UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No._)No. )
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o¨ Soliciting Material Pursuant to §240.14a-12
IPG PHOTONICS CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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(IPG PHOTONICS CORPORATION LOGO)

April 15, 2014
Dear Fellow Stockholder:
You are cordially invited to attend our annual meeting of stockholders on May 31, 2011.June 3, 2014. We will hold the meeting at 10:00 a.m. Eastern Time at our world headquarters, 50 Old Webster Road, Oxford, Massachusetts.
In connection with the meeting, we have prepared aA notice of the annual meeting, a proxy statement, proxy card and our 20102013 annual report to stockholders, which provide detailed information relating to our activities and operating performance.performance, accompany this letter.
At this year’s meeting, you will be asked to elect ten directors to our board of directors for a term of one year, to approve our executive compensation in an advisory vote and to ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2014. Our board of directors recommends that you approve each of these proposals. I urge you to read the proxy statement for further details about the proposals.
Your vote is important to us and our business.Whether or not you plan to attend the annual meeting of stockholders, we encourage you to cast your vote by completing, signing and dating the enclosed proxy card and returning it promptly in the envelope provided. You may also vote your shares. You may vote:
• via Internet;
• by telephone;
• by mail; or
• in person at the meeting.
If you plan to attend using the annual meeting in person, you must provide proof of share ownership, such as an account statement, and a form of personal identification in order to be admitted tointernet or the meeting.
We will make available an alphabetical list of stockholders entitled to vote attelephone by following the meeting, for examination by any stockholder during our ordinary business hours atinstructions provided on the Office of the Secretary, located at our Oxford, Massachusetts headquarters, for theten-dayenclosed proxy card. period before the annual meeting.
On behalf of the entire IPG Board of Directors, we look forward to seeing you at the meeting.
 
Sincerely,
Dr. Valentin P. Gapontsev
Chairman of the Board of Directors and
Chief Executive Officer




Table of Contents
 
-s- Valentin P. Gapontsev
Dr. Valentin P. Gapontsev
Page
Notice of Annual Meeting of Stockholders
1
General Information About the Meeting
2
Corporate Governance
5
Related Person Transactions
9
Board of Directors
9
Director Compensation
14
Common Stock Ownership
16
     Proposal 1: Election of Directors
18
Executive Officers
18
Compensation Committee Report
19
Compensation Discussion and Analysis
19
Executive Compensation Tables
30
Equity Compensation Plans
37
     Proposal 2: Advisory Vote on Executive Compensation
38
Audit Committee Report
40
     Proposal 3: Ratification of Independent Registered Public Accounting Firm
40
Other Matters
41
Chairman of the Board of Directors and



IPG PHOTONICS CORPORATION
Chief Executive Officer50 Old Webster Road
Oxford, Massachusetts 01540
April 13, 2011

(IPG PHOTONICS CORPORATION LOGO)
NOTICE OF 2011 ANNUAL MEETING OF STOCKHOLDERS
Dear Stockholder:
To the Stockholders:
We invite you to attend our 2011 annual meeting of stockholders which is being held as follows:
   
Date:
 Tuesday, May 31, 2011Date:June 3, 2014
Time:  10:00 a.m., Eastern Time
Location:
 Location:        
IPG Photonics Corporation
50 Old Webster Road
Oxford, Massachusetts 01540
At the meeting, we will ask our stockholders to:
• elect nine directors named in the proxy to serve until our 2012elect ten directors named in the proxy to serve until our 2015 annual meeting of stockholders;
• ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2011;
• amend our 2006 Stock Incentive Plan;
• approve, by non-binding vote, our executive compensation;
• recommend, by non-binding vote, the frequency of executive compensation votes; and
• consider any other business properly presented at the meeting.
approve our executive compensation in an advisory vote; and
ratify the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for 2014.
You may vote on these matters in person or by proxy. Whether or not you plan to attend the meeting, we ask that you promptlyvote your shares. Only stockholders of record at the close of business on April 13, 20117, 2014 may vote at the meeting.
 
By order of the Board of Directors,
IPG PHOTONICS CORPORATION
-s- Angelo P. Lopresti
Angelo P. Lopresti
Vice President, General Counsel and Secretary
Oxford, Massachusetts
April 13, 2011
Our Proxy Statement and Annual Report onForm 10-K for the year ended December 31, 2010
are available athttp://investor.ipgphotonics.com/annual-proxy.cfm

Table of Contents to the Proxy Statement
 
By order of the Board of Directors
IPG PHOTONICS CORPORATION
 
 
Angelo P. Lopresti
Senior Vice President, General Information
1
QuestionsCounsel and Answers about the Annual Meeting and Voting1
Corporate Governance4
Corporate Governance Guidelines4
Director Independence7
Board Leadership Structure7
Risk Oversight7
Related Person Transaction Policy and Transactions8
Stockholder Communication with our Board of Directors8
Information Regarding the Board of Directors8
Nominees for Director9
Board Meetings and Committees11
Audit Committee11
Compensation Committee12
Nominating and Corporate Governance Committee13
Compensation Committee Interlocks and Insider Participation13
Director Compensation13
Director Compensation Plan13
Director Compensation Table15
Outstanding Equity Awards Table15
Information Regarding Stock Ownership16
Proposal 1: Election of Directors17
Audit Committee Report18
Proposal 2: Ratification of Independent Registered Public Accounting Firm19
Information Regarding Executives20
Compensation Committee Report21
Executive Compensation22
Compensation Discussion and Analysis22
Executive Summary22
Compensation Program Objectives and Principles23
Pay Positioning Strategy24
Components of Compensation in 201025
Other Factors Affecting Compensation29
Summary Compensation Table30
Employment Agreements30
Grants of Plan-Based Awards Table31
Outstanding Equity Awards Table32
Equity Compensation Plans32
Employee Stock Purchase Plan34
Option Exercises and Stock Vested Table34
Pension Benefits34
Nonqualified Deferred Compensation34
Potential Payments Upon Termination or Change in Control35
Compensation Risk Assessment Review36Secretary

April 15, 2014
Oxford, Massachusetts
Important Notice Regarding the Availability of Proxy Materials
for the Annual Meeting on June 3, 2014:
The proxy statement and 2013 annual report to stockholders
are available at http://investor.ipgphotonics.com/annual-proxy.cfm

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Proposal 3: Approval of Amendments to IPG Photonics Corporation 2006 Stock Incentive Plan36
Proposal 4: Advisory (Non-Binding) Vote Approving Executive Compensation45
Proposal 5: Advisory (Non-Binding) Vote Determining the Frequency of Advisory Votes on Executive Compensation47
Other Matters:49
Section 16(a) Beneficial Ownership Reporting Compliance49
2012 Annual Meeting and Nominations49
No Incorporation by Reference49
Appendix
APPENDIX A 2006 Stock Incentive Compensation PlanA-1


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(IPG PHOTONICS CORPORATION LOGO)1


PROXY STATEMENT
2011 ANNUAL MEETING OF STOCKHOLDERS
GENERAL INFORMATION
ABOUT THE MEETING
Our Board of Directors is soliciting proxies from our stockholders in connection with our annual meeting of stockholders to be held on Tuesday, May 31, 2011June 3, 2014 and at any and all adjournments thereof. No business can be conducted at the annual meeting unless a majority of all outstanding shares entitled to vote are either present in person or represented by proxy at the meeting. As far as we know, the only matters to be brought before the annual meeting are those referred to in this proxy statement. If any additional matters are presented at the annual meeting, the persons named as proxies may vote your shares in their discretion.
This proxy statement and our 20102013 annual report are first being mailed to stockholders of record on or about April 15, 2011,2014, and are made available on our website athttp://investor.ipgphotonics.com/annual-proxy.cfm. Information on our website does not constitute part of this proxy statement.
Unless otherwise noted, the information in this proxy statement covers our 20102013 fiscal year (or “fiscal 2010”2013”), which ran from January 1, 20102013 through December 31, 2010,2013, and, in some cases, our 20092012 fiscal year (or “fiscal 2009”2012”), which ran from January 1, 20092012 through December 31, 2009.
2012.
Questions and Answers about the Annual Meeting and Voting
When and Where isIs the Annual Meeting?
When:  Tuesday, May 31, 2011,June 3, 2014, at 10:00 a.m. Eastern Time
Where:  
IPG Photonics World Headquarters,
Corporation
50 Old Webster Road
Oxford, Massachusetts 01540
Who isIs Entitled to Vote at the Meeting?
You are entitled to vote at the meeting if you owned IPG Photonics shares (directly or in “street name”,name,” as defined below) as of the close of business on April 13, 2011,7, 2014, the record date for the meeting. On that date, 47,232,23752,014,775 shares of our common stock were outstanding and entitled to vote and no shares of our preferred stock were outstanding. Each share of our common stock is entitled to one vote with respect to each matter on which it is entitled to vote; there is no cumulative voting with respect to any proposal.
What doDo I Need to do ifDo If I Plan to Attend the Meeting in Person?
If you plan to attend the annual meeting in person, you must provide proof of your ownership of our common stock and a form of personal identification, such as a driver’s license, for admission to the meeting.
If you are a stockholder of record, the top half of your proxy card is your admission ticket.ticket and will serve as proof of ownership. If you hold your shares in street name, you will need proof of ownership to be admitted to the meeting. Aa recent brokerage statement or a letter from your bank or broker are examples of proof of ownership. If you hold your shares in street name and you also wish to be able to vote at the meeting, you must obtain a proxy, executed in your favor, from your bank or broker.


What isIs the Difference Between Holding Shares Directly as a Stockholder of Record and Holding Shares in “Street Name” at a Bank or Broker?
Most of our stockholders hold their shares directly through a broker, bank or other nominee rather than directly in their own name. As summarized below, there are differences between shares held of record and those held in “street name.”

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Stockholder of Record: If your shares are registered directly in your name with our transfer agent, Computershare, N.A., you are considered the stockholder of record with respect to those shares, and the proxy statement and annual report were sent directly to you. As the stockholder of record, you have the right to vote your shares as described herein.
“Street Name” Stockholder: If your shares are held by a bank or broker as your nominee, you are considered the beneficial owner of shares held in “street name,” and the proxy statement and annual report were forwarded to you by your bank or broker who is considered the stockholder of record with respect to those shares. Your bank or broker sent to you, as the beneficial owner, a document describing the procedure for voting your shares. You should follow the instructions provided by your bank or broker to vote your shares. You are also invited to attend the annual meeting. However, if you wish to be able to vote at the meeting, you must obtain a proxy card, executed in your favor, from your bank or broker.
What Matters amAm I beingBeing Asked to Vote onOn at the Meeting and What Vote is Required to Approve Each Matter?
You are being asked to vote on fivethree proposals. Proposal 1 requests the election of directors. Each director will be elected by the vote of the plurality of the votes cast when a quorum is present. A “plurality of the votes cast” means that the nineten persons receiving the greatest number of votes cast “for” will be elected. “Votes cast” excludes abstentions"withhold votes" and any broker non-votes (as defined below). Accordingly, withhold votes withheld by brokersand broker non-votes will have no effect on Proposal 1. If you hold your shares in street name, it is critically important that you submit your voting instructions to your bank or broker if you want your shares to count for Proposal 1.
Proposal 2 requests the absenceapproval of instructions from street-name holders (“broker non-votes”).our executive compensation. It is an advisory vote which means that it is not binding upon the Company.
Proposal 3 requests the ratification of the appointment of our independent registered public accounting firm.
The affirmative vote of a majority of the shares which are present at the meeting in person or by proxy, and entitled to vote thereon, is required to: ratify the appointmentfor approval of our independent registered public accounting firm (Proposal 2); approve the amendments to our 2006 Stock Incentive Plan (Proposal 3);Proposals 2 and approve, by non-binding vote, our executive compensation (Proposal 4).3. Abstentions have the same effect as voting against Proposals 2 3 and 4 and broker3. Broker non-votes have no effect on the outcome of Proposals 3 and 4.Proposal 2.
The frequency of the advisory vote on executive compensation (Proposal 5) receiving the greatest number of votes (every one, two or three years) will be considered the frequency recommended by stockholders. Abstentions and broker non-votes will therefore have no effect on the outcome of Proposal 5.
Although the advisory votes on Proposals 4 and 5 are non-binding, as provided by law, our Board will review the results of the votes and will take them into account in making a determination concerning executive compensation and the frequency of such advisory votes.
Who Counts the Votes?
We have engaged Computershare N.A. as our independent agent to receive and tabulate stockholder votes. Computershare will separately tabulate “for”,“for,” “against” and “withhold” votes, votes on the frequency of holding an advisory vote on executive compensation, abstentions and broker non-votes. Computershare will also act as independent election inspector to certify the results, determine the existence of a quorum and the validity of proxies and ballots, and perform any other acts required under the General Corporation Law of Delaware.
How canCan I Vote?
Most stockholders have a choice of voting in one of four ways:
via the Internet;
• via the Internet;
• 
using a toll-free telephone number;


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completing a proxy/voting instruction card and mailing it in the postage-paid envelope provided; or
• completing a proxy/voting instruction card and mailing it in the postage-paid envelope provided; or
• in person at the meeting.
The telephone and Internet voting facilities for stockholders of record will close at 1:00 a.m. Central Time on May 31, 2011.June 3, 2014. The Internet and telephone voting procedures are designed to authenticate stockholders by use of a control number and to allow you to confirm that your instructions have been properly recorded.
Please read the instructions on the proxy card or the information sent by your broker or bank ifIf you hold your shares in street name, your bank or broker will send you a separate package describing the procedures and options for voting your shares. Please read this information carefully.
What doesDoes it Mean to Give a Proxy?
Your properly completed proxy/voting instruction card will appoint Valentin P. Gapontsev and Angelo P. Lopresti as proxy holders or your representatives to vote your shares in the manner directed therein by you. Dr. Gapontsev is our Chairman of the Board and Chief Executive Officer. Mr. Lopresti is our Senior Vice President, General Counsel and Secretary. Your proxy permits you to direct the proxy holders to vote “for” or “withhold” for the nominees for director (Proposal 1), and “for,” “against,” or “abstain” from the nominees for directoradvisory vote on executive

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compensation (Proposal 2) and Proposals 2, 3 and 4 and “1 year,” “2 years,” and “3 years” or “abstain” for Proposal 5.
the ratification of the appointment of our independent registered accounting firm (Proposal 3).
All of your shares entitled to vote and represented by a properly completed proxy or voting instruction received prior to the meeting and not revoked will be voted at the meeting in accordance with your instructions.instruction.
What Happens ifIf I Sign, Date and Return myMy Proxy but do notBut Do Not Specify howHow I Want myMy Shares Voted on oneOne of the Proposals?
Stockholder of Record: Your proxy will be counted as a vote “For” all of the nominees for director;director and “For” Proposals 2 3 and 4; and “3 years” for Proposal 5.3.
“Street NameName” Stockholder: Your bank, broker or nominee may vote your shares only on those proposals on which it has discretion to vote. Under New York Stock Exchange rules, your bank, broker or nominee does not have discretion to vote your shares on non-routine matters such as the election of directors or Proposals 3, 4 or 5.(Proposal 1) and the advisory vote on executive compensation (Proposal 2). This is called a "broker non-vote." However, your bank, broker or nominee does have discretion to vote your shares on routine matters such as the ratification of the appointment of our independent registered public accounting firm (Proposal 3). Accordingly, if you do not give your bank, broker or nominee specific instructions with respect to Proposal 2.3, your shares will be voted in such entity’s discretion. We urge you to promptly provide your bank, broker or nominee with appropriate voting instructions so that all of your shares may be voted at the meeting.
Can I Change myMy Vote Before the Meeting?
You can change your vote at any time before your proxy is exercised by delivering a properly executed, later-dated proxy (including an Internet or telephone vote), by revoking your proxy by written notice to the Secretary of IPG Photonics, or by voting in person at the meeting. The method by which you vote by a proxy will in no way limit your right to vote at the meeting if you decide to attend in person.
If youyour shares are a Street Name Stockholder,held in street name, please refer to the information forwarded by your bank, broker or brokernominee for procedures on changing your voting instructions.
Is the Proxy Statement Available on the Internet?
Yes. We are mailing copies of the proxy statement and our 20102013 annual report to all stockholders. Stockholders can also view these documents on the Internet by accessing our website athttp://investor.ipgphotonics.com/annual-proxy.cfm.annual-proxy.cfm.
Who isIs Soliciting my Proxy and whoWho is Paying for the Cost of this Proxy Solicitation?
The Board of Directors of IPG Photonics is soliciting your proxy to vote at the 20112014 annual meeting of stockholders. IPG Photonics will bear the expense of preparing, printing and mailing this proxy material, as well as the cost of any required solicitation. Our directors, officers or employees may solicit proxies on our


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behalf. We have not engaged a proxy solicitation firm to assist us in the solicitation of proxies, but we may if we deem it appropriate. In addition, we will reimburse banks, brokers and other custodians, nominees and fiduciaries for reasonable expenses incurred in forwarding proxy materials to beneficial owners of our stock and obtaining their proxies.

What isIs the Quorum Required to Transact Business?
At the close of business on April 13, 2011,7, 2014, the record date, there were 47,232,23752,014,775 shares of our common stock outstanding. Our bylawsby-laws require that a majority of our common stock be represented, in person or by proxy, at the meeting in order to constitute the quorum we need to transact business at the meeting. We will count withhold votes, abstentions and broker non-votes in determining whether a quorum exists.

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CORPORATE GOVERNANCE
At IPG Photonics, is committed to the values ofwe believe that strong and effective corporate governance procedures and high ethical standards. Our Board believes that these valuespractices are conducive to long-term performancean extremely important part of our corporate culture. We have summarized several of our corporate governance practices below.
Significant Corporate Governance Practices and reevaluates our policies on an ongoing basis to ensure they sufficiently meet our company’s needs. Policies
Listed below are some of the significant corporate governance practices and policies we have adopted.adopted:
• Independent Director Majority and Presiding Independent Director.  Six of the nine directors on our Board are non-employees of the Company who meet the independence criteria under applicable SEC rules and NASDAQ guidelines. Only the independent directors sit on our three standing Board committees. The Board established the role of a presiding independent director who is elected by the independent directors. More information about the role of the independent directors, the presiding independent director and our Board structure can be found below in this section.
• Executive Sessions.  Our Board meets regularly in executive sessions without the presence of management, including our Chairman. These sessions are led by our presiding independent director, as described further below in this section.
• Annual Election of Entire Board.  Stockholders elect each director annually. We do not have a classified board.
• Related Person Transaction Policy.  Our Nominating and Corporate Governance Committee is responsible for approving or ratifying transactions involving our Company and related persons and determining if the transaction is in, or not inconsistent with, the best interests of our Company and our stockholders. More information about our Related Person Transaction Policy and transactions can be found below in this section.
• Stock Ownership Guidelines.  Our directors and executive officers are required to own a minimum amount of IPG Photonics shares. We believe that stock ownership requirements align the interest of the directors and officers with stockholders.
• Prohibition on Hedging.  Our Insider Trading Policy expressly prohibits hedging and purchasing derivative securities by directors and employees in connection with IPG Photonics shares.

Independent Director Majority and Presiding Independent Director. Six of the nine directors currently on our Board of Directors (the “Board”) are non-employees of the Company who meet the independence criteria under applicable rules of the Securities and Exchange Commission ("SEC") and NASDAQ guidelines. Only independent directors sit on our three standing Board committees. Several years ago, the Board established the role of a presiding independent director who is elected annually by the independent directors. More information about the role of the independent directors, the Presiding Independent Director and our Board structure can be found below in this section.

Executive Sessions. Our Board meets regularly in executive sessions without the presence of management, including our Chairman. These sessions are led by our Presiding Independent Director, as described below in this section.

Annual Election of Entire Board. Stockholders elect each director annually. We do not have a classified board.

Related Person Transaction Policy. Our Nominating and Corporate Governance Committee is responsible for approving or ratifying transactions involving our Company and related persons and determining if the transaction is in, or not inconsistent with, the best interests of our Company and our stockholders. More information about our Related Person Transaction Policy and transactions can be found below in this section.

Stock Ownership Guidelines. Our directors and executive officers are required to own a minimum amount of IPG Photonics shares. We believe that stock ownership requirements align the interest of the directors and officers with our stockholders. Our directors and executive officers fully complied with our guidelines in 2013. In 2013, our Board increased the stock ownership requirements for our directors.

Prohibition on Hedging; Limits on Pledging. Our Insider Trading Policy expressly prohibits directors and employees from engaging in short sales of our common stock or buying or selling puts, calls or derivative securities in connection with IPG Photonics shares. In 2013, the Board adopted a policy to limit the pledging of our stock by directors and officers.
Additional information is provided below regarding these and certain other key corporate governance policies, which we believe enable us to manage our business in accordance with the highesthigh standards of business practices and in the best interest of our stockholders. Our corporate website includes additional information and copies of these policies, as noted below. MostMany policies may be found athttp://investor.ipgphotonics.com/governance.cfm. Note that information on our website does not constitute part of this proxy statement. Hard copies of these documents may be obtained without charge by any stockholder upon request by contacting the Office of the Secretary, IPG Photonics Corporation, 50 Old Webster Road, Oxford, Massachusetts 01540.
Corporate Governance Guidelines.Guidelines
Our Board has adopted Corporate Governance Guidelines that outline, among other matters, the roleroles and functions of the Board, the responsibilities of various Board


4

committees and the mission of the Board. Each of the Board committees has a written charter that sets forth the purposes, goals and responsibilities of the committee as well as qualification for committee membership, procedures for committee membership, appointment and removal, committee structure and operations and committee reporting to the full board.
entire Board.
The Governance Guidelines provide, among other things, that:
a majority of our Board must be independent;
• a majority of our Board must be independent;
• the presiding independent director presides over executive sessions of independent directors;
• the Board appoints all members of the Board committees;
• the Audit, Compensation, and Nominating and Corporate Governance Committees consist solely of independent directors;
• the independent directors meet periodically in executive sessions without the presence of the non-independent directors or members of our management;
• directors may not serve on the boards of more than three other public companies; and
• evaluations of the Board and committees are to be conducted annually.

