to Compensation that qualifies as a Sales Commission, the services relating to such Compensation shall be deemed performed in the year in which the customer pays the Company.  An election once made will remain in effect for paydays falling in the duration of the Plan Year.  After the beginning of a Plan Year, a Participant will not be permitted to change, terminate or revoke his or her Compensation Deferral election for such Plan Year, except to the limited extent provided in Section 3.4. Amounts credited to a Participant’s Account prior to the effective date of any new election will not be affected and will be paid in accordance with that prior election.

 

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3.3                                  Company Contributions .

 

(a)                                   Discretionary Contributions .  The Company may, in its sole discretion, make a contribution to a Participant’s Account, subject to such vesting and distribution conditions and limitations as the Company, in its sole discretion, shall impose.  To the extent such Company contributions do not vest, corresponding debits will be made to a Participant’s Account, including any earnings on such forfeited amounts.

 

(b)                                  Annual Contribution .  Until such time as the Company determines otherwise, the Company shall make an annual contribution on behalf of any Employee with a Plan Account who also makes a deferral for a given year into the Employer’s 401(k) Plan.  The amount of the annual contribution shall be equal to 6% of the Participant’s compensation, as such term is defined in Section 2.12 of the Employer’s 401(k) Plan, without regard to Section 2.12(b) thereof (“401(k) Compensation”) for an applicable year, minus the maximum amount permitted to be contributed to a participant’s account in the Employer’s 401(k) Plan as an employer matching contribution, as limited by virtue of Code section 401(a)(17), for such year.  The annual contribution shall be credited to the Participant’s Account in the calendar year following the year in which the 401(k) Plan deferrals were made.

 

EXAMPLE :  In 2006, Employee Favre (who also participates in the Plan) defers part of his compensation into the Employer’s 401(k) Plan.  Employee Favre’s 2006 401(k) Compensation is $300,000.  Because of the Code section 401(a)(17) limit, the Employer can only make a maximum matching contribution of $13,200 into Employee Favre’s 401(k) Plan account in 2006 (the 2006 Code section 401(a)(17) limit of $220,000 x 6%).  Accordingly, Employee Favre receives a non-discretionary credit in the Plan equal to $4,800 [(6% x $300,000) - $13,200] in 2007.  Employee Favre will receive this credit even if the amount of the employer match into his 401(k) Plan account for 2006 is less than $13,200 by virtue of his deferring less than $13,200 into the 401(k) Plan in 2006.

 

3.4                                  Cancellation of Elections Due to 401(k) Hardship Withdrawal or Unforeseeable Emergency Distribution .

 

(a)                                   401(k) Hardship Withdrawal .  A Participant’s deferral election shall be automatically cancelled in the event the Participant obtains a hardship distribution from the Employer’s 401(k) Plan pursuant to Treasury Regulation §1.401(k)-1(d)(3).  The Participant, if still an Eligible Participant, may re-enroll in the Plan in the next open enrollment period.

 

(b)                                  Unforeseeable Emergency Distribution .  A Participant’s deferral election shall be automatically cancelled in the event the Participant obtains an unforeseeable emergency distribution from the Plan pursuant to Section 6.5 hereof.  The Participant, if still an Eligible Participant, may re-enroll in the Plan in the next open enrollment period.

 

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(c)                                   Special 2005 Elections .

 

(i)              In accordance with Internal Revenue Service Notice 2005-1, Q&A-21, Eligible Participants may make a deferral election with respect to 2005 Compensation that has not been paid or become payable at the time of election, and superseding their prior election, if any, with respect to such Compensation, on or before March 15, 2005, or such earlier time as is determined by the Administrator (or its designee) in its sole discretion.

 

(ii)           In accordance with Internal Revenue Service Notice 2005-1 and the proposed Treasury regulations promulgated under Code Section 409A, and notwithstanding any contrary provision of the Plan, a Participant may elect to rescind or reduce his or her 2005 Compensation deferral election made under Section 3.1 by filing a form specified by the Administrator (or its designee) with the Administrator (or its designee) no later than December 31, 2005, or such earlier time as is determined by the Administrator (or its designee), in its sole discretion.  The amount subject to such election shall be distributed to the Participant in a single lump sum payment of cash (or its equivalent) in calendar year 2005 or, if later, the Participant’s taxable year in which the amount becomes earned and vested.

 

ARTICLE IV

Participants’ Accounts

 

4.1                                  Individual Accounts .  The Administrator will establish and maintain an Account for each Participant which will reflect Deferral Contributions credited to the Account on behalf of the Participant with earnings, expenses, gains and losses credited thereto, attributable to the investments made with the amounts in the Participant’s Account.  Participants will be