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the Presiding Independent Director presides over executive sessions of independent directors;
the Board appoints all members and chairpersons of the Board committees;
the Audit, Compensation, and Nominating and Corporate Governance Committees consist solely of independent directors;
the independent directors meet periodically in executive sessions without the presence of the non-independent directors or members of our management;
directors may not serve on the boards of more than three other public companies;
evaluations of the Board and committees are conducted annually; and
the Board and key officers should have a meaningful financial stake in the Company.
The Board regularly reviews changing legal and regulatory requirements, evolving best practices and other developments. The Board modifies the Governance Guidelines and its other corporate governance policies and practices from time to time, as appropriate.
Executive Sessions. Our independent directors meet privately, without employee directors or management present, at least four times during the year. These private sessions are generally held in conjunction with the regular quarterly Board meetings. Other private meetings are held as often as deemed necessary by the independent directors. The Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee meet without employee directors or management present from time to time as they deem necessary.
Director Meetings and Policy Regarding Board Attendance. It has been the practice of our Board and its committees to hold at least four in-person regular meetings each year. The Board and its committees also have telephone meetings throughout the year. In accordance with our Governance Guidelines, our directors are expected to prepare for, attend and actively participate in meetings of the Board of Directors and meetings of committees on which they serve.its committees. Our directors are expected to spend the time needed at each meeting and to meet as frequently as necessary to properly discharge their responsibilities. We encourage members of our Board to attend annual meetings of stockholders, but we do not have a formal policy requiring them to do so.
Stock Ownership Guidelines. The Board adopted stock ownership guidelines to more closely align the interests of our directors and executive officers with those of our long-term stockholders. Under the guidelines, the following persons are expected to maintain a minimum investment in our common stock as follows: for non-employee directors, the lesser of 3,000 shares or onethree times their annual cash Board retainer (excluding committee retainers); for the Chief Executive Officer, the lesser of 7,500 shares or one times his annual salary; and for other executive officers, the lesser of 5,000 shares or one times their respective annual salaries. In 2013, the Board approved an increase in stock ownership requirements for non-employee directors to the level stated in the previous sentence. Vested equity compensation such as vested stock options and restricted stock, counts towards the stock ownership levels. Indirect ownership of shares through a separate legal entity counts toward fulfillment of the ownership guidelines. These ownership levels are to be achieved no later than four years after the election as a director or as an executive officer, except that prior to such time the director or officer is expected to retain a certain portion of stock issued upon exercise of stock options or issuancevesting of restricted stock under equity compensation plans after payment of the exercise price and taxesawards until the minimum ownership levels are attained. All directors and the named executive officers were in compliance with our stock ownership guidelines as of December 31, 2010.2013.
Board Self-Assessments. The Board conducts annual self-evaluations to determine whether it and its committees are functioning effectively. The Nominating and Corporate Governance Committee oversees the Board and committee self-assessments and the Board receives a report on its self-assessments annually. Each


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committee reviews and reassesses the adequacy of its charter annually and recommends any proposed changes. Each committee also annually reviews its own performance and reports the results to the Board.
Prohibition on Hedging.Hedging; Limits on Pledging. Under our insider trading policy,Insider Trading Policy, no employeedirector or directoremployee may engage in hedgingshorting shares of our common stock, or tradebuying or selling puts, calls or derivatives related to our common stock. In addition, the Board approved in 2013 limits on pledging. A director or officer of the Company may not pledge shares constituting more than 20% of his or her total stock ownership. Pledges of shares constituting 20% or less of total stock ownership are subject to certain conditions.
Director Orientation and Continuing Education. Upon joining the Board, directors are provided with an initial orientation about our Company,management, including our business operations, strategy and governance. New directors without previous experience as a director of a public company are expected to enroll in a director education program on the principles of corporate governance and director professionalism offered by a nationally-recognized sponsoring organization. We also provide orientation to directors who join a committee, including oversight responsibilities, policies and practices. We provide our directors with resources and ongoing educational

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opportunities to assist them in remaining abreast of developments in corporate governance and critical issues relating to the operation of public company boards. We pay for director education expenses and their membership inAll current directors are enrolled members of the National Association of Corporate Directors.Directors and we plan to enroll newly elected directors as well. We pay for membership dues and director education expenses. The Board also conducts periodic visits to major facilities of the Company facilities as part of its regularly scheduled Board meetings.
Nomination of Directors. The Nominating and Corporate Governance Committee considers candidates for director nominees proposed by directors and stockholders. This Committee may retain recruiting professionals and use director databases to assist in identifying and evaluating candidates for director nominees. The Board seeks members from diverse professional backgrounds with a reputation for integrity who do not have professional commitments that might unreasonably interfere with the demands and duties of a board member. Candidates for director are reviewed in the context of the current composition of the Board, the operating requirements of the Company and the long-term interests of the Company’s stockholders. The Nominating and Governance Committee seeks directors with a broad spectrum of experience and expertise. It seeks a Board that reflects diversity, including in the membership of the Board.experience, gender and ethnicity. It does not have formal objective criteria for determining the degree of diversity needed or present on the Board. Instead, it and the Board seek candidates with a range of experience. Board candidates are considered based upon various criteria, such as age, skills, knowledge,demonstrated excellence, leadership and significant experience in an area of endeavor, relevant expertise and experience and the ability to offer advice and guidance based upon that expertise, possession of high personal integrity and ethics, ability to read and understand financial statements, a commitment to representing the long-term interests of the Company's stockholders while keeping in perspective broad business judgmentthe interests of customers, suppliers and leadership, knowledge of relevant industry, technical or regulatory affairs, business creativity and vision, experienceemployees, and any other factors appropriate in the context of an assessment by the Nominating and Corporate Governance Committee of the needs of the Board at that time. Candidates for director should also have certain minimum qualifications, including the ability to read and understand basic financial statements, and must be over 21 years of age and possess the highest personal integrity and ethics. In addition, the Nominating and Corporate Governance Committee considers whether the individual satisfies criteria for independence as may be required by applicable regulations.
The Nominating and Corporate Governance Committee retained the search firm Heidrick & Struggles to assist in the search and evaluation of candidates for director which resulted in the nomination of Mr. Eric Meurice and Mr. Thomas Seifert for election to the Board at our 2014 annual meeting. See "Board of Directors -- Nominees for Directors" below.
The Nominating and Corporate Governance Committee has adopted a policy under which it will consider nominations by stockholders. The same identifying and evaluating procedures apply to all candidates for director nomination, including candidates submitted by stockholders. The Nominating and Corporate Governance Committee evaluates and interviews potential board candidates. All members of the Board may interview the final candidates.
Code of Business Conduct. We have a code of business conduct that applies to all of our directors and employees, including our Chief Executive Officer, Chief Financial Officer and other executive officers. Our code of business conduct includes provisions covering conflicts of interest, business gifts and entertainment, outside activities, compliance with laws and regulations, insider trading practices, antitrust laws, payments to government personnel, bribes or kickbacks, corporate record keeping and accounting records. The code of business conduct is posted on our website atwww.ipgphotonics.com. http://investor.ipgphotonics.com/governance.cfm.
Procedures for Submitting Complaints Regarding Accounting and Auditing Matters. We have procedures for the treatment of complaints regarding accounting, internal accounting controls, or auditing matters, fight against bribery, banking, and financial crime, including procedures for the confidential and anonymous submission by our directors, officers and employees of concerns regarding questionable accounting, internal accounting controls or auditing matters. These procedures are posted on our website atwww.ipgphotonics.com.


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http://investor.ipgphotonics.com/governance.cfm.
Director IndependenceBoard Leadership Structure
We follow director independence rules under NASDAQ listing standards and SEC rules. Our Nominating and Corporate Governance Committee has determined that Messrs. Blair, Child, Dalton, Gauthier and Hurley, and Dr. Krupke are “independent”Gapontsev, our Chief Executive Officer, also serves as defined by NASDAQ Rule 4200(a)(15). Our Nominating and Corporate Governance Committee has determined that no such member has a relationship that would interfere with the exercise of independent judgment in carrying out his responsibilities as a director.
EachChairman of the following committees of the BoardBoard. Our independent directors determined several years ago that, for effective board governance, it is composed solely of independent directors:
• the Audit Committee;
• the Compensation Committee; and
• the Nominating and Corporate Governance Committee.
Board Leadership Structure
In accordance with our Governance Guidelines, the Board has appointedimportant to have a presiding independent directordirector. Mr. Gauthier has been selected as the Presiding Independent Director for a term ending June 2014.
Dr. Gapontsev became our Chief Executive Officer and Chairman in 2000. His dual role was established fourteen years ago when the Board was first established. Our directors believe that each of the possible leadership structures for a board has its particular pros and cons which much be considered in the context of the specific

7


circumstances, culture and challenges facing a company, and that such consideration is the responsibility of a company’s board that has a diversity of views and experiences. Our directors come from a variety of organizational backgrounds and have direct experience with a wide range of leadership and management structures. The makeup of our Board puts it in a very strong position to evaluate the pros and cons of the various types of board leadership structures and to ultimately decide which structure is in the best interests of our stockholders.The independent directors believe that having Dr. Gapontsev serve in both capacities is in the best interest of the Company and its stockholders because it allows Dr. Gapontsev to more effectively execute the Company’s strategic initiatives and business plans. He is the founder of the Company and beneficially owns approximately 15.0% of the Company’s common stock. The combination of the roles of Chairman and Chief Executive Officer in Dr. Gapontsev creates clear and unambiguous authority, which is essential to effective management. The Board and management can respond more effectively to a clear line of authority. Further, given that he is closer to the Company’s business than any other Board member and he has the benefit of over 14 years of operations and leadership experience within the Company, Dr. Gapontsev is best-positioned to set the Board’s agenda and provide leadership. Dr. Gapontsev's extensive scientific and business experience also gives him vast industry knowledge, which the Board believes is critical for the chairman of the board of a company that operates in a highly technical industry. The combined Chairman/Chief Executive structure is a leadership model that has served our stockholders well for many years.

The Board also recognized the importance for a board to have in place, and build upon, a counterbalancing structure to ensure that it functions in an appropriately independent manner. As a result, the Board enhanced its governance structure several years ago by creating the position of Presiding Independent Director with leadership authority and responsibilities. The presiding independent director setsduties and responsibilities of the Presiding Independent Director include: setting the agenda for, and leads,leading, executive sessions of the independent directors,directors; providing consolidated feedback as appropriate, from those meetings to the Chairman and Chief Executive Officer. The presiding independent director providesOfficer; providing input on the agenda for boardBoard meetings; facilitatesperiodically providing feedback on the quality and quantity of information flow from management; having the the authority to call meetings of the independent directors; facilitating discussions outside of scheduled boardBoard meetings among the independent directors on key issues as required; and servesserving as a non-exclusive liaison with the Chairman and Chief Executive Officer in consultation with the other independent directors.directors; interviewing Board candidates as appropriate; and, commencing in 2014, leading the determination of the goals and objectives for the Chairman and Chief Executive Officer with the input of the independent directors and the annual performance evaluation for him with the input of the independent directors and providing that evaluation to the Compensation Committee. In June 2010, the event of a crisis, the Presiding Independent Director would have an increased role in crisis management oversight. The independent directors of our Board elected Mr. Gauthier as presidingthe Presiding Independent Director for the term ending June 2014, and this position is voted upon annually by our independent director.directors.
Dr. Gapontsev serves as our Chairman and Chief Executive Officer. He is the founder of the Company and beneficially owns approximately 19.9% of the Company’s stock. His dual role was established ten years ago when the Board was first established. The independent directors believe that at the Company’s current stage, Dr. Gapontsev’s in-depth knowledge of the Company’s operations and vision make him the best-qualified director to serve as Chairman. The Board hasbelieves that the position and responsibilities of a presiding independent director role as described above.
The Board also believes that its existing corporate governance practices achieveand the regular use of executive sessions of the independent oversight and management accountability, which isdirectors without the goal that many other companies seek to achieve by separating the roles of Chairman and Chief Executive Officer. IPG’s governance practices provide forOfficer or other executive officers present, along with the Company’s strong committee system and substantial majority of independent leadership, independent discussion among directors, and independent evaluation of, and communication with, members of senior management.
allow the Board to maintain effective oversight.
Risk Oversight
One of the Board’s primary roleroles in the Company is to provide general oversight of strategy and operations. The Board reviews strategy regularly with management and provides input to management. As part of its oversight of operations, the entire Board reviews and discusses the performance of the Company and the principal risks involved in the operations and management of the Company. The Board allocates risk oversight responsibility among the full Board, the independent directors and the three committees.standing committees of the Board. The Nominating and Corporate Governance Committee periodically reviews risk oversight matters and responsibilities, then makes recommendations to the Board to allocate risk oversight responsibilities.
The Board as a whole reviews risk management practices and a number of significant risks in the course of its reviews of corporate strategy, management reports and other presentations. The independent directors as a group oversee succession and resource planning. The Audit Committee oversees certain financial risks and recommends guidelines to monitor and control such risk exposures. The Compensation Committee reviews the Company’s executive compensation programs, their effectiveness at both linking executive pay to performance and aligning the interests of our executives and our stockholders, and oversees an entity-wide compensation risk assessment. The Nominating and Corporate Governance Committee reviews significant related party transactions with directors, executives and managers and may conduct negotiations on behalf of the Company. The Board’s risk oversight role does not interfere with the Company’sday-to-day management because two-thirds


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of the current directors and over

8


two-thirds of the director nominees are independent directors and therefore have no conflicts that might discourage critical review of the Company’s risks.
Related Person Transaction Policy and Transactions
RELATED PERSON TRANSACTIONS
The Board adopted a related person transaction policy that requires the Company’s executive officers, directors and nominees for director to promptly notify the Corporate Secretary in writing of any transaction in which (i) the amount exceeds $100,000, (ii) the Company is, was or is proposed to be a participant and (iii) such person or such person’s immediate family members (“Related Persons”) has, had or may have a direct or indirect material interest (a “Related Person Transaction”). Subject to certain exceptions in the policy, Related Person Transactions must be brought to the attention of the Nominating and Corporate Governance Committee for an assessment of whether the transaction or proposed transaction should be permitted to proceed.permitted. In deciding whether to approve or ratify the Related Person Transaction, the Nominating and Corporate Governance Committee considers relevant facts and circumstances. If the Nominating and Corporate Governance Committee determines that thea Related Person has a direct or indirect material interest in any such transaction, the Committee must review and approve, ratify or disapprove the Related Person Transaction.
Pursuant to our Governance Guidelines, we expect each of our directors to ensure that other existing and future commitments do not conflict with or materially interfere with his or her service as a director. Directors are expected to avoid any action, position or interest that conflicts with our interests or gives the appearance of a conflict. In addition, directors are required to inform the chairman of our Nominating and Corporate Governance Committee prior to joining the Board of another public company to ensure that any potential conflicts, excessive time demands or other issues are carefully considered.
In 2013, the Company purchased from Veeco Instruments Inc. equipment and services amounting to approximately $1,155,000. Mr. Verghese Mammen provides consultingPeeler, a non-employee member of our Board, is the Chief Executive Officer and Chairman of the Board of Veeco Instruments Inc. Veeco Instruments, Inc. was a provider of equipment and services to us, including assistance in managing our operations in India,the Company for several years before Mr. Peeler was elected to the Board. The Nominating and acts as a sales representative for us in India. Verghese Mammen isCorporate Governance reviewed and approved the fathertransactions with Veeco Instruments Inc., which were ordinary course of Timothy P.V. Mammen, our Chief Financial Officer. Consulting fees, commissions and business expense reimbursements paid to Verghese Mammen totaled $182,000 in 2010. Verghese Mammen also serves as a director of our Indian subsidiary, for which he receives no additional compensation.
transactions conducted on an “arm’s length” basis with the Company.
Stockholder Communication with our Board of Directors
StockholdersInterested parties wishing to write to the Board or a specified director or a committee of the Board should send correspondence to the Office of the Secretary, IPG Photonics Corporation, attention Secretary, 50 Old Webster Road, Oxford, Massachusetts 01540. All written communications received in such manner from stockholders of the Company will be forwarded to the members or committee of the Board to whom the communication is directed or, if the communication is not directed to any particular member(s) or committeecommittee(s) of the Board, the communication shall be forwarded to all members of the Board.
INFORMATION REGARDING THE BOARD OF DIRECTORS
John H. DaltonDr. William Krupke decided to not stand for re-election to our Board of Directors at our 20112014 annual meeting. IPG Photonics extends its sincere appreciation to Secretary DaltonDr. Krupke for the valuable contributions he provided to our Company and stockholders during his nearly eleven years of service to IPG as a directormember of our Board since 2000.
The Board currently has set the number of directors at nine. The number of directors will be set at ten directors from and his services as our President.


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after the 2014 annual meeting.
Nominees for Director
The following table sets forth certain information as of March 31, 2011April 1, 2014 regarding our incumbent directors nominated for re-election, and Michael R. Kampfe, a nominee for director.the director nominees. Each of our incumbent directors, other than Mr. Dalton, and Mr. KampfeDr. Krupke (who decided to not stand for re-election), has been nominated by the Board for election at our 20112014 annual meeting.meeting and there are two director nominees who are not currently directors, Messrs. Meurice and Seifert.

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Name Age 
Name
Age
Position
Valentin P. Gapontsev, Ph.D. 7275 Chief Executive Officer and Chairman of the Board
Eugene Scherbakov, Ph.D. 6366 Managing Director of IPG Laser GmbH, Senior Vice President, Europe and Director
Igor Samartsev 4851 Acting General Manager of NTO IRE-PolusChief Technology Officer and Director
Robert A. Blair 6467 Director
Michael C. Child 5659 Director
Henry E. Gauthier 7073 Director
William S. Hurley 6669 Director
Michael R. KampfeEric Meurice 6157 Nominee for Director
William F. Krupke, Ph.D. John R. Peeler 7459 Director
Thomas J. Seifert50Nominee for Director
Valentin P. Gapontsev, Ph.D.,founded IPG in 1990 and has been our Chief Executive Officer and Chairman of our Board of Directors since our inception. Prior to that time, he served as senior scientist in laser material physics and head of the laboratory at the Soviet Academy of Science’s Institute of Radio Engineering and Electronics in Moscow. He has over thirty years of academic research experience in the fields of solid state laser materials, laser spectroscopy and non-radiative energy transfer between rare earth ions and is the author of many scientific publications and several international patents. Dr. Gapontsev holds a Ph.D. in Physics from the Moscow Institute of Physics and Technology. In 2006, he was awarded the Ernst & Young® Entrepreneur of the Year Award for Industrial Products and Services in New England, and in 2009, he was awarded the Arthur L. Schawlow Award by the Laser Institute of America. Dr. Gapontsev servesIn 2011, he received the Russian Federation National Award in Science and Technology, and he was selected as both Chairman and Chief Executive Officer, a Fellow of the Optical Society of America. He is the founder of the Company and has successfully led the Company and the Board since the Company was formed. His scientific understanding along with his corporate vision and operational knowledge provide strategic guidance to the Company and the Board. For these reasons, he has been nominated to continue serving on the Board.Board.
Eugene Scherbakov, Ph.D.,has served as the Managing Director of IPG Laser GmbH, our German subsidiary, since August 2000 and has been a member of our Board of Directors since September 2000. He has served as Senior Vice President-Europe since February 2013. Dr. Scherbakov served as the Technical Director of IPG Laser from 1995 to August 2000. From 1983 to 1995, Dr. Scherbakov was a senior scientist in fiber optics and head of the optical communications laboratory at the General Physics Institute, Russian Academy of Science in Moscow. Dr. Scherbakov graduated from the Moscow Physics and Technology Institute with an M.S. in Physics. In addition, Dr. Scherbakov attended the Russian Academy of Science in Moscow, where he received a Ph.D. in Quantum Electronics from its Lebedev Physics Institute and a Dr.Sci. degree in Laser Physics from its General Physics Institute. Dr. Scherbakov has been nominated to continue serving on the Board because of his position as manager of IPG Laser GmbH and because of his extensive technological knowledge of fiber lasers and components and the manufacturing process. His service as an executive officer of the Company provides the Board with a detailed understanding of the Company’s operations.
Igor Samartsev has served as our Chief Technology Officer since 2011 and has been a member of our Board since February 2006. Since 2005, he has served as the actingDeputy General Manager of our Russian subsidiary, NTO IRE-Polus, since 2005.IRE-Polus. He served as the Technical Director of NTO IRE-Polus from 2000 to April 2005 and, from 1993 to 2001, he was the Deputy Director of NTO IRE-Polus. Mr. Samartsev holds an M.S. in Physics from the Moscow Institute of Physics and Technology. Mr. Samartsev is one of the founders of the Company and has a significant management role in the Company.Company as Chief Technology Officer. The Board values Mr. Samartsev’s understanding of technology developments at the needs of the Company’s growing Russian operations.Company. For these reasons, he has been nominated to continue serving on the Board.Board.


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Robert A. Blairhas served as a member of our Board of Directors since September 2000. Since January 1999, Mr. Blair has been the President of the Blair Law Firm P.C. Mr. Blair was a senior partner at the law firm of Manatt, Phelps &

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Phillips from 1995 to 1999. He was the managing partner of the law firm of Anderson, Hibey, Nauheim & Blair from 1981 to 1995. He is awas an independent trustee under Winkler Trusts from 1996 to 2012, previously the primary sources of equity for, and owners of, real estate ventures developed by The Mark Winkler Company.Company from 1996 to 2012. Mr. Blair is managing partner of several real estate partnerships, has been a manager/principal in cellular telephone ventures and assisted in the launch of a VoIP business. He is the founding Chairman and Chairman Emeritus of the S Corporation Association of America. Mr. Blair holds a B.A. in Mathematics from the College of William & Mary, where he previously served on its governing Board of Visitors, and a J.D. from the University of Virginia School of Law. HeLaw, where he was a member of the Virginia Law Review. Mr. Blair has been nominated to continue serving on the Board because of his extensive management and legal experience and his knowledge of international business transactions and government practice. Also, Mr. Blair has valuable experience from years of serving on compensation committees and negotiating numerous employment arrangements.
Michael C. Childhas served as a member of our Board of Directors since September 2000. Since July 1982, Mr. Child has been employed by TA Associates, Inc., a private equity investment firm, where he currently serves as Senior Advisor and prior to January 2011, was Managing Director. Since June 2010, he has served on the board of directors of Finisar Corporation, a developer and manufacturer of optical subsystems and components for networks. He previouslyalso has served ason the board of directors of Ultratech Inc. since April 2012. Ultratech is a directordeveloper and manufacturer of Finisar from 1998 to 2005.advanced packaging lithography systems and laser processing technologies. Mr. Child holds a B.S. in Electrical Engineering from the University of California at Davis and an M.B.A. from the Stanford University Graduate School of Business. Mr. Child has been nominated to continue serving on the Board because of his extensive knowledge of management, operations and finance of technology growth companies. In addition, he has extensive board and committee experience at both public and private companies.
Henry E. Gauthierhas served as a member of our Board of Directors since April 2006. Mr. Gauthier was President from February 2005 to May 2005, consultant from January 2004 to February 2005 and June 2005 to December 2006, and Chairman of the board of directors from May 2005 to December 2008, of Reliant Technologies, Inc., which was acquired in December 2008 by Solta Medical, Inc., a manufacturer of medical laser systems and one of our customers.systems. He served as Vice Chairman of the board of directors of Coherent, Inc., a manufacturer of photonic products, from October 2002 to March 2006. He served as Chairman of the board of directors of Coherent, Inc. from February 1997 to October 2002 and was its President from 1983 to 1996. Since July 1996, Mr. Gauthier has served as a principal at Gauthier Consulting. He was a member of the board of directors of Alara, Inc. from 1997 to 2010. Mr. Gauthier attended the United States Coast Guard Academy, San Jose State University, and the Executive Institute of the Stanford University Graduate Business School. Mr. Gauthier has been nominated to continue serving on the Board because of his extensive knowledge of the laser industry and his management and operational experience from over two decades as an executive at the world’s largest publicly held laser company. Having been a member of the audit, compensation, and nominating and corporate governance committees of public and private company boards in the technology field, Mr. Gauthier is familiar with a full range of corporate and board functions.functions.
William S. Hurleyhas served as a member of our Board of Directors since April 2006. Since April 2006, he has been principal of W. S.W.S. Hurley Financial Consulting, LLC, which provides supplemental chief financial officer services. From 2002 to April 2006, he was a partner with Tatum LLC, a nationwide executive services and consulting firm. He was Senior Vice President and Chief Financial Officer at Applied Science & Technology Inc., a developer, manufacturer and supporter of semiconductor capital equipment, from 1999 until 2001. He served as Vice President and Chief Financial Officer at Cybex International, Inc., a designer, manufacturer and distributor of fitness equipment, from 1996 to 1999. From 1992 to 1995, he was Vice President-Controller and Chief Accounting Officer at BBN Corporation, formerly known as Bolt, Beranek & Newman, Inc., a high technology company. From 1993 to 2004, Mr. Hurley was a member of the board of directors of The L. S.L.S. Starrett Company, a manufacturer of precision tooling, where he served on the audit and compensation committees. He holds a B.S. in Accounting from Boston College and an M.B.A. in Finance from the Columbia University Graduate School of Business, is a certified public accountant, and possesses a Certificate of Director Education issued by the National Association of Corporate Directors. HeMr. Hurley has been nominated to continue serving on the Board because of the extensive experience he gained during his service


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on the board of directors of The L. S.L.S. Starrett Company and his experience as a chief financial officer of threetwo public companies.
Michael R. KampfeisEric Meurice, a candidatenominee for director. Sincedirector, served as President and Chief Executive Officer of ASML Holding NV, a provider of semiconductor manufacturing equipment and technology, from October 2004 to June 2013, and as Chairman until March 2014. From 2001 he has been an independent consultant advising on general management and strategy matters, sales, tooling and manufacturing processes. From 1984 to 2000,2004, he was employed by GSI Group, a manufacturer of optical, scanning and laser components and system product lines, serving in several management positions as Vice President. His last position wasExecutive Vice President of Operations.the Thomson Television Division of Thomson, SA, an electronics manufacturer. From 1995 to 2001, he served as head of Dell Computer's Western, Eastern Europe and EMEA emerging market businesses. Before 1995, he gained significant technology experience at ITT Semiconductors and at Intel Corporation. Mr. Kampfe holdsMeurice served on the boards of Verigy Ltd. (a

11


manufacturer of semiconductor test equipment), until its acquisition by Advantest Corporation in 2011, ARM Holdings plc (a semiconductor intellectual property supplier) from July 2013 to March 2014 and NXP Semiconductors N.V. (a semiconductor company) since April 2014. Mr. Meurice earned a B.S.Master's degree in Mechanical Engineeringmechanics and energy generation at the Ecole Centrale de Paris, a Master's degree in Economics from Arizona Statela Sorbonne University, Paris, and he attendedan M.B.A. from the Executive Institute at Stanford University. He has a license in professional engineering. HeUniversity Graduate School of Business. Mr. Meurice has been nominated as a directorto serve on the Board because of his skills and experience as a manager of rapidly-growing, complex and global businesses in the capital equipment and electronics fields with several billions of dollars in revenues. He has experience managing and growing laser systems businesses. Mr. Kampfe has extensive knowledge of managing complex product lines, operations and sales functions,a publicly held company as well as managingexperience on serving on public company boards. Mr. Meurice also has a record of proven leadership as a strategic thinker, operator and expanding global operations thatmarketer at the Board believes will be helpful as the Company implements its growth strategies.businesses he managed.
William F. Krupke, Ph.D.,John R. Peelerhas served as a member ofor our Board of Directors since February 2001. Since 1999, Dr. KrupkeSeptember 2012. He has been Chief Executive Officer and a director of Veeco Instruments Inc. since July 2007. Veeco is a developer and manufacturer of MOCVD, molecular beam epitaxy, ion beam and other advanced thin film processes. He was Executive Vice President of a laser technologyJDS Uniphase Corp. (“JDSU”) and applications consulting firm (now WFK Lasers, LLC). From 1972 to 1999, Dr. Krupke worked at the Lawrence Livermore National Laboratory, which provides research and development services to various U.S. government departments, serving for the last twenty of such years as Deputy Associate DirectorPresident of the Laser Programs Directorate. Dr. Krupke holdsCommunications Test & Measurement Group of JDSU, which he joined upon the closing of JDSU’s merger with Acterna, Inc. (“Acterna”) in August 2005. Before joining JDSU, Mr. Peeler served as President and Chief Executive Officer of Acterna. He has a B.S. degreeand M.S. in Physics from Rensselaer Polytechnic Institute and M.A. and Ph.D. degrees in PhysicsElectrical Engineering from the University of California at Los Angeles. Dr. KrupkeVirginia. Mr. Peeler has been nominated to continue serving on the Board because of his deep technological knowledge of lasers from over four decades ofextensive experience in managing high-growth technology companies and his executive leadership of a publicly traded company with international operations. He has a wealth of knowledge about the fieldsservice needs of solid-state laserscustomers in demanding markets, including semiconductor capital equipment.
Thomas J. Seifert, nominee for director, has been the Executive Vice President and innovative laser materials. This providesChief Financial Officer of Symantec Corporation, a provider of security, backup and availability solutions, since March 2014. He served as Executive Vice President and Chief Financial Officer of Brightstar Corporation, a wireless distribution and services company, from December 2012 to March 2014. He was Senior Vice President and Chief Financial Officer at Advanced Micro Devices Inc., a semiconductor company, from October 2009 to August 2012, and served as Interim Chief Executive Officer from January 2011 to September 2012. From October 2008 to August 2009, Mr. Seifert served as Chief Operating Officer and Chief Financial Officer of Qimonda AG, a German memory chip manufacturer, and as Chief Operating Officer from June 2004 to October 2008. He also held executive positions at Infineon AG, White Oak Semiconductor, including the position as Chief Executive Officer, and Altis Semiconductor. Mr. Seifert has a Bachelor’s degree and a Master’s degree in Business Administration from Friedrich Alexander University and a Master’s degree in Mathematics and Economics from Wayne State University. Mr. Seifert has been nominated to serve on the Board with valuable insight regardingbecause of his extensive experience as both an operating executive and chief financial officer of several large publicly held international technology businesses.
Standing Committees and Board Committee Membership
The Board has a standing Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, each composed entirely of non-employee directors determined to be "independent" under the Company’s products and current technology, as well as the future technological needslisting standards of the CompanyNASDAQ stock market. Under their written charters adopted by the Board, each of these committees is authorized and the laser industry.
BOARD MEETINGS AND COMMITTEES
assured appropriate funding to retain and consult with external advisors, consultants and counsel.
The table below showssets forth the directors who are currently members or chairs of each of the standing Board committees, and the number of meetings held by each committee and the full Board and its committees, actions by written consent, as well as current committee memberships.in 2013. All incumbent directors attended 75% or more of the aggregate meetings of the Board and committees on which they served during fiscal 2010.2013. We encourage directors to attend the annual meeting of stockholders, but we do not have a formal policy.policy regarding such attendance. Last year, six of the directors in office attended the annual meeting.
 
         
        Nominating and
  Board of
     Corporate
  
Directors
 
Audit
 Compensation Governance
 
Meetings held in 2010 9 6 13 9
Written consents in 2010 — — 5 —
 
 
Valentin P. Gapontsev, Ph.D.  Chair      
Robert A. Blair Member   Chair  
Michael C. Child Member Member   Chair
John H. Dalton Member     Member
Henry E. Gauthier Member, and presiding
independent director		 Member    
William S. Hurley Member Chair Member  
William F. Krupke, Ph.D.  Member   Member Member
Eugene Scherbakov, Ph.D.  Member      
Igor Samartsev Member      

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Board of
Directors
 Audit Compensation 
Nominating
and
Corporate
Governance
Meetings held in 2013 5 7 11 8
Written consents in 2013 3 — — 1
Valentin P. Gapontsev, Ph.D. Chair      
Robert A. Blair Member   Chair Member
Michael C. Child Member Member   Chair
Henry E. Gauthier 
Member, and Presiding
Independent Director
 Member    
William S. Hurley Member Chair Member  
William F. Krupke, Ph.D. Member     Member
John R. Peeler Member   Member  Member
Igor Samartsev Member      
Eugene Scherbakov, Ph.D. Member      
 
The Audit Committee.Committee assists the Board by providing oversight of financial management, the internal auditor function and the independent auditor and providing oversight with respect to our internal controls including that management is maintaining an adequate system of internal control such that there is reasonable assurance that assets are safeguarded and that financial reports are properly prepared; that there is consistent application of generally accepted accounting principles; and that there is compliance with management’s financial reporting policies and procedures. The Audit Committee amongalso pre-approves auditing and permissible non-audit services by our independent auditor, reviews and discusses our annual and quarterly financial statements and related disclosures, and coordinates the oversight of our internal and external controls over financial reporting, disclosure controls and procedures and code of business conduct. In performing these functions, the Audit Committee meets periodically with the independent auditor, management and internal auditor function (including in private sessions) to review their work and confirm that they are properly discharging their respective responsibilities. In addition, the Audit Committee appoints the independent auditor. A copy of the charter of the Audit Committee is available on our website at http://investor.ipgphotonics.com/documents.cfm. For more information on Audit Committee activities in 2013, see the Audit Committee Report on page 40 of this proxy statement.

The Board has designated Mr. Hurley, the Chairman of the Audit Committee and an independent Director, as an “audit committee financial expert” under the rules and regulations of the SEC after determining that he meets the requirements for such designation. This determination was based on Mr. Hurley’s experience as chief financial officer at several publicly held companies, where he performed the functions of principal financial officer and principal accounting officer.

The primary function of the Compensation Committee is to discharge the Board’s duties and
responsibilities relating to compensation of our non-employee directors and executive officers, and oversee the design and management of the long-term incentive and savings plans that cover our employees. The Compensation Committee’s duties and responsibilities under its charter with respect to the compensation of our directors and executive officers include:

reviewing and approving the Chairman and Chief Executive Officer’s compensation based on the annual evaluation of his or her performance with input from the independent directors;
establishing the corporate goals and objectives relevant to the Chairman and Chief Executive Officer and his performance bonus. From 2014, the independent directors will establish and oversee these corporate goals and objectives and provide the evaluation to the Compensation Committee which retains responsibility for determining the performance bonus of the Chairman and Chief Executive Officer;
reviewing and approving compensation decisions recommended by the Chairman and Chief Executive Officer for the other things:executive officers, including setting base salaries, annual performance bonuses, long-term incentive awards, severance benefits and perquisites;
setting our compensation philosophy and composition of the group of peer companies used for comparison of executive compensation; and
• appoints, approves the fees of, and assesses the independence of our independent registered public accounting firm;

reviewing, and recommending for approval by the Board, the compensation for the non-employee directors.

11


13
• oversees the work of our independent registered public accounting firm, which includes the receipt and consideration of certain reports from the independent registered public accounting firm;
• resolves disagreements between management and our independent registered public accounting firm;
• pre-approves auditing and permissible non-audit services, and the terms of such services, to be provided by our independent registered public accounting firm;
• reviews and discusses with management and our independent registered public accounting firm our annual and quarterly financial statements and related disclosures;
• coordinates the oversight of our internal and external controls over financial reporting, disclosure controls and procedures and code of business conduct and ethics;
• establishes, reviews and updates our code of business conduct and ethics;
• establishes procedures for the receipt of accounting-related complaints and concerns;
• meets independently with our independent registered public accounting firm and management;
• prepares the Audit Committee report required by SEC rules to be included in our proxy statements; and
• performs any other activities as such committee or the Board determines or is required by the Company’s charter or by-laws or applicable law.


The Compensation Committee has retained an independent compensation consultant firm, Radford, a unit of Aon Hewitt ("Radford"), for matters related to executive officer and director compensation. Radford does not provide any other services to the Company. The compensation consultant reports directly to the Committee. The Compensation Committee also retains outside legal counsel to provide advice on compensation-related matters, including executive officers, directors and compensation plans. For further discussion of the role of the Compensation Committee in the executive compensation decision-making process, and for a description of the nature and scope of the consultant’s assignment, see “Compensation Discussion and Analysis - How Executive Compensation is Determined” on page 24 of this proxy statement. Additionally, the Compensation Committee reviews the Compensation Discussion and Analysis, prepares the Compensation Committee Report in this proxy statement on page 19 and oversees management’s risk assessment of the Company’s compensation for all employees and compensation-related risks as delegated by the Board. A copy of the charter of the Compensation Committee can be found on our website at http://investor.ipgphotonics.com/documents.cfm.

The Nominating and Corporate Governance Committee is responsible for overseeing matters of corporate governance, including the evaluation of the performance and practices of the Board. The Nominating and Corporate Governance Committee has determined that Mr. Hurley, Chairdevelops and recommends criteria for Board membership, reviews possible candidates for the Board, as discussed on page 7 of this proxy statement, and recommends the Audit Committee, qualifies as an “audit committee financial expert,” as defined undernominees for directors to the Securities Exchange Act of 1934, as amended, and the applicable rules of the NASDAQ Global Market.
Compensation Committee.  The Compensation Committee, among other things:
• annually reviews and approves base salary, short-term and long-term incentive compensation, perquisites and other benefits for our Chief Executive Officer, other officers and key executives;
• reviews and approves corporate goals and objectives relevant to compensation of our Chief Executive Officer, other officers and key executives;
• evaluates, along with input of the independent directors, the performance of our Chief Executive Officer in light of our corporate goals and objectives and determines the compensation of our Chief Executive Officer;
• periodically reviews compensation practices, procedures and policies throughout the Company;
• reviews and approves employment and severance agreements for our Chief Executive Officer, other officers and key executives;
• appoints and approves the fees of the independent compensation consultant assisting in the evaluation of Chief Executive Officer, senior executives and director compensation, and obtains advice from legal, accounting and other advisors as it deems appropriate;
• reviews and recommends to the Board compensation for non-employee members of the Board;
• administers Company equity-based compensation plans;
• reviews management’s risk assessment of the Company’s compensation policies and practices for all employees;
• reviews the compensation discussion and analysis and prepares the Compensation Committee Report required by SEC rules to be included in our proxy statement;
• reviews the activities of the saving plan committee; and
• performs any other activities as such committee or the Board determines or is required by the Company’s charter or by-laws or applicable law.


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Board for approval. In addition, the Nominating and Corporate Governance Committee.Committee oversees the process for annual performance evaluations of the committees of the Board. It is also within the responsibilities of the Nominating and Corporate Governance Committee to review and recommend director orientation, stock ownership guidelines, delegation of authority to management, insider trading guidelines, and consider questions of possible conflicts of interest, including related party transactions, as such questions arise. The Nominating and Corporate Governance Committee among other things:also reviews and recommends risk oversight responsibilities of the Board and its committees. A copy of the charter of the Nominating and Corporate Governance Committee can be found on our website at http://investor.ipgphotonics.com/documents.cfm.
• develops and recommends to the Board criteria for board membership;
• recommends to the Board changes that the Committee believes to be desirable with regard to the appropriate size, functions and needs of the Board;
• identifies and evaluates director candidates, including nominees recommended by our stockholders;
• identifies individuals qualified to fill vacancies on any committee of the Board;
• reviews procedures for stockholders to submit recommendations for director candidates;
• recommends to the Board the persons to be nominated for election as directors and to each of the Board’s committees;
• reviews the performance of the Committee and evaluates its charter periodically;
• develops and recommends to the Board a set of corporate governance guidelines; and
• reviews and approves related party transactions.
Compensation Committee Interlocks and Insider Participation
No member of our Compensation Committee is or has been an officer or employee of our Company or any of our subsidiaries. In addition, no member of our Compensation Committee has had any related person transactions that require disclosure under the SEC’s proxy rules and regulations.
DIRECTOR COMPENSATION
The objectives for our non-employee director compensation program are to attract highly-qualified individuals to serve on our Board and align their interests with those of our stockholders. Our non-employee directors are paid pursuant to our non-employee director compensation plan described below. Our Compensation Committee reviews our director compensation program annually to confirm that the program remains appropriate and competitive and recommends any changes to our full Board for consideration and approval.
Director Compensation Plan
Our non-employee director compensation plan provides for both cash and equity compensation for our non-employee directors. Directors who are also our employees receive no additional compensation for their service as directors. The Compensation Committee engaged Radford, Surveys + Consulting, a unit of Aon Consulting (“Radford”), an independent compensation consultant firm, to provide a comprehensive review of compensation for non-employee directors and to make recommendations with regard to director compensation matters.


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Cash Compensation.
Our non-employee directors receive the annual retainers from us set forth in the table below. Directors do not receive separate fees for attending Board or committee meetings or meetings of the Board, committees or stockholders.
 
     
  Amount
 
Board Retainer $40,000 
Presiding Independent Director Retainer $20,000 
Audit Committee Retainers    
Chair $22,500 
Non-Chair $10,000 
Compensation Committee Retainers    
Chair $20,000 
Non-Chair $7,500 
Nominating and Corporate Governance Committee Retainers    
Chair $2,500 
Non-Chair $5,000 

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In June 2010, the non-employee director compensation plan was amended to provide compensation for the new position of presiding independent director. In January 2011, the Compensation Committee retained Radford to conduct a review of non-employee director compensation. Based upon information from a peer group and the increase in the time commitment and work load of the committee chairs due to new laws, compliance requirements and oversight responsibilities, the Board approved effective March 1, 2011, an increase to the Board retainer by $5,000, increases of the retainers for the Audit Committee and the Nominating and Corporate Governance Committee chairs by $2,500, and an increase for the Compensation Committee chair by $5,000. These changes are reflected in the table above.
 Amount    
Board Retainer$40,000
Presiding Independent Director Retainer$20,000
Audit Committee Retainers 
Chair$22,500
Non-Chair$10,000
Compensation Committee Retainers 
Chair$20,000
Non-Chair$7,500
Nominating and Corporate Governance Committee Retainers 
Chair$12,500
Non-Chair$5,000
Equity Compensation.
Under our non-employee director compensation plan, non-employee directors continuing in office after eachthe annual meeting of stockholders receivereceives a grant of stock options to purchase 6,6676,500 shares of common stock and restricted stock units for 1,0001,100 shares of common stock vesting in a single installment on the earlier of the one-year anniversary of the date of grant or the next annual meeting of stockholders. The presiding independent directorPresiding Independent Director receives options to purchase an additional 3,3333,250 shares of common stock and restricted stock units for an additional 500 restricted stock units.550 shares of common stock. Upon initial election to the Board, each new non-employee director receives a grant of stock options to purchase 25,00018,750 shares of our common stock and restricted stock units for 3,125 shares of common stock vesting 25% on the first anniversaryfour anniversaries of the date of grant and 6.25% on each of the next twelve quarters.grant. No new directors were elected in 2013. The exercise price of each of these stock options is the closing market price of our common stock on the date of grant. The non-employee director compensation plan provides that with respect to options and restricted stock units granted after the adoption of the plan, any director who retires after at least eight years of service on the Board will be entitled to full vesting of all options and restricted stock units then held by such director.


14

Director Compensation Table
The following table summarizes the compensation of each of our non-employee directors for the fiscal year ended December 31, 2010:in 2013:
                 
  Fees Earned
          
  or Paid in
  Stock Awards
  Option Awards
    
Name
 Cash ($)  ($)  ($)(1)  Total ($) 
 
Robert A. Blair  50,000   15,360   29,214   94,574 
Michael C. Child  55,000   15,360   29,214   99,574 
John H. Dalton  40,000   15,360   29,214   84,574 
Henry E. Gauthier  60,487   26,035   54,227   140,749 
William S. Hurley  61,618   15,360   29,214   106,192 
William F. Krupke  47,500   15,360   29,214   92,074 
Name 
Fees Earned
or Paid in
Cash ($)
 
Stock
Awards
($)(1)
 
Option
Awards
($)(1)
 Total ($)
Robert A. Blair 65,000
 66,000
 166,588
 297,588
Michael C. Child 62,500
 66,000
 166,588
 295,088
Henry E. Gauthier 70,000
 99,000
 249,882
 418,882
William S. Hurley 70,000
 66,000
 166,588
 302,588
William F. Krupke, Ph.D. 42,500
 66,000
 166,588
 275,088
John R. Peeler 50,787
 66,000
 166,588
 283,375
 
(1)Valuation based on the fair value of the restricted stock unit and stock option awards as of the grant date determined pursuant to Financial Accounting Standards Board Accounting Standards Codification Topic 718 (“ASC Topic 718”), with respect to 2010.2013. The assumptions that we used with respect to the valuation of restricted stock unit and stock option awards are set forth in Note 2 to our Consolidated Financial Statements in our Annual Report onForm 10-K filed with the SEC on March 15, 2011.February 28, 2014. On June 8, 2010,4, 2013, each director then serving on the Board was granted restricted stock units for 1,0001,100 shares of common stock and options to purchase 6,6676,500 shares of common stock at an exercise price of $15.36$60.00 per share. In addition, Mr. Gauthier, the presiding independent director,Presiding Independent Director, was granted on August 5, 2010,the same day additional restricted stock units for 500550 shares of common stock and additional options to purchase 3,3333,250 shares of common stock at an exercise price of $21.35$60.00 per share. Both restricted stock units and options vest in a single installment on the earlier of the one-year anniversary of the date of grant or of the next annual meeting of stockholders.June 3, 2014.

In February 2014, the Board approved several changes to the non-employee director compensation. Based upon a review conducted by Radford, the Compensation Committee’s independent compensation consultant, the Compensation Committee recommended changes to the plan which were approved by the Board. The material amendments include (a) a change in the initial equity grant to new directors from 18,750 stock options and 3,125 restricted stock units to a dollar value grant of $250,000 in stock options and $250,000 in restricted stock units

15


vesting over four years, (b) the elimination of the annual grant of additional equity compensation to the Presiding Independent Director, (c) an increase in the cash retainer for all committee members and chairs by $2,500, except that the cash retainer for the chair of the Nominating and Corporate Governance Committee increases by $5,000, and (d) the pro-ration of the first annual equity grant to new directors based upon the date of their initial election to the Board. The changes to the non-employee director compensation plan are effective June 3, 2014.
Outstanding Equity Awards Table
The following table provides information regarding unexercised stock options and unvested restricted stock units held by each of our non-employee directors on December 31, 2010:2013:
             
  Unvested Restricted
  Total Option
  Exercisable Option
 
  Stock Units
  Awards Held
  Awards
 
Name
 (#)  (#)  (#) 
 
Robert A. Blair  1,000   20,001   8,334 
Michael C. Child  1,000   23,334   11,667 
John H. Dalton  1,000   53,335   41,668 
Henry E. Gauthier  1,500   40,001   25,001 
William S. Hurley  1,000   46,668   35,001 
William F. Krupke  1,000   28,335   16,668 
Name 
Unvested
Restricted
Stock Units
(#)
 
Total Option
Awards
Held
(#)
 
Exercisable
Option
Awards
(#)
Robert A. Blair 1,100
 19,834
 13,334
Michael C. Child 1,100
 43,168
 36,668
Henry E. Gauthier 1,650
 44,752
 25,002
William S. Hurley 1,100
 39,835
 33,335
William F. Krupke, Ph.D. 1,100
 19,834
 13,334
John R. Peeler 1,100
 31,500
 6,250

We also reimburse directors for all reasonableout-of-pocket expenses incurred for attending Board and committee meetings and director education programs. Non-employee directors do not receive any additional payments or perquisites.
Our certificate of incorporation limits the dollar amount of personal liability of our directors for breaches by them of their fiduciary duties. Our certificate of incorporation requires us to indemnify our directors to the fullest extent permitted by the Delaware General Corporation Law. We have also entered into indemnification agreements with all of our directors and we have purchased directors’ and officers’ liability insurance.


15

INFORMATION REGARDINGCOMMON STOCK OWNERSHIP
The following table provides information about the beneficial ownership of our common stock as of April 1, 20112014 by:
each person or entity known by us to own beneficially more than five percent of our common stock;
• each person or entity known by us to own beneficially more than five percent of our common stock;
• each of the Named Executive Officers;
• each person who is a director or nominee; and
• 
each of the Named Executive Officers;
each person who is a director or nominee; and
all of our executive officers and directors as a group.
In accordance with SEC rules, beneficial ownership includes any shares for which a person or entity has sole or shared voting power or investment power and any shares for which the person or entity has the right to acquire beneficial ownership within 60 days after April 1, 20112014 through the exercise of any option, warrant or otherwise. Percentage of beneficial ownership is based on 47,228,16552,014,775 shares of common stock outstanding as of April 1, 2011.2014. The contact address of all persons and entities in the table below (other than Artisan Partners Limited Partnership, Columbia WagnerWanger Asset Management, LLC)LLC and T. Rowe Price Associates, Inc.) is in care of IPG Photonics Corporation, 50 Old Webster Road, Oxford, Massachusetts 01540.

16
                 
     Shares
       
     Underlying,
       
     Options
       
  Shares
  Exercisable
       
  Owned
  Within 60 Days
  Total
  Percent
 
Name
 (#)  (#)  (#)  (%) 
 
Robert A. Blair  32,538   8,334   40,872   * 
George BuAbbud, Ph.D.   49,998   96,751   146,749   * 
Michael C. Child  5,912   11,667   17,579   * 
Columbia Wagner Asset Management, LLC(1)  4,740,500   —   4,740,500   10.0 
John H. Dalton  38,624   41,668   80,292   * 
Valentin P. Gapontsev, Ph.D.(2)  9,406,933       9,406,933   19.9 
Henry E. Gauthier  21,000   15,001   36,001   * 
William S. Hurley  4,000   25,001   29,001   * 
IP Fibre Devices (UK) Ltd.   7,504,002       7,504,002   15.9 
Michael R. Kampfe  —   —   —   * 
William F. Krupke, Ph.D.   1,000   16,668   17,668   * 
Angelo P. Lopresti(3)  16,541,691   57,917   16,559,608   35.1 
Timothy P.V. Mammen  45,999   30,729   76,728   * 
Alexander Ovtchinnikov, Ph.D.   102,956   20,688   123,644   * 
Nikolai Platonov, Ph.D.(4)  16,504,002   1,500   16,505,502   34.9 
Igor Samartsev(5)  928,789   15,287   944,076   2.0 
Eugene Scherbakov, Ph.D.(6)  1,000,000   15,483   1,015,483   2.2 
William Shiner  12,496   2,157   14,653   * 
The Valentin Gapontsev Trust I(7)  15,504,002       15,504,002   32.8 
All executive officers and directors as a group (15 persons)  19,687,934   357,351   20,045,285   42.1 


Name 
Shares
Owned
 
Right to
Acquire
Shares within
60 Days
 Total Percent
The Valentin Gapontsev Trust I (1) 15,094,668
 —
 15,094,668
 29.0%
Valentin P. Gapontsev, Ph.D. (2) 7,821,933
 —
 7,821,933
 15.0%
IP Fibre Devices (UK) Ltd. 7,266,002
 —
 7,266,002
 14.0%
Artisan Partners Limited Partnership (3) 3,892,196
 —
 3,892,196
 7.5%
Columbia Wanger Asset Management, LLC (4) 2,595,550
 —
 2,595,550
 5.0%
T. Rowe Price Associates, Inc. (5) 3,190,830
 —
 3,190,830
 6.1%
Robert A. Blair 35,538
 13,334
 48,872
 *%
Michael C. Child 8,912
 36,668
 45,580
 *%
Henry E. Gauthier 13,000
 35,002
 48,002
 *%
William S. Hurley 8,667
 33,335
 42,002
 *%
William F. Krupke, Ph.D. 11,700
 13,334
 25,034
 *%
Eric Meurice —
 —
 —
 *%
John R. Peeler —
 9,375
 9,375
 *%
Igor Samartsev (6)(7) 905,460
 36,875
 942,335
 1.8%
Eugene Scherbakov, Ph.D. (6)(8) 17,065,235
 9,313
 17,074,548
 32.8%
Thomas J. Seifert —
 —
 —
 *%
Angelo P. Lopresti (8) 17,103,094
 35,188
 17,138,282
 32.9%
Timothy P.V. Mammen 16,736
 49,063
 65,799
 *%
Alexander Ovtchinnikov, Ph.D. (8) 17,165,961
 6,563
 17,172,524
 33.0%
Trevor D. Ness 883
 16,875
 17,758
 *%
Nikolai Platonov, Ph.D. (6)(8) 16,064,668
 4,875
 16,069,543
 30.9%
Felix Stukalin 316
 10,688
 11,004
 *%
All executive officers and directors as a group
(14 persons)
 18,762,097
 310,488
 19,072,585
 36.5%
 
*Less than 1.0%.
(1)The address of Columbia Wagner Asset Management, LLC is 227 West Monroe Street, Suite 3000, Chicago, IL 60606.


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(2)Includes 7,266,002 shares beneficially owned by IP Fibre Devices (UK) Ltd. (“IPFD”), in which the Valentin Gapontsev Trust I, a trust formed by Dr. Gapontsev (the “Gapontsev Trust I”), has a 48% economic interest. The trustees of the Gapontsev Trust I are Drs. Ovtchinnikov, Platonov and Scherbakov and Mr. Lopresti. Each of the individual trustees disclaims beneficial ownership of the shares held by the Gapontsev Trust I. See note 8 below.
(2)Includes 7,266,002 shares beneficially owned by IPFD, of which Dr. Gapontsev is the sole managing director. Dr. Gapontsev has sole voting and investment power with respect to the shares held of record by IPFD. Dr. Gapontsev has a 5%3% economic interest in IPFD.
(3)The address of Artisan Partners Limited Partnership is 875 East Wisconsin Avenue, Suite 800, Milwaukee, WI 53202. Based solely on a Schedule 13G/A filed with the SEC on March 24 , 2014.
Includes 15,504,002 shares owned by The Valentin Gapontsev Trust I (the “Gapontsev Trust I”), and 1,000,000 shares owned by The Valentin Gapontsev Trust II (the “Gapontsev Trust II”), of each of which Mr. Lopresti is a trustee. Mr. Lopresti disclaims beneficial ownership of the shares held by the Gapontsev Trust I and the Gapontsev Trust II.
(4)The address of Columbia Wanger Asset Management, LLC is 227 West Monroe Street, Suite 3000, Chicago, IL 60606. Based solely on a Schedule 13G/A filed with the SEC on February 6, 2014.
Includes 15,504,002 shares owned by the Gapontsev Trust I, and 1,000,000 shares owned by the Gapontsev Trust II, of each of which Dr. Platonov is a trustee. Dr. Platonov disclaims beneficial ownership of the shares held by the Gapontsev Trust I and the Gapontsev Trust II.
(5)These securities are owned by various individual and institutional investors which T. Rowe Price Associates, Inc. (“Price Associates”) serves as an investment advisor with power to direct investments and/or sole power to vote the securities. For the purposes of the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities. The address of T. Rowe Price Associates, Inc. is 100 E. Pratt Street, Baltimore, MD 21202. Based solely on a Schedule 13G filed with the SEC on February 12, 2014.
(6)Does not include shares held by IPFD. Mr. SamartsevEach such person has an 8% economic interest in IPFD but does not possess voting or investment power with respect to such interest. Also includesEach disclaims beneficial ownership of the shares held by IPFD except to the extent of his economic interest therein.
(7)Includes 550,000 shares held by a trust of which Mr. Samartsev’s wife is the sole trustee. Mr. Samartsev disclaims beneficial ownership of the shares held in such trust.

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(6)(8)Includes 1,000,000(a) 15,094,668 shares beneficially owned by the Gapontsev Trust I, (b) 970,000 shares beneficially owned by the Valentin Gapontsev Trust II, a trust formed by Dr. Gapontsev (the “Gapontsev Trust II”), and (c) 1,000,000 shares beneficially owned by the Valentin Gapontsev Trust III, a trust formed by Dr. Gapontsev (the “Gapontsev Trust III”), of each of which Dr.Drs. Ovtchinnikov and Scherbakov and Mr. Lopresti is a trustee. Dr. Scherbakov disclaims beneficial ownership of the shares held by the Gapontsev Trust II. Does not include shares held by IPFD. Dr. Scherbakov has an 8% economic interest in IPFD but does not possess voting or investment power with respect to such interest.
(7)Includes 7,504,002 shares beneficially owned by IPFD, of which the Gapontsev Trust I hasPlatonov is a 48% economic interest. The trusteestrustee of the Gapontsev Trust I are Dr. Platonov and Mr. Lopresti.the Gapontsev Trust II and his beneficial ownership excludes shares beneficially owned by the Gapontsev Trust III.
PROPOSAL 1: ELECTION OF DIRECTORS
The stockholders are being asked to elect Dr. Gapontsev, Dr. Scherbakov, Mr. Samartsev, Mr. Blair, Mr. Child, Mr. Gauthier, Mr. Hurley, Mr. KampfeMeurice, Mr. Peeler and Dr. KrupkeMr. Seifert to terms ending with the annual meeting to be held in 2012,2015, until a successor is elected and qualified or until his or her earlier death, resignation or removal. The Board nominated each of these individuals for election at the 20112014 annual meeting of stockholders upon the recommendation of the Nominating and Corporate Governance Committee. Each nominee is currently a director of our company, except for Mr. Kampfe.other than Messrs. Meurice and Seifert. For more information regarding the nominees for director, see“Information Regarding the Board of Directors.”
The Board does not contemplate that any of the nominees will be unable to stand for election, but should any nominee become unable to serve or for good cause will not serve, all proxies (except proxies marked to the contrary) will be voted for the election of a substitute nominee nominated by the Board.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” ALL OF THE NOMINEES FOR DIRECTOR


17

AUDIT COMMITTEE REPORT
The primary role of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities by reviewing the financial information proposed to be provided to stockholders and others, the adequacy of the system of internal control over financial reporting and disclosure controls and procedures established by management and the Board, and the audit process and the independent auditors’ qualifications, independence and performance.
Management has primary responsibility for the financial statements and is responsible for establishing and maintaining the Company’s system of internal controls and for preparation of the Company’s financial statements. The Company’s independent registered public accounting firm, Deloitte & Touche LLP, is responsible for performing an integrated audit of the Company’s consolidated financial statements and the effectiveness of internal controls over financial reporting in accordance with standards of the Public Company Accounting Oversight Board (United States) (PCAOB) and issuing an opinion on the financial statements and the effectiveness of internal controls over financial reporting. The Audit Committee has met and held discussions with management and the Company’s independent auditors, and has also met separately with the Company’s independent auditors, without management present, to review the adequacy of the Company’s internal controls, financial reporting practices and audit process.
The Audit Committee has reviewed and discussed the Company’s audited consolidated financial statements for the year ended December 31, 2010 with management and the independent auditors. As part of this review, the Audit Committee discussed with Deloitte & Touche LLP the required communications described in Statement on Auditing Standards No. 61, as amended,Communication with Audit Committees,and those matters required to be reviewed pursuant toRule 2-07 ofRegulation S-X as well as the results of their audit of the effectiveness of internal controls over financial reporting.
The Audit Committee has received from Deloitte & Touche LLP a written statement describing all relationships between that firm and the Company that might bear on the auditors’ independence, consistent with PCAOB Ethics and Independence Rule 3526,Communications with Audit Committees Concerning Independence. The Audit Committee has discussed the written statement with the independent auditors and has considered whether the independent auditors’ provision of any other non-audit services to the Company is compatible with maintaining the auditors’ independence.
Based on the above-mentioned reviews and discussions with management and the independent auditors, the Audit Committee recommended to the Board of Directors that the Company’s audited consolidated financial statements be included in its Annual Report on Form10-K for the year ended December 31, 2010, as filed with the SEC.
AUDIT COMMITTEE
William S. Hurley,Chair
Michael C. Child
Henry E. Gauthier
March 9, 2011


18

PROPOSAL 2: RATIFICATION OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP currently serves as our independent registered public accounting firm and audited our consolidated financial statements for the year ended December 31, 2010. Our Audit Committee has appointed Deloitte & Touche LLP to serve as our independent registered public accounting firm for 2011, and to conduct an integrated audit of our consolidated financial statements for the year ending December 31, 2011 and of our internal control over financial reporting as of December 31, 2011.
Our Audit Committee is responsible for selecting and appointing our independent registered public accounting firm, and this appointment is not required to be ratified by our stockholders. However, our Audit Committee has recommended that the Board submit this matter to the stockholders as a matter of good corporate practice. If the stockholders fail to ratify the appointment, the Audit Committee will reconsider whether to retain Deloitte & Touche LLP, and may retain that firm or another without re-submitting the matter to our stockholders. Even if the appointment is ratified, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our stockholders.
We expect that representatives of Deloitte & Touche LLP will attend the meeting, will have an opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions.
Fees Paid to Deloitte & Touche.  The fees for services provided by Deloitte & Touche LLP, member firm of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, “Deloitte & Touche”), to the Company in the last three fiscal years were as follows:
             
  Fees 
Fee Category
 2010  2009  2008 
 
Audit fees $903,050  $849,330  $923,363 
Tax fees  —   —   — 
Total Fees $903,050  $849,330  $923,363 
             
Audit fees.  These fees comprise fees for professional services rendered in connection with the audit of the Company’s consolidated financial statements that are customary under auditing standards generally accepted in the United States. Audit fees also include fees for consents and reviews related to SEC filings and quarterly services with respect to the preparation of our unaudited quarterly financial statements.
Tax fees.  Fees for tax services would consist of fees for tax compliance services and tax planning and advice services.
Tax compliance services are services rendered based upon facts already in existence or transactions that have already occurred to document, compute and obtain government approval for amounts to be included in tax filings and consisted of (i) federal, state and local income tax return assistance, (ii) sales and use, property and other tax return assistance and (iii) assistance with tax audits and appeals.
Tax planning and advice are services rendered with respect to proposed transactions or that alter a transaction to obtain a particular tax result. Such services consisted of tax advice related to (i) certain internal legal restructuring actions and other intra-group restructuring actions, (ii) transfer pricing and (iii) other miscellaneous consultations.
Policy on Pre-Approval of Audit and Permissible Non-Audit Services.  The Audit Committee pre-approves all audit and permissible non-audit services provided by the independent registered public accounting firm. These services may include audit services, audit-related services and tax services as well as specifically designated non-audit services that, in the opinion of the Audit Committee, will not impair the independence of the independent registered public accounting firm. Pre-approval is generally provided for each fiscal year, and


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any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent registered public accounting firm and our management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with this pre-approval, including the fees for the services performed to date. In addition, the Audit Committee also may pre-approve particular services on acase-by-case basis, as required.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE RATIFICATION OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2011
INFORMATION REGARDING EXECUTIVES
EXECUTIVE OFFICERS
The following table sets forth certain information regarding our executive officers as of March 31, 2011.April 1, 2014.
 
Name Age 
Name
Age
Position
Valentin P. Gapontsev, Ph.D. 7275 Chief Executive Officer and Chairman of the Board
Eugene Scherbakov, Ph.D. 6366 Managing Director of IPG Laser GmbH, Senior Vice President, Europe and Director
Timothy P.V. Mammen 4144 Chief Financial Officer and Senior Vice President
Angelo P. Lopresti 4750 General Counsel, Secretary and Senior Vice President
Alexander Ovtchinnikov, Ph.D. 5053 Senior Vice President-ComponentsPresident, Components
George H. BuAbbud, Ph.D. Trevor D. Ness 5641 Senior Vice President-Telecommunications ProductsPresident, World Wide Sales
Igor Samartsev 4851 Acting General Manager of NTO IRE-PolusChief Technology Officer and Director
William S. ShinerFelix Stukalin 6952 Senior Vice President-Industrial MarketsPresident, U.S. Operations
The biographies of Dr. Gapontsev, Dr. Scherbakov and Mr. Samartsev are presented on Page 9.page 10. The biographies of our other executive officers are presented below.
Timothy P.V. Mammenhas served as our Chief Financial Officer since July 2000 and a Vice President since November 2000. He was promoted to Senior Vice President in February 2013. Between May 1999 and July 2000, Mr. Mammen served as the Group Finance Director and General Manager of the United Kingdom operations for IPFD. Mr. Mammen was Finance Director and General Manager of United Partners Plc, a commodities trading firm, from 1995 to 1999 and prior to that he worked in the finance department of E.I. du Pont de Nemours and Company. Mr. Mammen holds an Upper Second B.Sc. Honours degree in International Trade and Development from the London School of Economics and Political Science andScience. Also, he is a Chartered Accountant and a member of the Institute of Chartered Accountants of Scotland.
Angelo P. Loprestihas served as our General Counsel and Secretary and one of our Vice Presidents since February 2001. He was promoted to Senior Vice President in February 2013. Prior to joining us, Mr. Lopresti was a partner at the law firm of Winston & Strawn LLP from 1999 to 2001. Prior to that, he was a partner at the law firm of Hertzog, Calamari & Gleason from 1998 to 1999 and an associate there from 1991 to 1998. Mr. Lopresti holds a B.A. in Economics from Trinity College and a J.D. from the New York University School of Law.

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Alexander Ovtchinnikov, Ph.D.,has served as our Vice President, Components, since September 2005 and as Director of Material Sciences from October 2001 to September 2005. He was promoted to Senior Vice President in February 2013. Prior to joining us, Dr. Ovtchinnikov was Material Science Manager of Lasertel, Inc., a maker of high-power semiconductor lasers, from 1999 to 2001. For 15 years prior to joining Lasertel, Inc., he worked on the development and commercialization of high power diode pump technology at the Ioffe Institute, Tampere University of Technology, Coherent, Inc. and Spectra-Physics Corporation. He holds an M.S. in Electrical Engineering from the Electrotechnical University of St. Petersburg, Russia, and a Ph.D. from Ioffe Institute of the Russian Academy of Sciences.
Trevor D. Ness has served as our Senior Vice President, World Wide Sales since February 2013. From January 2011 until February 2013, he served as our Vice President–Asian Operations. Prior to joining us, he was Director of GSI Precision Technologies China from May 2005 to December 2010. Mr. Ness holds a B.S. in Geology from Imperial College, a H.N.C. from Bournemouth University and an M.B.A. from The Open University.
George H. BuAbbud, Ph.D.,Felix Stukalin has served as our Senior Vice President, U.S. Operations since February 2013. From March 2009 until February 2013, he served as our Vice President, Telecommunications Products, since July 2002.Devices. Prior to joining us, Dr. BuAbbudhe was Vice President, Business Development of GSI Group Inc. from April 2002 to September 2008, and Chief Technical Officer forfrom March 2000 to April 2002 he was Vice President of Components and President of the Access Network Systems divisionWave Precision divisions of Marconi Communications, Inc., a maker of telecommunications systems, from


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1999 to 2002. HeGSI Lumonics, Mr. Stukalin holds a B.E.B.S. in Electrical Engineering from the American University of Beirut and an M.Sc. and a Ph.D. in ElectricalMechanical Engineering from the University of Nebraska.
William S. Shinerhas served as our Vice President-Industrial Markets since March 2007Rochester and as Directorhe is a graduate of Industrial Markets since August 2002. Prior to joining us, Mr. Shiner was Vice President of Sales and Marketing for Coherent Industrial from 1980 to 1995 and Chief Operating Officer for Convergent Prima from 1995 to 2002. Mr. Shiner holds a B.S.E.E. and an M.B.A. from Northeastern University.the Harvard Business School General Management Program.
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors has reviewed and discussed with management the Compensation Discussion and Analysis included in this proxy statement. Based on this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in the Company’s proxy statement for the Company’s 20112014 annual meeting of stockholders.stockholders and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
COMPENSATION COMMITTEE
Robert A. Blair,Chair
William S. Hurley
William F. Krupke, Ph.D.John R. Peeler
March 23, 2011


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EXECUTIVE COMPENSATIONApril 1, 2014
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis
In this section, we describe the material components of our executive compensation program for our “Named Executive Officers” whose compensation is set forth in the Summary Compensation Table and other compensation tables contained in this proxy statement:
• Valentin P. Gapontsev, Ph.D., our Chairman and Chief Executive Officer;
• Timothy P.V. Mammen, our Vice President and Chief Financial Officer;
• Eugene Scherbakov, Ph.D., the Managing Director of IPG Laser GmbH, our subsidiary;
• Angelo P. Lopresti, our Vice President, General Counsel and Secretary; and
• Alexander Ovtchinnikov, Ph.D., our Vice President of Components.
We also provide an overview provides a comprehensive review of our executive compensation philosophy and program, including our executiveprogram design for fiscal year 2013. The discussion in this section focuses on the compensation program. In addition, we explain how and why the Compensation Committee of our Board arrives at specific compensation policies“Named Executive Officers” or “NEOs” for fiscal year 2013, who were:
Valentin P. Gapontsev, Ph.D., our Chairman and decisions involving the Named Executive Officers.
Executive Summary
We seek to pay for performance and we believe our record for the past five years shows that we have accomplished this goal.
2010 Financial Highlights.  Total 2010 revenues grew 61% from 2009 to $299.3 million and we ended the year with record backlog. Annual gross margins improved to 48.9% from 34.6%. Net income increased to $54.0 million in 2010 from $5.4 million in 2009, and earnings per share rose to $1.13 from $0.12. We also generated $63 million of cash from operations in 2010 and ended the year with a strong balance sheet.
The following graphs show our annual revenue and net income during the last five fiscal years:
(BAR GRAPH)(BAR GRAPH)
The description above is only a summary. For more complete information about our financial performance, please review the Company’s Annual Report onForm 10-K for the year ended December 31, 2010 filed with the SEC on March 15, 2011.
2010 Executive Compensation Highlights.  In 2010, 63% of our Named Executive Officers’ compensation on average was delivered in the form of variable annual cash incentives and long-term equity incentives. For our Chief Executive Officer, 55%Officer;
Timothy P.V. Mammen, our Senior Vice President and Chief Financial Officer;
Eugene Scherbakov, Ph.D., the Managing Director of his compensation for 2010 was delivered in variable annual cash incentivesIPG Laser GmbH, our subsidiary, and he received no equity awards in 2010. Base salaries for the Named Executive Officers in 2010 were maintained at the same level as 2009 (except for one officer). In 2009, the Company’s Named ExecutiveSenior Vice President, Europe;


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Officers took voluntary salary reductionsAngelo P. Lopresti, our Senior Vice President, General Counsel and no variable annual cash incentives were awarded toSecretary; and
Alexander Ovtchinnikov, Ph.D., our Named Executive Officers because the Company did not meet the targets in the 2009 short-term cash incentive plan.Senior Vice President, Components.
2010 Corporate Governance Highlights.  We endeavor to maintain good governance standards including with respect to the oversight of our executive compensation policies and practices. Under the direction of the Compensation Committee, the following policies and practices were in effect during 2010:
• IPG has only one-year employment agreements for executives, except for the Chief Executive Officer, who has a two-year employment agreement;
• no supplemental executive retirement plans (SERPs) or other nonqualified plans for executives;
• no single-trigger change in control payments;
• no taxgross-up payments for change in control payments under Code Section 280G;
• no taxgross-up payments for executive perquisites (which are minimal, in any event);
• no severance payments for Cause terminations or resignations other than for Good Reason;
• no perquisites for former or retired executives;
• no extraordinary relocation or home buyout benefits;
• no personal use of corporate aircraft, personal security systems maintenanceand/or installation or executive life insurance;
• there are limits on award payouts under our annualshort-term cash incentive plan;
• stock ownership guidelines are in place for our executive officers and directors; and
• only the Compensation Committee may approve equity grants.
Additionally, IPG made improvements to certain elements of our executive compensation programs to further align them with current good governance standards, including adopting a prohibition on executive officers and directors engaging in hedging transactions.
The Compensation Committee meets the independence standards of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The Compensation Committee is advised by an independent compensation consultant, Radford, which is retained directly by and reports to the Compensation Committee, and which performs no other work for IPG without the express approval of the Committee. The compensation consultant had no prior relationship with our Chief Executive Officer or any other executive officer. The Compensation Committee meets without management present at least four times per year.
Compensation Program Objectives and Principles
We believe that our success depends on the continued contributions of our executive officers. Our executive compensation programs are designed with the philosophy of attracting, motivating and retaining experienced and qualified executive officers and recognizing individual merit and overall business results.
The objectives of our compensation programs are to:
attract and retain talented and experienced executives;
• attract and retain talented and experienced executives;
• motivate and reward executives whose knowledge, skills and performance are critical to achieving strategic business objectives;
• align the interests of our executive officers and stockholders by motivating executive officers to increase long-term stockholder value;
• incentivize future performance through both short-term and long-term financial incentives to build a sustainable company and foster the creation of stockholder value; and
• foster a shared commitment among executives through establishment of uniform company goals.


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motivate and reward executives whose knowledge, skills and performance are critical to achieving strategic business objectives;
In order to be effective, we believe our executive compensation program should meet the needs of the Company, our employees and our long-term stockholders. Our policies are also intended to support the attainment of our strategic objectives by tyingalign the interests of our executive officers and stockholders by motivating executive officers to increase long-term stockholder value;
provide incentives for future performance through both short-term and long-term financial incentives to build a sustainable company and foster the creation of stockholder value; and
foster a shared commitment among executives through establishment of uniform company goals.
Our compensation philosophy is reflected in the following executive compensation design principles:
In addition to a competitive base salary, a substantial portion of the executives’ potential cash compensation should be tied to a short-term incentive plan that rewards corporate and individual achievement of challenging performance goals; and
The Company uses a combination of restricted stock units and stock options with thosea service-based vesting to provide a combination of retention and motivation to increase the value of the Company’s common stock.
Compensation
Element
Objective
Base salaryProvide a competitive fixed component of cash compensation.
Short-term
incentive plan    
Offer a variable cash compensation opportunity earned based upon the level of achievement of challenging corporate goals, with additional compensation opportunity based upon individual performance.
Long-term
incentives
Align long-term management and stockholder interests and strengthen retention with four-year vesting provisions. Service-based equity awards offer certainty and long-term retention while providing additional compensation opportunity to executives based upon increased stock price levels.
Benefit plansProvide competitive employee benefits. We do not view this as a significant component of our executive compensation program.
2013 Business Highlights
IPG continued its revenue and income growth in 2013, finishing another record year. We reported revenue growth in all four quarters and continued to make investments for the future. Our results demonstrated that IPG extended its competitive lead while capitalizing on the growing demand for fiber laser technology.
Our strong performance is largely attributable to factors specific to the Company, such as our market leadership in high-power fiber lasers for materials processing applications. IPG achieved greater sales of high-power, medium-power and quasi-CW lasers used in cutting and welding applications. A growing number of OEM customers have developed cutting systems that use our high-power lasers and sales of these systems are gaining sales from gas laser systems. In addition, new welding processes using fiber lasers have been developed, increasing sales of lasers for this application which are replacing traditional laser and non-laser welding technologies. We also introduced new products and applications, assisted by our ongoing significant investments. While we did not grow at the same rate as in 2012, our sales in 2013 grew at a 15% rate over the prior year.
The Company recorded $648 million in revenues in 2013, which is the highest level of revenues for any fiscal year in our history.

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Our operating income also achieved its highest levels to date, reaching $218 million in 2013 compared to $208 million in 2012 and $176 million in 2011.
     
Our gross margin decreased to 52.5% in 2013 from 54.2% in 2012, but represented industry-leading gross margins as compared to our laser peers.
    
The Company also increased its cash and cash equivalents to over $448 million at December 31, 2013, reflecting solid operating cash flows. Also, we continued substantial investments during 2013 in property, plant, equipment, technology and people so that we are well-positioned for future demand growth for our industry-leading products.

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For more information about our business, please read “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K filed with the SEC on February 28, 2014.
Pay-for-Performance
We structure our executive compensation program so that a meaningful percentage of compensation is tied to the achievement of high levels of Company performance. The payouts under our 2013 short-term incentive program reflect the Company’s strong financial and strategic performance. We use net sales and earnings before interest, as adjusted for certain items (“adjusted EBIT”), as the key performance metrics in our compensation program as we believe that they reflect a number of important competitive and business elements, such as product acceptance and revenue growth, and profitability, and are therefore excellent barometers of our overall performance. For 2013, our net sales and adjusted EBIT were $648 million and $231 million, respectively, both of which were higher than the levels from 2013, but below the target levels of $666 million and $250 million, respectively, that the Compensation Committee set for the year. These targets were set such that achievement of the targets would have required record-setting performance by the Company.
Our 2013 annual short-term incentive plan was structured to pay out 100% of our CEO’s base salary and 67% of the other executives’ base salaries if (i) the Company successfully achieved both target levels of financial performance and (ii) the executives achieved the highest levels of individual performance. Based on the Company’s 2013 net sales, adjusted EBIT and individual performance levels (as further described under “Components of Compensation in 2013 – Short-Term Incentive Plan” below), our 2013 short-term incentive plan paid bonuses equal to approximately 84% of our Chief Executive Officer’s base salary and 56% of the other Named Executive Officers’ base salaries.
To illustrate our pay-for-performance philosophy, the following charts reflect the portions of our executive officers’ actual compensation for 2013 represented by each of the major elements of our compensation program – base salary paid, 2013 short-term cash incentives (at actual amount earned), option awards and restricted stock units with service-based vesting criteria (valued at their grant-date fair value):

A significant majority of the executives’ overall compensation is derived from performance-based or long-term stockholders throughservice-based components of our program. In 2013, this included 45% of the Chief Executive Officer’s compensation and 65% of the other Named Executive Officers’ compensation.


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Our Chief Executive Officer, Dr. Valentin Gapontsev, is also the Company's founder. He does not receive long-term incentives in the form of equity or cash because of his significant level of ownership of our common stock. As a result, a smaller percentage of his total compensation is performance-based as compared to the chief executives of our peer companies, who receive additional compensation in the form of long-term incentives. Dr. Gapontsev's compensation is substantially below the compensation of chief executive officers at our peer companies. Also, his compensation over the past five fiscal years further reflects the effectiveness of our pay-for-performance program. The Company’s operating results over the past five years have resulted in corresponding levels of Chief Executive Officer compensation. Conversely, in fiscal year 2009, when the global economic downturn significantly impaired our financial results, Dr. Gapontsev received only his base salary for that year as no bonus was earned based on the Company’s results, notwithstanding management’s effectiveness during that challenging period in maintaining the employee and operational performance goalscustomer bases so that we were well-positioned to take advantage of the subsequent demand recovery. The following table demonstrates our pay-for-performance model by tracking Dr. Gapontsev’s actual total compensation in each of the last five fiscal years against Company revenues and equity-based compensation.net income:
 


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How Executive Compensation is Determined
Role of the Compensation Committee. The Compensation Committee determines, approves and administers the compensation ofprograms for our executive officers, including our Named Executive Officers. Our Compensation Committee is also responsible for making recommendations to the Board with respect to the adoption of stockequity plans and certain other benefit plans. The Compensation Committee may delegate authority whenever it deems appropriate, but it did not do so in 2010.
2013.
Our Compensation Committee’s policy is to set executive officer pay in accordance with the objectives of the Company’s compensation programs as described above. In our view, the Company’s executive compensation program provides an overall level of compensation opportunity that is competitive with other companies in the laser source and photonics industry, as well as with a broader group of technology companies of comparable size and complexity that have similar growth rates and international scope.peer companies. Actual compensation levels may be greater or less than median compensation levels provided by similar companies based upon annual and long-term Company performance, as well as individual performance, contributions, skills, experience and responsibilities.
During 2010,2013, the Compensation Committee was comprised of three independent directors at all times. Mr. Blair, Chair, Mr. Hurley and Dr. KrupkeMr. Peeler served on the Committee for the entire year. Mr. GauthierMichael Kampfe served on the Compensation Committee until June 2010 and Mr. Hurley served on2013 when he left the Committee from and after June 2010.Board. Mr. Blair has chaired the Committee since 2006.
Role of Executive Officers in Compensation Decisions. The Compensation Committee regularly meets with Dr. Gapontsev, our Chief Executive Officer, to obtain recommendations with respect to the compensation programs, practices and packages for our Named Executive Officers. Additionally, Mr. Mammen, our Chief Financial Officer, and Mr. Lopresti, our General Counsel, are regularly invited to meetings of the Compensation Committee or otherwise asked to assist the Committee. Such assistance includes providing financial and compensation information and analysis for the Compensation 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). The Named Executive Officers attend portions of Compensation Committee meetings when requested, but leave the meetings as appropriate when matters that will potentially affect them personally or other executive officers including the Chief Executive Officer are discussed. ManySeveral meetings of the Compensation Committee are not attended by management. From time to time, outside legal counsel and the compensation consultant attend Compensation Committee meetings. The Compensation Committee makes decisions regarding Dr. Gapontsev’s compensation without him present. From time to time, outside legal counsel and the independent compensation consultant attend Compensation Committee meetings.
Role of Compensation Consultant. The Compensation Committee engaged Radford, an independent compensation consultant, to conduct a comprehensive review and analysis of our executive compensation program and to make recommendations in 2009 and 2010.for compensation related to 2013. The compensation consultant provides the Compensation Committee with an independent evaluation of executive compensation and is available as needed by the Compensation Committee to provide advice and counsel. Radford serves at the discretion of the Compensation Committee. Neither Radford nor Aon, Radford’s parent company, does any other work for the Company. Aon is a global provider of many services relevant to the Company’s business and the Company may retain other services from Radford or Aon as appropriate. The Compensation Committee has reviewed the independence of Radford in light of SEC rules and NASDAQ listing standards regarding compensation consultants. The Compensation Committee believes that there are no actual or potential conflicts of interest.interest with Radford in 2013. The Compensation Committee authorizes the compensation consultant to confer with management for perspective on the impact of compensation recommendations.
Pay Positioning Strategy
We strive to positionIn 2013, we positioned the midpoint of the Company’s target total cash compensation rangesrange near the 50th65thpercentile and the long-term incentive range near the 50th percentile of the target compensation of our peer group, resulting in targeted total compensation that is competitive within our labor market for performance that meets the objectives established by the Compensation Committee. An individual’s actual salary, non-equity incentive compensation opportunity and equity compensation may fall below or above the target position based on the individual’s experience, seniority, skills, knowledge,


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performance and contributions as well as the Company’s performance. These factors are weighed individually by the Compensation Committee in its judgment, and no single factor takes precedence over others nor is any formula used in making these decisions. The Chief Executive Officer’s review of the performance of his direct reports is carefully considered by the Compensation Committee in making individual compensation decisions.

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In analyzing our executive compensation program relative to this target market positioning, the Compensation Committee utilizes a comparative analysis of the compensation of our executive officers measured against a group of industry peer companies selected by the Compensation Committee with the assistance of Radford and management input. For 2010,The peer companies are companies in the laser source and photonics industry, peersas well as a broader group of technology companies of comparable size and complexity that have similar growth rates and international scope. Several factors were considered in selecting the peer group used in 2013, the most important of which were:
comparable business (primarily laser, photonics, semiconductor, optical components and related device companies);
market capitalizations, annual revenue and employee levels; and
geographic location.

Radford also supplements its peer analysis with the data from a broader list of high-technology public company participants in the Radford 2012 Global Technology Survey having revenue levels from $300 million to $1 billion.
For 2013, the peer companies were:
•    II-VI Incorporated •    Analogic Corporation•    Brooks Automation, Inc.
•    Chart Industries, Inc. •    Cognex Corporation
•    Coherent, Inc.
•    Cymer Inc. •    Electro Scientific Industries,Diodes, Inc.•    Entegris, Inc.
•    Evergreen Solar Inc. FEI Company •    EXFO Electro-Optical EngineeringFLIR Systems, Inc. •    FEI CompanyGraco, Inc.
•   FormFactor, Inc. •    Hittite Microwave Corporation •    Measurement Specialties,MKS Instruments, Inc.
•    Newport Corporation
•    Opnext,RBC Bearings, Inc. •    Rofin-Sinar Technologies Inc.•    Riverbed Technology, Inc.
•    Varian Semiconductor Equipment AssociatesTeradyne, Inc. •    Veeco Instruments Inc.  
The Compensation Committee reviews this peer group annually to ensure that the comparisons are meaningful. Several factorsGiven the continuing rapid growth of the Company, the Compensation Committee undertook a review of our historical peer group for the 2013 compensation analysis, applying the criteria above. In this review, the Compensation Committee conducted an analysis of our peers to determine which companies are frequently referenced and whether they should be considered for inclusion in IPG Photonics’ peer group. Based upon this review, the Compensation Committee removed companies that were considered in selectingno longer viable peers due to acquisitions or that have financial profiles which are not well-aligned with ours. Added were Chart Industries, Inc., FLIR Systems, Inc., Graco, Inc., RBC Bearings, Inc., Riverbed Technology, Inc. and Teradyne, Inc. Removed were Acme Packet, Inc., Electro Scientific Industries, Inc., Measurement Specialties, Inc. and Opnext, Inc.
Also, the Compensation Committee conducted a review of peer companies for the 2014 compensation analysis. Based upon this review and applying the criteria above, the Compensation Committee removed Cymer Inc. from the peer group for 2010, the most important of which were:
• industry (primarily laser, photonics, semiconductor, optical components and related device companies); and
• revenue and employee levels (primarily companies with between $180 million and $600 million in annual revenues, and between 300 and 2,200 employees).
The Compensation Committee believes that companies that meet these criteria are our most likely competitors for executive talent in our labor markets. Radford also supplements its peer analysis with the data from participants2014 because it was acquired in the Radford High Technology Survey having annual revenue between $100 million and $400 million.
prior year.
Components of Compensation in 2010
2013
The principal components of our executive officer compensation during 2010 were:2013 were base salary, short-term cash incentives, long-term equity-basedequity incentive awards, severance benefits, retirement savings benefits provided under a 401(k) plan, and executive perquisites, and benefit programs generally available to other employees.


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These components were selected because the Compensation Committee believes that a combination of salary, incentive pay, severance and retirement savings benefits and perquisites is necessary to help us attract and retain the executive talent on which our success depends. The annual cash incentives are designed to allow the Compensation Committee to reward performance over a fiscal year and to provide an incentive for executives to appropriately balance their focus on short-term and long-term strategic goals. The fixed components, including salary, severance and retirement savings benefits and perquisites, are structured to provide a sufficient level of compensation for our executives relative to theirday-to-day spending needsboth immediate and long-term needs for income.income needs. The Compensation Committee believes that, when taken together, these components are effective in achieving the objectives of our compensation program and philosophy and are reasonable relative to our strategy of managing total compensation near the 50th percentile of market practices.
practices targeted by the Compensation Committee.
The Compensation Committee annually reviews the entire compensation program with the assistance of its independent compensation consultant and outside legal counsel. However, the Compensation Committee may at

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any time review one or more components as necessary or appropriate to ensure such components remain competitive and appropriately designed to reward performance. In setting compensation levels for a particular Named Executive Officer, the Committee considers both individual (as described above) and corporate factors.

In 2010, 63% of our Named Executive Officers’ compensation on average was delivered in the form of variable annual cash incentives and long-term equity incentives. The average pay mix for our Named Executive Officers during 2010 can be illustrated as follows:
Average Named Executive Officer Pay Mix in 2010
(BAR GRAPH)
Note:  The short term cash incentives represent actual awards for 2010 under our 2010 Short Term Incentive Plan. The long term incentives include stock options (based on the dollar amount recognized for financial statement reporting purposes for 2010 in accordance with ASC 718) and restricted stock units (using the grant date value). This chart does not include other benefits, such as perquisites
Base Salary. We provide base salary to our Named Executive Officers and other employees to compensate them for services rendered on aday-to-day basis during the fiscal year. Unlike short-term cash incentives and long-term equity incentives, base salary is not subject to performance risk. The Compensation Committee reviews information provided by its compensation consultant and considers the experience, skills, knowledge and responsibilities of the executive and the individual’s performance assessment provided by the Chief Executive Officer to assist it in evaluating base salary for each Named Executive Officer. With respect to the Chief Executive Officer, the Compensation Committee additionally considers the performance of the Company as a whole.
Based uponIn 2013, the information provided byCompensation Committee conducted an assessment of base salaries and total cash compensation for the Named Executive Officers. After consulting with its compensation consultant, the Compensation Committee did not approve anyincreased the targets for base salary and total cash compensation to the 65thpercentile of market practices, taking into account the increasing scale and complexity of the Company’s operations, the strong performance of the Company, the rapid growth of the Company and the importance of retaining an experienced team of proven executives. Based upon this and the selection of new peers for 2013, the Compensation Committee approved increases of 15% to the base salaries of the Named Executive Officers, except for Dr. Ovtchinnikov who received an increase in base salary of 20%. For 2014, the Compensation Committee appoved merit increases for 2010of 3% to the base salaries of the Named Executive Officers from 2013 levels, except that Mr. Mammen's base salary was increased by 5% to bring it in line with the levels set by the Compensation Committee in December 2008. However, Dr. Ovtchinnikov received a 9% merit increase in December 2009.market 65th percentile of our peer group.


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Short-Term Cash Incentives.Incentive Plan. To focus each executive officer on the importance of the performance of the Company, a significant portion of the individual’s potential short-term compensation is in the form of annual cash incentive pay that is tied to the achievement of goals established by the Compensation Committee.
Our Named Executive Officers participate in our Senior Executive Short-Term Incentive Plan (the “STIP”). The STIP is administered by the Compensation Committee, which has the discretion to determine the type of award, whether cash or non-cash, granted under the STIP. The emphasis of the STIP is onemphasizes company-wide performance goals in order to foster a shared commitment among executives. Generally, award levels for executives are the same percentage of salary, except for the Chief Executive Officer who generally receives awardswhose target award is at a greater percentage of salary than the other officers for achievement of the same performance goals. The Compensation Committee determines who is eligible to receive awards under the STIP, establishes performance goals and objectives for executives, establishes target awards for each participant for the relevant performance period, and determines whatthe percentage of the target award that should be allocated to the achievement of each of the chosen performance targetsgoals in consultation with the Chief Executive Officer with respect to other executive officers. The target award percentages established by the Compensation Committee are chosen based upon a compensation review conducted by Radford and the seniority level of the executive.
In 2010,For 2013, the Compensation Committee identified two financial performance measures,measures: net sales and earnings before interest and taxesadjusted EBIT (excluding equity-based compensation expenses and expenses for budgetedapproved litigation matters in excess of budgeted amounts)matters), each as determined under the STIP, and assigned a 50% weighting factor to each financial performance measure.goal. The Compensation Committee chose to focus on revenue growth and pretax profits so that our executive officers would be incentivized to deliver the types of growth that benefit our stockholders, namely increasing sales and profitability.profits.
Upon the achievement of the objectives for each performance measure determined by the Compensation Committee, theThe Chief Executive Officer could receive a cash incentive payment ranging from 14%18.8% to 84%112.5% of his base salary, and other participants in the STIP could receive a cash incentive payment ranging from 9%12.5% to 56%75.0% of their respective base salaries, based upon achievement of the minimum to maximum objectives for both financial performance measures. If the financial performance exceeds one or more of the maximum objectives, the incentive payments to the executive would increase as determined by linear interpolation, subject to limits on payouts discussed below. The financial objectives were the same for all executive officers. The range of possible payout amounts for 2010 under the STIP for achievement of financial objectives for each Named Executive Officer is shown below and disclosed in the Grants of Plan-Based Awards table below. Consistent with ourpay-for-performance philosophy, no cash incentive payments would be made if the minimum financial objectives established by the Compensation Committee in 20102013 were not met.
While objectives were intended to be achievable by the Company, a maximum bonus would require very high levels of Company performance. The Compensation Committee believes that the goals are reasonably difficult to achieve, as demonstrated by the fact that the Company had never before 2010 achieved only the maximum targets since the STIP was adopted.payout once. The Compensation Committee set minimum and maximum targets for net sales of $214$566 million and $243$766 million, respectively, representing annual growth levels of 15%1% to 28%36% from the prior year. The minimum and maximum targets for earnings before interest and taxesadjusted EBIT were set from $34$200 million to $47$300 million, representing changesa change ranging from 160%a

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decrease of 1% to 260%an increase of 38% from the prior year.
year, reflecting the effect of the substantial investment in plant and equipment in 2013. The Company’s record financial performancetarget levels for 2010 substantially exceeded the maximum targets set by the Compensation Committee. The Company achieved net sales of $299 million and earnings before interest and taxes of $79 million. These results represented a 61% increase in net sales and a 920% increase in earnings before interestadjusted EBIT were $666 million and taxes in 2009. The Compensation Committee awarded the Chief Executive Officer a cash incentive payment equal to 150% of his base salary, and the other Named Executive Officers cash incentive payments equal to 100% of their respective base salaries, which were the maximum possible payouts permitted under the 2010 STIP.
$250 million, respectively.
The Chief Executive Officer and the other Named Executive Officers were also eligible in 2010 under the STIP to receive awards of up to 19%25.0% and up to 13%16.7%, respectively, of their respective base salaries respectively,under the STIP in 2013, based upon their respective individual performance.performances. The individual goals and objectives for the Chief Executive Officer included additional financial measures, operational and strategic targets. Becausetargets set by the Compensation Committee with input from the independent directors.
The overall target award limits were reached solely based upon(including both financial performance measures, noand individual performance awardsmeasures) for the Chief Executive Officer was 100.0% of his base salary and 66.7% of the respective base salaries for the other participants. The financial objectives were approved in 2010.the same for all executive officers. The


27

awards range of possible payout amounts for 2013 under the STIP for 2010 are set forthachievement of financial objectives for each Named Executive Officer is shown below in the “Non-Equity Incentive Plan Compensation” columnGrants of Plan-Based Awards table. The maximum possible payouts under the Summary Compensation Table below.
The Compensation Committee targets total cash compensation (base salary plus short-term cash incentives) near the 50th percentileSTIP for both financial and individual performance measures are 225.0% of the target compensation of our peer group. In 2010, total cash compensation targetsaward for the Named Executive Officers was aligned on average withOfficers.
The Company’s record financial performance for 2013 exceeded minimum financial performance targets set by the lower end of the range of the 50th percentileCompensation Committee but did not reach either of the target compensationperformance measures. The Company achieved net sales of $648 million and adjusted EBIT of $231 million. These results represented a 15% increase in net sales and a 6% increase in adjusted EBIT over 2012 levels. The Compensation Committee reviewed the peer group.Chief Executive Officer’s goals and objectives set by the Compensation Committee with input from the independent directors and determined to award him 25.0% of his base salary for his individual performance during 2013. Also, the Compensation Committee, based with input from the Chief Executive Officer, awarded the other Named Executive Officers 16.7% of their respective base salaries for their individual performances in 2013.

The Compensation Committee may make adjustments to our overall corporate performance goals and the ways that our actual performance results are calculated that may cause differences between the numbers used for our performance goals and the numbers reported in our financial statements. These adjustments may exclude all or a portion of both the positive or negative effect of external events that are outside the control of our executives. The Compensation Committee made no adjustments to the 2013 STIP for amortization related to an acquisition in 2010.2013 and certain litigation expenses.
Based upon the Company’s financial performance and the individual performance of the Named Executive Officers, the Compensation Committee made the following 2013 awards:
2013 Short-Term Incentive Plan Payouts
Name Target Awards ($)(1) Actual Awards ($)
Valentin P. Gapontsev, Ph.D. 542,800
 445,894
Timothy P.V. Mammen 261,224
 219,402
Eugene Scherbakov, Ph.D. 299,092
 246,462
Angelo P. Lopresti 249,321
 209,405
Alexander Ovtchinnikov, Ph.D. 242,401
 203,593
(1)Target Awards include both financial and individual performance targets.
Long-Term Equity-Based Incentives. The goal of our equity-based award program is to provide employees and executives with the perspective of an owner with a long-term financial stake in theour success, of IPG, further increasing alignment with stockholders. Long-term incentive awards also incent employees to stay with us for longer periods of time, which in turn provides us with greater stability and directly links compensation to the long-term performance of the Company. In addition, these awards are less costly to us in the short-term than cash compensation. We review long-term equity incentives for our Named Executive Officers and other executives annually.
For our Named Executive Officers, our equity-based award program is based on annual grants. We have traditionally usedgrants of service-based stock options as equity compensation becauseand restricted stock units. Of the equity-based awards, 75% is typically in the form of stock options provide a relatively straightforward incentive for our executives. In 2010, the Compensation Committee conducted an analysis of types of equity awards granted by the peer group. Over a majority of the companiesand 25% is typically in the peer groupform of restricted stock units. Consistent with our pay-for-performance philosophy, the service-based stock option awards have no value unless our stock price increases after the grant restricted shares ordate and the value of the restricted stock units to their respective executives. Based upon this analysis, the Committee determined to substitute restricted stock units for a portion of the annual equity compensation grantsis tied to the Named Executive Officers, withvalue of our stock.

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Since the same vesting terms at stock options,Company’s initial public offering in part so as to diversify2006, the equity incentives we provide. Historically, our Chief Executive Officer hasdid not received annual grants of stock options or restricted stock units because, asreceive any equity compensation awards. As the Company’s founder and holderthe beneficial owner of a large number of our shares, he has the perspective of an owner with a significant financial stake in the Company’s success.
In 2010, the Chief Executive Officer received no equity grant.
In 2010,2013, the Compensation Committee targeted granting equity compensation atnear the 50th percentile of the target compensation of our peer group, balancing the perspective of delivering competitive compensation based upon Black-Scholes option pricing values and as a percentage of the Company. TheseThe Compensation Committee analyzed several aspects of the equity grant program, including (i) the “in the money” value, the degree to which executives have incentives to remain employed by the Company through unvested option values, and (ii) the aggregate equity usage in terms of (a) annual usage, typically called burn rate, and (b) cumulative equity delivery, typically called overhang, to determine the dilutive effect of equity awards on investors. The majority of outstanding equity holdings of the executives (other than Dr. Gapontsev) were allocated to unvested shares in the aggregate, and all such executives had a minimum of four years’ worth of annual award values in unvested equity value. Based upon this information, Radford advised the Compensation Committee that our equity program provides strong retention incentives.
The following table shows grants of service-based stock options and restricted stock units to the Named Executive Officers in 2013:
2013 Long-Term Equity-Based Incentive Grants
Name 
Service-Based Stock
Options (#)
 
Service-Based
Restricted
Stock Units  (#)
Valentin P. Gapontsev, Ph.D. —
 —
Timothy P.V. Mammen 14,200
 2,200
Eugene Scherbakov, Ph.D. 13,000
 2,000
Angelo P. Lopresti 11,000
 1,800
Alexander Ovtchinnikov, Ph.D. 12,000
 1,900
Consistent with past practice as explained above, the Chief Executive Officer did not receive any equity-based award in 2013. The equity awards in 2013 vest fromin one installment four to five years after the grant date(March 1, 2017), and provide a strong incentive for executives to remain with the Companyemployed by us and to focus on increasing theour financial performance over the long term.long-term. The stock options awarded to the executives in 2013 have an exercise price of $60.11 per share.
Stock OptionEquity Grant Process.  In 2007, the The Compensation Committee adopted an equity grant policy as follows:
• only the Compensation Committee has the authority to approve equity grants;
• grants made by the Compensation Committee occur only after discussion at a meeting of the Compensation Committee;
• equity award grants ordinarily are made by the Compensation Committee only during an open trading window period under our insider trading policy;
• the grant date ordinarily is within five business days following the first day of the open trading window period, or such other date as the Compensation Committee determines; and
• the exercise price (if applicable) for all equity awards is the closing price on the date of grant and stock options are granted with an exercise price of no less than the closing market price on the date of grant.
grants made by the Compensation Committee occur only after discussion at a meeting of the Compensation Committee;
equity award grants ordinarily are made by the Compensation Committee only during an open trading window period under our insider trading policy;
the grant date ordinarily is within ten business days following the first day of the open trading window period, or such other date as the Compensation Committee determines; and
the exercise price (if applicable) for all equity awards is the closing price of our stock on the date of grant and stock options are granted with an exercise price of no less than the closing price of our stock on the grant date.
The Compensation Committee considers the aggregate equity usage by the Company compared to peer companies. Measures which are considedconsidered include total options and restricted stock units granted as a percentage of total shares issued and outstanding, total options and unvested restricted stock units outstanding as a percentage of total shares issued and outstanding, and total options and unvested restricted stock units outstanding plus shares available for future grant as a percentage of total shares issued and outstanding. In its 2013 assessment, Radford found that the one-year burn rate and the issued overhang rate for the Company in 2011 approximated the 25thpercentile of the named peer group.


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Severance Benefits. The Compensation Committee believes that severance benefits are an important element of the executive compensation package,package. The severance benefits we offer assist us in recruiting and retaining talented individuals and our practices are consistent with the severance benefits offered by our peer practices.group. At the request of the Compensation Committee in 2013, Radford examinedprovided market-competitive executive severance benefit data for the termination benefits provided by the employment agreements then in effect withofficers, including the Named Executive Officers under a Company-initiated (not "for cause") and compared them to the benefits provided by the peer group. The severance benefits reviewed includedan executive-

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initiated (for "good reason") employment termination provisions,following a change in control provisions,and absent a change in control. Competitive data was considered for prevalence, specific features, cash severance payments,and equity benefits, benefits continuation, change in control triggers, acceleration of equity awards non-competition and non-solicitation restrictions.excise tax treatment. Based upon this review, in 2008 the Compensation Committee approved new employment agreements forchanges to the Named Executive Officers summarized below in the section entitled “Employment Agreements.” The severance provisions of theour employment agreements, which are summarized below in the section entitled “Potentialtitled “Potential Payments Uponupon Termination or Change in Control.”
Retirement Savings Plan. Executive officers in the United States are eligible to participate in our 401(k) retirement plan on the same terms as all other U.S. employees. Our 401(k) retirement plan is a tax-qualified plan and therebytherefore 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 Named Executive Officers). We made matching contributions at a rate of 50% of eligible contributions under the 401(k) retirement plan to our employees, including Named Executive Officers, thatwhich participate in the plan as set forth in the Summary Compensation Table. Our matching contributions are subject to a limit. Our executives outside of the United States participate in government-sponsored retirement programs. We do not maintain a supplementarysupplemental executive retirement plan (SERPs)(SERP) or a non-qualified deferred compensation plan for our executives or directors.
Other Compensation.Compensation and Personal Benefits. All of our executives are eligible to participate in our employee benefit plans, including medical, dental, life and disability insurance, vacation and employee stock purchase plans. These plans generally are available to all salaried employees and do not discriminate in favor of executive officers. Benefits are intended to be competitive with the overall market in order to facilitate attraction and retention of high-quality employees. Subject to local customs and the international nature of our business and management, it is generally our policy not to extend significant perquisites to our executives that are not generally available to our employees. In 2010, theThe Compensation Committee reviewed the executive perquisites in comparison to the peer group and made no changes.changes in any of 2013, 2012 or 2011. The Company provides Dr. Scherbakov with the use of an automobile, as it does to other high-ranking employees in Germany.
The Company purchases, from time to time, hourly use of an aircraft for the Chief Executive Officer and other executives for business travel integral to the performance of their duties. The Chief Executive Officer is encouraged to use the aircraft for efficiency, safety and security. The Compensation Committee adopted an aircraft use policy governing the use of the aircraft which the Company makes available to the executives. We permit only our Chief Executive Officer to use time on the aircraft for personal use only if he reimburses the Company for all costs related to personal use. There is no aircraft-related compensation in the Summary Compensation Table because unreimbursed use did not occur. We do not provide our executives with country club memberships, club dues or fees. Nor do we provide home security, tax preparation, estate planning or financial counseling.
Other Factors Affecting Compensation
Tax Deductibility Underunder Section 162(m). Section 162(m) of the Internal Revenue Code of 1986, as amended,(“Section 162(m)”), limits the deductibility for federal income tax purposes of certain compensation paid in any year by a publicly held corporation to its chief executive officer and its three other most highly compensated officers other than its chief financial officer to $1 million per executive (the “$1 million cap”). The $1 million cap does not apply to “performance-based” compensation as defined under Section 162(m). Historically, none of our executive officers has received annual compensation in an amount that would be subject to limitation under Section 162(m). [It is intended that stock option awards made under the Company’s 2006 Incentive Compensation Plan following the 2011 annual meeting of stockholders will qualify as “performance-based” compensation for purposes of Section 162(m). We believe we can continue to preserve related federal income tax deductions, although individual exceptions may arise. The Compensation Committee’s policy with respect to Section 162(m) is to consider the tax deductibility of awards as a factor in the compensation setting process and to generally make a reasonable effort to cause compensation to be deductible by the Company while simultaneously providing our executive officers with appropriate rewards for their performance. However, the Compensation Committee retains the discretion to provide compensation that may exceed the $1 million cap or not qualify for the performance-based compensation exception to Section 162(m).
Accounting Considerations. We consider the accounting implications of all aspects of its executive compensation program. In addition, accounting treatment is just one of many factors impacting plan design and pay determinations. Our executive compensation program is designed to attempt to achieve the most favorable accounting and tax treatment possible as long as doing so does not conflict with intended plan design or program objectives.

Advisory Vote on Executive Compensation
Say-on-Pay Advisory Votes. We conducted our first advisory vote on executive compensation at our 2011 annual meeting of stockholders. Then, our stockholders overwhelmingly approved our executive compensation structure in our first “say-on-pay” advisory vote, voting 40,928,468 shares (99.2%) in favor of our executive compensation structure compared to 305,747 shares (0.7%) against with 43,328 shares (0.1%) abstaining. Because a substantial majority of our stockholders approved the compensation program described in our 2011

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proxy statement, the Compensation Committee did not implement changes to our executive compensation program in 2013 as a direct result of the stockholders’ advisory vote. At our stockholders meeting in 2011, the advisory proposal to hold “say-on-pay” advisory votes every three years received the greatest amount of votes. Accordingly, the “say-on-pay” advisory vote is being held at our 2014 annual meeting of stockholders. See the section below titled "Proposal 2: Advisory Vote on Executive Compensation."
In addition to the periodic advisory vote on executive compensation, we are committed to ongoing engagement with our stockholders on executive compensation and corporate governance issues. These engagement efforts take place throughout the year through meetings, telephone calls and correspondence involving our senior management and representatives of our stockholders. The Compensation Committee carefully considers feedback from our stockholders regarding our executive compensation program, including the results of our stockholders’ advisory vote on executive compensation. Stockholders are invited to express their views to the Compensation Committee as described in this proxy statement under the heading “Corporate Governance — Stockholder Communication with our Board of Directors.”
EXECUTIVE COMPENSATION TABLES
Summary Compensation Table
The following table sets forth information regarding compensation earned by our Chief Executive Officer, our Chief Financial Officer and our three other most highly compensated executives:executives for the fiscal years indicated below:
                                 
            Non-Equity
    
        Stock
 Option
 Incentive Plan
 All Other
  
Name and Principal
   Salary
 Bonus
 Awards
 Awards
 Compensation
 Compensation
 Total
Position
 Year ($)(1) ($)(2) ($)(3) ($)(3) ($)(2) ($)(4) ($)
 
Valentin P. Gapontsev, Ph.D.,  2010   393,735   —   —   —   512,682   15,879   922,295 
Chief Executive Officer  2009   389,025   —   —   —   —   62,579   451,604 
and Chairman of the Board(5)  2008   375,000   —   —   —   177,677   66,407   619,084 
Timothy P.V. Mammen,  2010   295,000   —   69,213   180,144   295,000   7,890   849,247 
Chief Financial Officer  2009   289,648   —   —   147,831   —   6,140   443,619 
and Vice President  2008   279,814   35,438   —   286,064   52,933   6,049   660,671 
Eugene Scherbakov, Ph.D.,  2010   340,685   —   69,213   180,144   340,451   33,220   963,714 
Managing Director of IPG  2009   351,437   —   —   130,093   —   25,426   506,956 
Laser and Director(5)  2008   357,967   45,171   —   252,064   67,470   27,238   749,910 
Angelo P. Lopresti,  2010   295,000   —   69,213   180,144   295,000   8,160   847,516 
General Counsel, Secretary  2009   289,648   —   —   118,265   —   6,140   414,323 
and Vice President  2008   279,814   35,438   —   229,149   52,923   6,365   603,689 
Alexander Ovtchinnikov, Ph D.,  2010   275,000   —   69,213   180,144   275,000   7,897   807,254 
Vice President — Components  2009   269,512   —   —   130,093   —   6,410   406,015 
   2008   248,723   31,563   —   252,064   46,989   6,364   585,703 
Name and Principal Position Year 
Salary
($)
 
Bonus
($)
 
Stock
Awards
($)(1)
 
Option
Awards
($)(1)
 
Non-Equity
Incentive Plan
Compensation
($)(2)
 
All Other
Compensation
($)(3)
 
Total
($)
Valentin P. Gapontsev, Ph.D.,
Chief Executive Officer and Chairman of the Board(4)		 2013 542,800
 —
 —
 —
 445,894
 11,125
 999,819
2012 475,822
 —
 —
 —
 369,850
 12,345
 858,017
2011 418,167
 —
 —
 —
 808,306
 16,261
 1,242,734
Timothy P.V. Mammen,
Chief Financial Officer and Senior Vice President		 2013 391,834
 —
 150,275
 432,302
 219,402
 8,190
 1,202,003
2012 340,101
 —
 120,233
 353,768
 177,993
 8,040
 1,000,135
2011 324,500
 —
 198,912
 511,080
 421,623
 7,890
 1,464,005
Eugene Scherbakov, Ph.D., Managing Director of IPG Laser and Director(4) 2013 432,777
 —
 132,242
 403,482
 246,462
 33,677
 1,248,640
2012 364,382
 —
 120,233
 353,768
 195,609
 30,287
 1,064,279
2011 376,187
 —
 176,602
 449,561
 488,452
 32,576
 1,523,378
Angelo P. Lopresti,
General Counsel, Secretary and Senior Vice President		 2013 373,980
 —
 120,220
 374,662
 209,404
 8,892
 1,087,158
2012 324,606
 —
 112,608
 332,542
 169,883
 8,310
 947,949
2011 309,750
 31,997
 176,602
 449,561
 402,458
 8,160
 1,378,528
Alexander Ovtchinnikov, Ph.D.,
Vice President —Components		 2013 363,600
 —
 108,198
 345,842
 203,593
 8,892
 1,030,125
2012 302,452
 —
 112,608
 332,542
 158,286
 8,742
 914,630
2011 288,750
 —
 176,602
 449,561
 375,173
 8,592
 1,298,678
 
(1)The approved annual base salaries in 2009 were the same as 2010 (except for Dr. Ovtchinnikov). However the base salaries paid in 2009 were lower than in 2010 because all Named Executives Officers took voluntary salary reductions in 2009.
(2)Represents amounts earned under our STIP for services rendered in 2010, 2009 and 2008, respectively.
(3)Valuation based on the fair value of such award as of the grant date determined pursuant to ASC Topic 718. The assumptions that we used with respect to the valuation of restricted stock unit and stock option awards are set forth in Note 2 to our Consolidated Financial Statements in our Annual Report onForm 10-K filed with the SEC on March 15, 2011.February 28, 2014.
(2)Represents amounts earned under our STIP for services rendered in 2013, 2012 and 2011, respectively.

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(4)(3)The amount in 20112013 for Dr. Gapontsev consists of (i) $11,125 in premiums paid for group term life insurance and (ii) $4,754 in health care premiums paid in Germany.insurance. Amounts for Messrs. Mammen and Lopresti and Dr. Ovtchinnikov include matching contributions to retirement accounts under our 401(k) plan and our payment of group term life insurance premiums. The amount for Dr. Scherbakov reflects the expense of an automobile provided by us.
(5)(4)
Portions of the amounts paid to Dr. Gapontsev and Dr. Scherbakov were denominated in Euros and Rubles. These were translated into U.S. Dollars at the average daily exchange rates for 2010, 2009the full years. The average daily rates in 2013, 2012 and 2008,2011, for the Euro were 0.75, 0.78 and 0.72, respectively; and for the Ruble were 31.9, 31.17 and 29.29, respectively. As a result of compensation being paid in one or more currencies that fluctuate against the U.S. Dollar, the amount of salary paid may vary slightly from the salary stated in an employment agreement.
Employment Agreements
We have employment agreements with each of the executives named in the table above. The employment agreements expire on December 31, 2011,2015, except for the employment agreement forwith Dr. Gapontsev, which expires on December 31, 2012.2016. Upon their future expirations, the employment agreements renew for terms of one year, unless the Company or a Named Executive Officer provides written notice of its or his intention to not renew the agreement not less than six months before the expiration date. In the event of a change in control, the agreements would be extended to expire on the second anniversary of suchthe change in control.
The employment agreements set the annual base salaries in 20102013 for the Named Executive Officers at $395,000as follows: $542,800 for Dr. Gapontsev, €257,000€325,850 for Dr. Scherbakov $295,000 for each of Messrs. Mammen and Lopresti and $275,000 for Dr. Ovtchinnikov. The salaries for 2011 are $414,000 for Dr. Gapontsev, €270,000 for Dr. Scherbakov, $324,500($432,544 at the 2013 average daily exchange rate), $391,834 for Mr. Mammen, $309,750$373,980 for Mr. Lopresti and $288,760$363,600 for Dr. Ovtchinnikov. For 2014, the Compensation Committee approved annual base salaries of $559,084 for Dr. Gapontsev, €335,626 for Dr. Scherbakov ($445,529 at the 2013 average daily exchange rate), $411,426 for Mr. Mammen, $385,199 for Mr. Lopresti and $374,508 for Dr. Ovtchinnikov. The agreements entitle these executive officers to participate in bonus plans, standard insurance plans such as life, short-term disability and long-term disability insurance and retirement benefits, such as the 401(k) plan and equity award plans described above, on similar terms and on a similar basis as such benefits are available


30

to executives at similar levels within the Company. Each of these executive officers also entered into a non-competitionseparate restrictive covenant agreement with the Company in 20082013 that prohibits each of them from competing with the Company for a period of one year after the termination of his employment with the Company for any reason and from hiring or attempting to hire the Company’s employees or soliciting customers or suppliers of the Company for a period ending eighteen months following the termination of his employment for any reason. Each of the officers is entitled to receive his base salary for the period during which the Company enforces the non-competition provisions of the agreement but not for more than one year following the termination of his employment. The severance provisions of the agreements are summarized below in the section titled “Potential“Potential Payments Uponupon Termination or Change in Control.”









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Grants of Plan-Based Awards Table
The following table sets forth information regarding plan-based awards to our Named Executive Officers in 2010:
                                 
            All Other
    
            Option
    
          All Other
 Awards:
   Grant Date
          Stock Awards:
 Number of
 Exercise or
 Fair Value of
    Estimated Possible Payouts Under
 Number of
 Securities
 Base Price
 Stock and
    Non-Equity Incentive Plan Awards
 Shares of
 Underlying
 of Option
 Option
  Grant
 ($)(1) Stock or
 Options
 Awards
 Awards
Name
 Date Threshold Target Maximum Units(#)(2) (#)(2) ($ / Sh) ($)(3)
 
Valentin P. Gapontsev, Ph.D.   2/23/2010   55,547   222,179   512,682   —   —   —   — 
Timothy P.V. Mammen  2/23/2010   27,656   110,625   295,000   —   —       — 
   2/26/2010   —   —   —   4,375   —   15.82   69,213 
   2/26/2010   —   —   —   —   26,250   15.82   180,144 
Eugene Scherbakov, Ph.D.   2/23/2010   42,281   169,125   340,451   —   —   —   — 
   2/26/2010   —   —   —   4,375   —   15.82   69,213 
   2/26/2010   —   —   —   —   26,250   15.82   180,144 
Angelo P. Lopresti  2/23/2010   27,656   110,625   295,000   —   —   —   — 
   2/26/2010   —   —   —   4,375   —   15.82   69,213 
   2/26/2010   —   —   —       26,250   15.82   180,144 
Alexander Ovtchinnikov, Ph.D.   2/23/2010   25,781   103,125   275,000   —   —   —   — 
   2/26/2010   —   —   —   4,375   —   15.82   69,213 
   2/26/2010   —   —   —   —   26,250   15.82   180,144 
2013:
 
  
 
Grant
Date
 
Estimated Possible Payouts
Under Non-Equity Incentive
Plan Awards ($)(1)
 
All Other
Stock
Awards:
Number of
Shares of
Stock or
Units(#)(2)
 
Option
Awards
Number of
Securities
Underlying
Options
(#)(2)
 
Exercise  or
Base Price
of Option
Awards
($ / Sh)
 
Grant Date
Fair Value
of
Stock and
Option
Awards
($)(3)
Name Threshold Target Maximum 
Valentin P. Gapontsev, Ph.D. 3/1/2013 101,775
 407,100
 1,221,300
 —
 —
 —
 —
Timothy P.V. Mammen 3/1/2013 48,979
 195,917
 587,780
 —
 —
 —
 —
 3/1/2013 —
 —
 —
 2,500
 —
 —
 150,275
 3/1/2013 —
 —
 —
 —
 15,000
 60.11
 432,302
Eugene Scherbakov, Ph.D. 3/1/2013 54,068
 216,272
 648,848
 —
 —
 —
 —
 3/1/2013 —
 —
 —
 2,200
 —
 —
 132,242
 3/1/2013 —
 —
 —
 —
 14,000
 60.11
 403,482
Angelo P. Lopresti 3/1/2013 46,748
 186,990
 560,998
 —
 —
 —
 —
 3/1/2013 —
 —
 —
 2,000
 —
 —
 120,220
 3/1/2013 —
 —
 —
   13,000
 60.11
 374,662
Alexander Ovtchinnikov, Ph.D. 3/1/2013 45,450
 181,800
 545,427
 —
 —
 —
 —
3/1/2013 —
 —
 —
 1,800
 —
 —
 108,198
3/1/2013 —
 —
 —
 —
 12,000
 60.11
 345,842
 
(1)
Amounts shown represent potential amounts that were available under the STIP for 20102013 for achievement of financial performance measures. Themeasures, except that the possible payouts in the “Maximum” column represent the maximum permitted payout under the STIP in 2010. Performance measuresfor 2013 for both financial and individual performance measures. The performance goals used in determining STIP payments are discussed in “Compensationthe Compensation Discussion and Analysis”Analysis above. Actual amounts paid for 20102013 performance are shown in the “Non-Equity Incentive Plan Compensation” column in the Summary Compensation Table above.
(2)The amounts listed reflect restricted stock units and stock options granted under our 2006 Incentive Compensation Plan and are described in the Outstanding Equity Awards Table below.
(3)The value of an option award isValuation based onupon the fair value of such award as of the grant date determined pursuant to ASC Topic 718. The assumptions that we used with respect to the valuation of restricted stock unit and stock option awards are set forth in Note 2 to our Consolidated Financial Statements in our Annual Report onForm 10-K filed with the SEC on March 15, 2011.February 28, 2014. The option exercise price has not been deducted from the amounts indicated above. Regardless of the value placed on a restricted stock unit or stock option on the grant date, the actual value of the restricted stock unit or stock option will depend on the market value of our common stock at such date in the future when the restricted stock unit vests or the stock option is exercised.


31


32



Outstanding Equity Awards Table
The following table provides information regarding unexercised stock options and unvested restricted stock units held by each of our Named Executive Officers as of December 31, 2010:
                             
            Number of
  
    Securities
 Securities
     Shares or
 Market value
    Underlying
 Underlying
     Units of
 of Shares or
    Unexercised
 Unexercised
 Option
 Option
 Stock That
 Units of Stock
  Grant
 Options (#)
 Options (#)
 Exercise
 Expiration
 Have Not
 That Have Not
Name
 Date Exercisable Unexercisable Price ($)(1) Date Vested (#) Vested ($)(2)
 
Valentin P. Gapontsev, Ph.D.   —   —   —   —   —   —   — 
Timothy P.V. Mammen  9/22/2005   3,333   —  $1.88   9/22/2015   —   — 
   4/18/2006   13,334   13,334(3) $5.37   4/18/2016   —   — 
   5/9/2008   —   25,000(4) $19.69   5/8/2018   —   — 
   2/26/2009   13,281   —  $8.26   2/25/2019   —   — 
   2/26/2009   —   25,000(5) $8.26   2/25/2019   —   — 
   2/26/2010   —   26,250(6) $15.82   2/25/2020   —   — 
   2/26/2010   —   —   —   2/25/2020   4,375(6)  138,338 
Eugene Scherbakov, Ph.D.   4/18/2006   —   13,334(3) $5.37   4/18/2016   —   — 
   5/9/2008   —   22,000(4) $19.69   5/8/2018   —   — 
   2/26/2009   1,461   —  $8.26   2/25/2019       — 
   2/26/2009   —   22,000(5) $8.26   2/25/2019   —   — 
   2/26/2010   —   26,250(6) $15.82   2/25/2020   —   — 
   2/26/2010   —   —   —   2/25/2020   4,375(6)  138,338 
Angelo P. Lopresti  4/18/2006   53,333   13,334(3) $5.37   4/18/2016   —   — 
   5/9/2008   —   20,000(4) $19.69   5/8/2018   —   — 
   2/26/2009   10,625   —  $8.26   2/25/2019   —   — 
   2/26/2009   —   20,000(5) $8.26   2/25/2019   —   — 
   2/26/2010   —   26,250(6) $15.82   2/25/2020   —   — 
   2/26/2010   —   —   —   2/25/2020   4,375(6)  138,338 
Alexander Ovtchinnikov, Ph.D.   4/18/2006   —   20,000(3) $5.37   4/18/2016   —   — 
   5/9/2008   —   22,000(4) $19.69   5/8/2018   —   — 
   2/26/2009   —   22,000(5) $8.26   2/25/2019   —   — 
   2/26/2010   —   26,250(6) $15.82   2/25/2020   —   — 
   2/26/2010   —   —   —   2/25/2020   4,375(6)  138,338 
2013:
 
Name Grant Date 
Securities
Underlying
Unexercised
Options (#)
Exercisable
 
Securities
Underlying
Unexercised
Options (#)
Unexercisable
   
Option  Exercise
Price ($)(1)
 
Option
Expiration
Date
 
Number
of Shares
or Units
of Stock
That
Have Not
Vested (#)
   
Market
Value of
Shares
or Units
of Stock
That
Have
Not
Vested
($)(2)
Valentin P. Gapontsev, Ph.D. —
 —
 —
    —
 —
 —
    —
Timothy P.V. Mammen 5/9/2008
 25,000
 —
   19.69
 5/8/2018
 —
    —
 2/26/2009
 17,500
 —
    8.26
 2/25/2019
 —
    —
  2/26/2010
 —
 26,250
 (3) 15.82
 2/25/2020
 —
    —
  2/26/2010
 —
 —
    —
 —
 4,375
 (3) 339,544
  3/1/2011
   21,600
 (4) 53.76
 2/28/2021
 —
     
  3/1/2011
 —
 —
    —
 —
 3,700
 (4) 287,157
  2/14/2012
 —
 12,500
 (5) 58.65
 2/13/2022
 —
    —
  2/14/2012
 —
 —
    —
 —
 2,050
 (5) 159,101
  3/1/2013
 —
 15,000
 (6) 60.11
 2/28/2023
 —
   —
  3/1/2013
 —
 —
     2/28/2023
 2,500
 (6) 194,025
Eugene Scherbakov, Ph.D. 2/26/2009
 2,750
 —
    8.26
 2/25/2019
 —
    —
 2/26/2010
 —
 26,250
 (3) 15.82
 2/25/2020
 —
    —
 2/26/2010
 —
 —
    —
 —
 4,375
 (3) 339,544
  3/1/2011
   19,000
 (4) 53.76
 2/28/2021
 —
     
  3/1/2011
 —
 —
    —
 —
 3,285
 (4) 254,949
  2/14/2012
 —
 12,500
 (5) 58.65
 2/13/2022
 —
    —
  2/14/2012
 —
 —
    —
 —
 2,050
 (5) 159,101
  3/1/2013
 —
 14,000
 (6) 60.11
 2/28/2023
 —
   —
  3/1/2013
 —
 —
     2/28/2013
 2,200
 (6) 170,742

33


Name Grant Date 
Securities
Underlying
Unexercised
Options (#)
Exercisable
 
Securities
Underlying
Unexercised
Options (#)
Unexercisable
   
Option Exercise
Price ($)(1)
 
Option
Expiration
Date
 
Number
of Shares
or Units
of Stock
That
Have Not
Vested (#)
   
Market
Value of
Shares
or Units
of Stock
That
Have
Not
Vested
($)(2)
Angelo P. Lopresti 5/9/2008 20,000
 —
   19.69
 5/8/2018
 —
    —
 2/26/2009 8,625
 —
    8.26
 2/25/2019
 —
    —
 2/26/2010 —
 26,250
 (3) 15.82
 2/25/2020
 —
    —
  2/26/2010 —
 —
    —
 —
 4,375
 (3) 339,544
  3/1/2011 —
 19,000
 (4) 53.76
 2/28/2021
 —
     
  3/1/2011 —
 —
    —
 —
 3,285
 (4) 254,949
  2/14/2012 —
 11,750
 (5) 58.65
 2/13/2022
 —
    —
  2/14/2012 —
 —
    —
 —
 1,920
 (5) 149,011
  3/1/2013 —
 13,000
 (6) 60.11
 2/28/2023
 —
   —
  3/1/2013         2/28/2023
 2,000
 (6) 155,220
Alexander Ovtchinnikov, Ph.D. 2/26/2010 —
 26,250
 (3) 15.82
 2/25/2020
 —
    —
 2/26/2010 —
 —
    —
 —
 4,375
 (3) 339,544
 3/1/2011 —
 19,000
 (4) 53.76
 2/28/2021
 —
    —
  3/1/2011 —
 —
    —
 —
 3,285
 (4) 254,949
  2/14/2012 —
 11,750
 (5) 58.65
 2/13/2022
 —
    —
  2/14/2012 —
 —
    —
 —
 1,920
 (5) 149,011
  3/1/2013 —
 12,000
 (6) 60.11
 2/28/2023
 —
   —
  3/1/2013 —
 —
   —
 2/28/2023
 1,800
 (6) 139,698
 
(1)Represents the fair market value of a share of our common stock on the grant date.
(2)Based upon the closing market stock price of our common stock on December 31, 2010.2013, which was $77.61 per share.
(3)Assuming the continued service of the Named Executive Officer, the options vest on April 18, 2011.
(4)Assuming the continued service of the Named Executive Officer, 1/12th of the options vest in monthly installments commencing May 9, 2012.
(5)Assuming the continued service of the Named Executive Officer, 1/32nd of the options vest in monthly installments commencing May 1, 2011.
(6)Assuming the continued service of the Named Executive Officer, the options and restricted stock units vest in four equal quarterly installments commencing on March 31, 2014.
(4)Assuming the continued service of the Named Executive Officer, the options and restricted stock units vest in four equal quarterly installments commencing on March 31, 2015.
(5)Assuming the continued service of the Named Executive Officer, the options and restricted stock units vest in four equal quarterly installments commencing on March 31, 2016.
(6)Assuming the continued service of the Named Executive Officer, the options and restricted stock units vest in one installment on March 1, 2017.
Option Exercises and Stock Vested Table
The following table provides information regarding stock option exercises by our Named Executive Officers in 2013:
  Option Awards
Name 
Number of Shares
Acquired on
Exercise (#)
 
Value Realized on
Exercise($)(1)
Valentin P. Gapontsev, Ph.D. —
 —
Timothy P.V. Mammen 35,448
 1,961,076
Eugene Scherbakov, Ph.D. 36,378
 1,955,298
Angelo P. Lopresti 22,000
 1,327,068
Alexander Ovtchinnikov, Ph.D. 15,583
 904,899
(1)The value realized is based on the difference between the reported closing common stock price on the date of exercise and the exercise price of the stock option.

34


Pension Benefits
None of our Named Executive Officers participates in or has an account balance in qualified or nonqualified defined benefit pension plans sponsored by us. The Compensation Committee may elect to adopt qualified or nonqualified defined benefit pension plans in the future.
Nonqualified Deferred Compensation
None of our Named Executive Officers participates in or has an account balance in any nonqualified defined contribution plans or other nonqualified deferred compensation plans maintained by us. The Compensation Committee may elect to adopt non-qualified defined contribution plans or other nonqualified deferred compensation plans in the future.
Potential Payments upon Termination or Change in Control
If the Company terminates the employment of any of the Named Executive Officers without cause (as defined in the respective employment agreements) or any of the Named Executive Officers terminates his employment for good reason (as defined in the respective employment agreements) (“cause” and “good reason” are referred to below as “Involuntary Terminations”), then the officer would receive:
(a) continuation of salary for eighteen months, except in the case of Dr. Gapontsev, who would receive continuation of salary for thirty-six months;
 
Equity Compensation Plans(b) a portion of the annual bonus that the executive would have received had he remained employed through the end of the applicable bonus period, including the individual performance element (the portion based upon the percentage of the year that he was employed by the Company);
 
(c) continuation of health benefits for eighteen months, except in the case of Dr. Gapontsev, who would receive continuation of health benefits for thirty-six-months; and
(d) accelerated vesting of equity compensation awards that otherwise would have vested within twelve months of termination of employment.

Upon an Involuntary Termination within twenty-four months following a change in control of the Company, the Named Executive Officer would be entitled to continuation of salary and health benefits for twenty-four months, plus a payment of two times the average annual bonus paid to the Named Executive Officer for the three years preceding the termination. In the case of the Chief Executive Officer, he would be entitled to continuation of salary and health benefits for thirty-six months, plus a payment of three times the average annual bonus paid to him for the three years preceding the termination. Upon a change in control, the officers’ employment periods under the agreements would automatically be extended to the second anniversary of the change in control if such date is later than expiration of the current term. Under the employment agreements, all equity awards vest fully if a change in control occurs followed within two years by an Involuntary Termination.

If the employment period of any of the Named Executive Officers terminates and the Company does not offer such officer continued employment in the same or a substantially similar position or in a higher position than the officer’s position at the end of the employment period and at a compensation level that is the same or substantially similar to the compensation level in effect at the end of the employment period, then such officer may resign from employment and would receive continuation of salary and health benefits for twelve months, except for the Chief Executive Officer who would receive the same for twenty-four months, plus a portion of the annual bonus that the executive would have received had he remained employed through the end of the applicable bonus period, including the individual performance element (the portion based upon the percentage of the year that he was employed by the Company).

A Named Executive Officer would also receive the payments described in clause (b) above if his employment is terminated by death or disability. Under the employment agreements, the Company would not be obligated to make any cash payments if employment were terminated by the Company for cause or by the executive not for good reason.

35



Severance payments to the officers are conditioned upon the release of claims by the Named Executive Officer in favor of the Company. Each of the Named Executive Officers also has an agreement with the Company that prohibits him from competing with the Company for a period of one year after the termination of his employment with the Company for any reason and from hiring or attempting to hire the Company’s employees or soliciting customers or suppliers of the Company for a period ending eighteen months following the termination of his employment for any reason. Each of the Named Executive Officers is entitled to receive his base salary for the period during which the Company enforces the non-competition provisions of the agreement but not for more than one year following termination of his employment.
The following table provides information regarding compensation and benefits that would be payable to our Named Executive Officers as of December 31, 2013, upon an Involuntary Termination absent a change in control and preceded by a change in control. The bonus severance was calculated assuming attainment of the financial performance targets and the maximum individual performance under the 2013 STIP. There can be no assurance that the event triggering payments would produce the same or similar results as those described below if such event occurs on any other date or at any other price, or if any other assumption used to estimate the potential payments and benefits is incorrect. Any actual payments and benefits may be different due to a number of factors that affect the nature and amount of any potential payments or benefits.
Name Benefit 
Termination
Without Cause or
For Good
Reason ($)(1)
 
Termination
Without Cause or
For Good
Reason
Following a
Change in
Control
($)(1)
Valentin P. Gapontsev, Ph.D. Salary, Severance and Benefits Continuation 1,659,537
 1,659,537
  Incentive Plan Severance 1,221,300
 2,912,138
  Equity acceleration —
 —
  Total 2,880,837
 4,571,675
Timothy P.V. Mammen Salary, Severance and Benefits Continuation 611,553
 815,404
  Incentive Plan Severance 587,780
 1,184,191
  Equity acceleration 1,961,531
 3,422,449
  Total 3,160,864
 5,422,044
Eugene Scherbakov, Ph.D. Salary, Severance and Benefits Continuation 656,379
 875,171
  Incentive Plan Severance 648,848
 1,331,856
  Equity acceleration 1,961,531
 3,310,731
  Total 3,266,758
 5,517,758
Angelo P. Lopresti Salary, Severance and Benefits Continuation 560,970
 747,960
  Incentive Plan Severance 560,998
 1,157,409
  Equity acceleration 1,961,531
 3,268,921
  Total 3,083,499
 5,174,290
Alexander Ovtchinnikov, Ph.D. Salary, Severance and Benefits Continuation 566,237
 538,973
  Incentive Plan Severance 545,427
 1,123,655
  Equity acceleration 1,961,531
 3,251,421
  Total 3,073,195
 4,914,049
(1)Equity acceleration is calculated using the full value of restricted stock units based upon the closing sale price of our common stock on December 31, 2013 of $77.61 per share and the aggregate difference between the exercise prices of stock options and the closing sale price of our common stock on December 31, 2013.


36


Compensation Risk Assessment Review
Management conducts an annual risk assessment of the Company’s compensation policies and practices for all employees, including non-executive officers, and reports its findings to the Compensation Committee. In 2013, management concluded that the Company’s compensation policies and practices are balanced and do not motivate imprudent risk taking. The Company’s compensation programs reward consistent, long-term performance by heavily weighting compensation to long-term incentives that reward sustainable financial and operating performance and imposing lengthy vesting schedules. The Company’s annual incentive compensation is based on performance measures that promote progress towards longer-term goals and is capped at sustainable levels. The Company believes that it has appropriate procedures in place to mitigate material risks, if any, from its compensation practices and policies.
The Compensation Committee does not believe that our compensation policies and practices for our employees give rise to risks that are reasonably likely to have a material adverse effect on our Company. In reaching this conclusion, we considered the following factors:
our compensation program is designed to provide a mix of both fixed and variable incentive compensation;
our senior executives are subject to stock ownership guidelines, which we believe incentivize our executives to consider the long-term interests of the Company and our stockholders and discourage excessive risk-taking that could negatively impact our stock price; and
our incentive compensation programs are designed with vesting terms that are relatively consistent, spread out over several years, and do not contain steep payout “cliffs” that might encourage short-term business decisions in order to meet a vesting or payout threshold.
EQUITY COMPENSATION PLANS
Equity Plans
In February 2006, our Board of Directors adopted our 2006 Incentive Compensation Plan, which was approved by our stockholders. On February 23, 2011, our Board of Directors adopted amendmentsstockholders as a successor plan to the 20062000 Incentive Compensation Plan for(under which we are seeking stockholder approval.awards may no longer be made). The amendment of the 2006 Plan would increasewas amended in May 2011 upon approval by our stockholders at the 2011 annual stockholders meeting. The maximum number of shares that may be awarded under the 2006 Plan by 6,000,000, from the 4,000,000 previously authorized under the 2006 Plan, for a total of 10,000,000 shares authorized for awards. We reserved 5,833,333 shares under our 2000 Incentive Compensation Plan, but we


32

may not grant options under this plan any further. In addition to the 10,000,000 shares authorized under the 2006 Plan, a total of 84,273 shares reserved under the 2000 Plan but not granted under such Plan may be granted under the 2006 Plan.is 10,084,273. Other than the number of shares reserved, the plans are verysubstantially similar. Each plan terminates ten years after its adoption, unless terminated earlier by our Board.
The 2000 Plan and the 2006 Plan, as amended, are administered by the Compensation Committee. The Compensation Committee approves awards under the Plans, including the exercise price and other terms of each award, subject to the provisions of the Plans and has general authority to administer the Plans.

Each Plan authorizes the grant of options to purchase common stock intended to qualify as incentive stock options, as defined in Section 422 of the Internal Revenue Code, and nonstatutory stock options. The Plans also provide for awards of restricted stock, stock units, performance shares, performance units, stock appreciation rights and cash awards.
Our officers, directors, employees, consultants and advisors are eligible to receive awards under the Plans. No participant may receive awards for over 1,666,667 shares of common stock in any calendar year under the 2006 Plan, as amended.
In June 2006, our Board adopted our Non-Employee Directors Stock Plan (the Non-Employee Director Plan) which was approved by our stockholders. Only our non-employee directors are eligible to receive awards under the Non-Employee Director Plan. A total of 486,666 shares are reserved for issuance under the Non-Employee Director Plan. The Non-Employee Director Plan terminates ten years after its adoption, unless terminated earlier by our Board. The Non-Employee Director Plan authorizes the grant of options to purchase common stock that are not intended to qualify as incentive stock options, as defined in Section 422 of the Code. The Plan also provides for awards of stock appreciation rights, stock units, stock awards and cash awards.
Awards granted or paid under the 2006 Plan as amended, will be subject to any compensation recovery policy established by the Company and amended from time to time. The 2006 Plan as amended, expressly forbids the repricing or cancellation of underwater stock options.

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The 2000 Plan provides that, upon a change in control of our company, the Compensation Committee may, in its sole discretion, accelerate the time for exercise or payout of all outstanding awards, cancel the award after notice to the holder of an outstanding award as long as the holder receives a payment equal to the difference between the fair market value of the award on the date of the change in control and the exercise price per share, if any, of such award, or provide that all outstanding awards will be either assumed by the entity that acquires control or substituted for similar awards by such entity. The 2006 Plan as amended, provides for accelerated vesting of an award only if the participant experiences a termination of employment without cause or the employee terminates employment for good reason within two years after a change in control and employment termination (a so-called “double trigger”“double-trigger”), rather than immediatelyproviding for immediate vesting upon a change in control (“single trigger”single-trigger”).
In addition, in the event that the 2000 Plan or 2006 Plan as amended, is terminated due to a merger or acquisition of the Company, the Compensation Committee has the right, but not the obligation, to direct the repurchase of outstanding stock options at a price equal to the fair market value of the shares subject to the repurchased options less the exercise price per share.
The Non-Employee Director Plan provides that awards become fully vested and exercisable upon a change in control. The Plan defines a “change in control” as the occurrence of any of the following:
• any person becomes a beneficial owner of our securities representing at least 50% of the combined voting power of our then-outstanding securities;
• persons who, at the beginning of any period of two consecutive years, were members of the Board of Directors cease to constitute a majority of the Board of Directors unless the election or nomination for election by the stockholders of each new director during that two-year period is approved by at least two-thirds of the incumbent directors then still in office;


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• the occurrence of a merger, sale of all or substantially all of our assets, cash tender or exchange offer, contested election or other business combination under circumstances in which our stockholders immediately prior to such merger or other such transaction do not, after such transaction, own shares representing at least a majority of our voting power or the surviving or resulting corporation, as the case may be; or
• our stockholders approve a complete liquidation.
persons who, at the beginning of any period of two consecutive years, were members of the Board of Directors cease to constitute a majority of the Board of Directors unless the election or nomination for election by the stockholders of each new director during that two-year period is approved by at least two-thirds of the incumbent directors then still in office;
the occurrence of a merger, sale of all or substantially all of our assets, cash tender or exchange offer, contested election or other business combination under circumstances in which our stockholders immediately prior to such merger or other such transaction do not, after such transaction, own shares representing at least a majority of our voting power or the surviving or resulting corporation, as the case may be; or
our stockholders approve a complete liquidation.
Employee Stock Purchase Plan
We maintain an employee stock purchase plan, which is intended to qualify as an “employee stock purchase plan”be qualified under Section 423 of the Internal Revenue Code. Each of our U.S. employees and a limited group of our German employees who customarily workswork more than 20 hours per week and more than five months in any calendar year is eligible to participate in this plan after completing six months of service. To participate in the plan, an employee may designate prior to the commencement of a six-month offering period the amount of payroll deductions to be made from his or her paycheck for the purchase of shares of our common stock under the plan, which amount may not exceed 10% of his compensation. On each purchase date, shares of our stock are purchased automatically for each participant with the amounts withheld from his or her payroll deductions at a price equal to 85% of the lesser of the fair market value of the shares on the purchase date or the fair market value of the shares on the first day of the offering period. An employee may not participate in an offering period if, immediately after the purchase of shares, the employee would own shares or hold options to purchase shares of our stock possessing 5% or more of the total combined voting power or value of all classes of our stock. The employee stock purchase plan includes a “Non-Code Section 423 Component” for the employees of subsidiaries outside the United States.
Option Exercises and Stock Vested Table
PROPOSAL 2: ADVISORY VOTE ON EXECUTIVE COMPENSATION
The following table provides information regarding stock option exercisesBoard recognizes that executive compensation is an important matter for our stockholders. The guiding principles of our executive compensation philosophy and practice continue to be: pay for performance; accountability for short- and long-term performance; alignment to stockholders’ interests; and providing competitive pay to attract and retain executives. We believe our compensation programs are strongly aligned with the long-term interests of our stockholders.
We believe our compensation program strikes the appropriate balance between utilizing responsible, measured pay practices and effectively incentivizing our executives to dedicate themselves fully to value creation for our stockholders. This balance is evidenced by our Named Executive Officers in 2010:IPG Photonics' best pay practices:

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  Option Awards 
  Number of Shares Acquired
  Value Realized on
 
Name
 on Exercise (#)  Exercise($)(1) 
 
Valentin P. Gapontsev, Ph.D.   —   — 
Timothy P.V. Mammen  80,000   1,228,577 
Eugene Scherbakov, Ph.D.   63,560   935,122 
Angelo P. Lopresti  —   — 
Alexander Ovtchinnikov, Ph.D.   61,688   915,801 
(1)The value realized is based on the difference between the reported closing sale price on the date of exercise, and the exercise price.
Pension Benefits
None of our Named Executive Officers participate in or have account balances in qualified or nonqualified defined benefit pension plans sponsored by us. The Compensation Committee may elect to adopt qualified or nonqualified defined benefit pension plans in the future if the Compensation Committee determines that doing so is in our best interests.
Nonqualified Deferred Compensation
None of our Named Executive Officers participate in or have account balances in nonqualified defined contribution plans or other nonqualified deferred compensation plans maintained by us.


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Potential Payments Upon Termination or Change in Control
If the Company terminates the employment of any of the Named Executive Officers without cause (as defined in the respective employment agreements) or any of the Named Executive Officers terminates his employment for good reason (as defined in the respective employment agreements), then the officer would receive:
(a) continuation of salary for one year, except in the case of Dr. Gapontsev, who would receive continuation of salary for two years;
(b) a portion of the annual bonus that the executive would have received had he remained employed through the end of the applicable bonus period (such portion based upon the percentage of the year that he was employed by the Company);
(c) continuation of medical and dental benefits for twelve months;
(d) accelerated vesting of equity compensation awards granted after the date of the agreement that otherwise would have vested within twelve months of termination of employment; and
(e) full accelerated vesting of equity compensation awards granted after the date of the agreement if such termination occurs within twenty-four months following a change in control (as defined in the 2006 Plan).
If the employment period of any of the Named Executive Officers terminates and the Company does not offer such officer continued employment in the same or a substantially similar position and at a compensation level that is the same or substantially similar to the compensation level in effect at the end of the employment period, then such officer would receive the compensation and benefits described in (a), (b) and (e) above.
An officer would also receive the payments described in (b) above if his employment is terminated by death or disability.
Under the employment agreements, the Company is not obligated to make any cash payments if employment is terminated by the Company for cause or by the executive not for good reason. Payments to the officers are conditioned upon the execution of a form release of claims by the Named Executive Officer in favor of the Company.
A change in control of the Company does not affect the amount of any cash severance payments payable under the employment agreements. Upon a change in control, the officers’ employment periods under the agreements would automatically be extended to the second anniversary of the change in control.
The amendments to the 2006 Plan, discussed in Proposal 3 below, revise the change in control provision in the 2006 Plan to provide for accelerated vesting of an award if a change in control occurs followed within two years by a termination of employment without cause or for good reason. See “Proposal 3: Approval of Amendments to IPG Photonics Corporation 2006 Incentive Compensation Plan” below.


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The following table provides information regarding compensation and benefits to our Named Executive Officers as of December 31, 2010 upon a termination of employment or change in control:
What We Do What We Don’t Do
Termination
Without Cause or
Change in
For Good Reason
Control
Name
Benefit($)($)(1)
Valentin P. Gapontsev, Ph.D. Salary and Benefits Continuation807,033—
Option acceleration——
Timothy P.V. MammenSalary and Benefits Continuation307,929
Option acceleration—1,785,355
Eugene Scherbakov, Ph.D. Salary and Benefits Continuation345,334
Option acceleration—1,679,485
Angelo P. LoprestiSalary and Benefits Continuation307,929
Option acceleration—1,608,905
Alexander Ovtchinnikov, Ph.D. Salary and Benefits Continuation287,963
Option acceleration—1,854,468
(1)Change in control value is calculated using the full value of restricted stock units based upon the closing sale price of our common stock on December 31, 2010, and, the aggregate difference between the exercise prices of stock options and the closing sale price of our common stock on December 31, 2010 if the Compensation Committee determines to accelerate the vesting of all restricted stock units and stock options outstanding at December 31, 2010 upon a change in control. If stockholders approve Proposal 3 at the annual meeting, then the compensation under this column would occur only if a change of control occurs followed within two years by a termination of employment without cause or for good reason.
Compensation Risk Assessment Review
In 2011, management conducted a risk assessment of the Company’s compensation policies and practices for all employees, including non-executive officers, and reported its findings to the Compensation Committee. Management concluded that the Company’s compensation policies and practices are balanced and do not motivate imprudent risk taking. The Company’s compensation programs reward consistent, long-term performance by heavily weighting compensation to long-term incentives that reward sustainable financial and operating performance and imposing lengthy vesting schedules. The Company’s annual incentive compensation is based on performance measures that promote progress towards longer-term goals and is capped at sustainable levels. The Company has appropriate procedures in place to mitigate material risks, if any, from its compensation practices and policies.
PROPOSAL 3 APPROVAL OF AMENDMENTS TO IPG PHOTONICS CORPORATION
2006 INCENTIVE COMPENSATION PLAN
The Board is submitting to the stockholders for approval at the annual meeting an amendment to the IPG Photonics Corporation 2006 Incentive Compensation Plan (the “Amended Plan”).
On February 23, 2011, the Board adopted the Amended Plan, subject to approval by the stockholders. The Amended Plan enables the Company to make stock-based and non-stock awards to its eligible employees, non-employee directors and independent contractors. The Amended Plan provides for the grant of: (i) incentive stock options; (ii) non-qualified stock options; (iii) stock appreciation rights; (iv) restricted stock; (v) stock units; (vi) performance shares; (vii) performance units; (viii) cash awards; or (ix) any combination of the foregoing. The purpose of the Amended Plan is to motivate employees, non-employee directors and independent contractors by providing an opportunity to acquire cash or equity incentive awards, and to provide a means through which the Company, its affiliates and group companies may attract the highest-quality individuals to enter employment or engagement with the Company or its affiliates and to align the interests of such individuals with the Company’s stockholders.


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The Company previously adopted, and stockholders approved, the 2006 Incentive Compensation Plan (the “Current Plan”), which provided for the grant of awards similar to those available under the Amended Plan. Although shares are still available for awards to be granted under the Current Plan, it is necessary to submit the Amended Plan to stockholders for approval at this time in order to satisfy the stockholder approval requirements of Section 162(m) of the Internal Revenue Code (the “Code”). The Amended Plan is modeled after and is substantially similar to the Current Plan. The changes to the Current Plan, which primarily are inserted to allow us to continue to grant equity awards to employees and other individuals essential for our success and comply with updated laws and to incorporate certain best practices in executive compensation, are summarized below:
• increases the maximum number of shares that may be awarded under the Amended Plan by 6,000,000, from the 4,000,000 previously authorized under the Current Plan, for a total of 10,000,000 shares authorized for awards, and adjusted the cumulative award limitations for restricted stock awards;
• adds a definition for the term “Award Date” to clarify that no award may have an award date that is before the date of Compensation Committee action;
• makes awards granted under the Amended Plan subject to the Company’s Compensation Recovery Policy;
• expressly forbids the repricing or cancellation of underwater stock options;
• removes thesub-limit for restricted stock and provides that remaining shares available under the Amended Plan will be reduced by 1.60 for each Share awarded pursuant to restricted stock, stock units, performance shares, or other awards with value denominated in full shares;
• amends the definition of “Cause” terminations to include conduct discovered within one year of a participant’s termination of service, which would have justified a Cause termination, in the Board’s good faith determination;
• adds language to ensure that awards granted under the Amended Plan comply with Code Section 409A;
• revises the change in control provisions of the Amended Plan to provide for accelerated vesting of an award only after a change in control and employment termination (a so-called “double trigger”), rather than immediately upon a change in control (“single trigger”);
• clarifies that the Committee may not adjust any performance goals related to awards intended to comply with Code Section 162(m) for tax deductibility purposes in a way that causes such awards to no longer qualify for the performance-based compensation exception; and
• provides a definition of termination for “Good Reason” in the event that an employment agreement or award agreement does not include a “Good Reason” definition;
Public companies are generally prohibited from taking a federal income tax deduction for compensation paid to their Named Executive Officers in excess of $1 million per year, unless the compensation meets an exception under Code Section 162(m), such as the exception for performance-based compensation. In order to qualify for that exception, compensation must, among other things, be paid under a plan that has been approved by the stockholders of the Company. No award granted under the Amended Plan may be exercised unless and until the stockholders have approved the Amended Plan. No awards may be granted under the Amended Plan subsequent to February 28, 2016.
Our Board expects that the Amended Plan will be an important factor in attracting, retaining and rewarding high caliber employees, non-employee directors and independent contractors essential to our success and in providing incentives to these individuals to promote the success of the Company. If stockholders do not approve the Amended Plan, we would soon be unable to continue making grants under the Current Plan. This would make it difficult for us to attract and retain talent.
The following discussion of the principal features of the Amended Plan is qualified in its entirety by reference to the full text of the Amended Plan as set forth in Appendix A attached hereto, which is submitted in redline form and marked to show the minor changes from the Current Plan, as previously approved by the


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stockholders. The Amended Plan will become effective at the annual meeting only if it is approved by the Company’s stockholders at the annual meeting.
Plan Summary
Shares Subject to the Amended Plan.  The Amended Plan increases the number of shares of the Company’s common stock reserved for awards under the Amended Plan by 6,000,000. The shares may, at the election of the Board, be authorized but unissued shares, shares of issued stock held in the Company’s treasury, or a combination of each. The maximum number of shares of stock that may be delivered under the Amended Plan is equal to the sum of: (i) 10,000,000 shares; (ii) any shares of stock subject to an award under the Amended Plan, the Current Plan or the 2000 Plan that expires without being exercised, or is forfeited, canceled, settled or otherwise terminated without a distribution of stock to the participant; and (iii) any shares that are delivered to or withheld by the Company in connection with the exercise of a stock option awarded under the Amended Plan, the Current Plan, the 2000 Plan or in payment of any required income tax withholding for the exercise of a stock option or the vesting of restricted stock awarded under the Amended Plan, the Current Plan or the 2000 Plan.
Just as under the Current Plan:
• The number of shares subject to any award under the Amended Plan, or reserved for awards to be granted under the Amended Plan, will be adjusted as appropriate upon a change in the Company’s capitalization, a reorganization or similar transaction or a stock dividend. If the outstanding shares of stock are increased, decreased, changed into or exchanged for a different number or kind of securities of the Company through a transaction that causes the per-share value underlying an award to change, a proportionate adjustment will be made to the number or kind of shares of stock or securities allocated to awards that were granted prior to the transaction.
• Changes to outstanding option awards may be made with an adjustment to the exercise price, so long as the adjustment does not result in an enlargement of the participant’s rights under the option. The Board will have the right but not the obligation to make similar adjustments to awards or the Fair Market Value (as defined below) applicable to outstanding awards to compensate for the diminution in the intrinsic value of shares of stock resulting from a reciprocal transaction such as a business combination, merger or acquisition.
• The Board also retains the discretion to adjust the terms and conditions or other criteria included in awards granted under the Amended Plan to prevent the dilution or enlargement of benefits upon the occurrence of unusual or nonrecurring events affecting the Company or its financial statements or in recognition of changes in applicable laws, regulations or accounting principles.
• No changes may be made that would disqualify compensation attributable to performance-based awards as “performance-based compensation” under Code Section 162(m). No adjustments shall be made to incentive stock options that would disqualify such awards from being an incentive stock option.
Limitations.  No more than 833,333 shares are cumulatively available for awards of incentive stock options under the Amended Plan. The maximum number of shares of stock with respect to which awards may be granted in any calendar year to any participant under the Amended Plan is 1,666,667 shares, as adjusted for any Company recapitalization, reorganization, stock dividend or similar event. The maximum aggregate number of shares of stock underlying awards that may be granted in any calendar year to any participant as incentive stock options is 133,333. The aggregate market value of common stock with respect to which incentive stock options are exercisable for the first time by a participant in a single calendar year may not exceed $100,000. Importantly, each share of restricted stock, stock unit, performance share, performance unit or other award under the Amended Plan with value denominated in full shares shall equate to 1.60 shares of common stock for purposes of determining any individual or aggregate award limitations under the Amended Plan and for purposes of calculating the aggregate amount of common stock available for awards under the Amended Plan.


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Administration.  Just as with the Current Plan, the Amended Plan will be administered by the Board or a committee or subcommittee of the Board appointed by the Board from among its members (the “Committee”). Unless the Board determines otherwise, the Committee must consist of at least two members who shall qualify as “non-employee directors” within the meaning ofRule 16b-3 under the Securities Exchange Act of 1934, as amended from time to time (the “Exchange Act”), or “outside directors” within the meaning of Code Section 162(m) and any Treasury Regulations thereunder. The Committee may delegate to one or more of its members or one or more agents any administrative duties as it deems advisable. The Committee and its delegatee may retain individuals to render advice to it with respect to any of its duties, including, without limitation, legal counsel and consultants. The Board may also delegate to the Company’s Chief Executive Officer the authority to grant specified numbers of options to current or prospective employees (other than those individuals subject to Section 16(a) of the Exchange Act at the time of grant) in the Chief Executive Officer’s discretion. The Committee has the authority to interpret the terms of the Amended Plan. Subject to the terms of the Amended Plan, the Committee has the authority to determine the individuals to whom awards are granted and to determine exercise prices, vesting requirements, the term of and the number of shares covered by each award, and the form of the award to be granted.
Persons Eligible to Participate in the Amended Plan.  Under the Amended Plan, just as with the Current Plan, awards may be granted to employees, group employees, non-employee directors of the Company and independent contractors. A group employee is an employee of a business in which the Company has a significant financial interest. The Committee will consider all relevant factors in selecting participants and determining the type and amount of awards given to such participants.
Awards
Award Agreements.  Each award granted under the Amended Plan, just as with the Current Plan, will be represented by an award agreement in a form approved by the Committee. The award agreement is subject to the terms of the Amended Plan and will incorporate such terms and conditions required under the Amended Plan and any terms specified by the Committee. The Committee may amend or modify any award agreement at any time by mutual agreement between the Committee and the participant, provided that (i) the modification is not to the detriment of the participant without his or her written consent, (ii) any modification satisfies the exemption requirements of Code Section 409A, and (iii) the Committee does not reduce the exercise price of any outstanding option or exchange or replace an existing option with a new option with a lower exercise price.
Performance Goals.  As is the case under the Current Plan, the Committee may establish performance goals in connection with the grant of an award based on any combination of the following measures of the Company: (a) net sales; (b) pretax income before allocation of corporate overhead and bonus; (c) budget; (d) cash flow; (e) earnings per share; (f) net income; (g) division, group or corporate financial goals; (h) return on stockholders’ equity; (i) return on assets; (j) attainment of strategic and operational initiatives; (k) appreciation inand/or maintenance of the price of the common stock or any other publicly-traded securities of the Company; (l) market share; (m) gross profits; (n) earnings before interest and taxes; (o) earnings before interest, taxes, depreciation and amortization; (p) economic value-added models; (q) comparisons with various stock market indices; (r) increase in number of customers; (s) revenue backlog; (t) margins realized on delivered goods or services;and/or (u) reductions in costs.
The performance goals are intended to qualify under Code Section 162(m) and will be set by the Committee within the time period prescribed by Code Section 162(m), if the Committee intends to make a grant under the Amended Plan that would qualify for the performance-based compensation exception under Code Section 162(m). If the Committee determines that it is advisable to grant awards that will not qualify for the performance-based compensation exception under Code Section 162(m), the Committee may grant awards that do not so qualify.
Stock Options.  As is the case under the Current Plan, stock options awarded under the Amended Plan may be in the form of “incentive stock options” that are intended to comply with the requirements of Code Section 422, or “non-qualified stock options.” Special rules apply with respect to the terms of incentive stock


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options in order to meet the Code Section 422 requirements applicable to that type of option. The Company may also grant a stock option to any holder of an option that allows the participant to purchase shares of stock of any corporation that the Company, affiliate or group company acquires or merges with. Such “conversion stock options” must have the same economic value as the original option. Conversion stock options granted to a holder of incentive stock options will retain the same restrictions as the incentive stock options, unless the Committee determines otherwise.
As is the case under the Current Plan, the exercise price of all options granted under the Amended Plan must be equal to or greater than the Fair Market Value per share of stock covered by the option, as determined on the award date. So long as the Company is publicly traded, the “Fair Market Value” of its stock is deemed to be the closing price of the stock on the national securities exchange or other market system on the date of calculation (or on the last preceding trading date if the stock was not traded on such date).
As is the case under the Current Plan, options may be exercised upon vesting or as expressly permitted in the award agreement. Vesting terms will be expressed in the award agreement, but if the agreement is silent as to vesting terms, then the options will vest in 25% increments on each of the first four anniversaries of the grant date. Options remain exercisable until the option expires, as specified in the award agreement. Vesting may be accelerated by the Committee, in its discretion, if certain performance goals are met, upon a Change in Control (as defined in the Amended Plan) or if a participant is terminated, as specified in the award agreement. The exercise price may be paid in cash or, subject to the approval of the Committee, by delivery of shares of Company stock owned by the participant, by withholding a portion of the shares of stock for which the option is exercisable, by any other method consistent with applicable law, or by a combination of these methods.
As is the case under the Current Plan, all options are exercisable during the participant’s lifetime, only by the participant. All options granted under the Amended Plan are generally nontransferable, except to a beneficiary designated by the participant in the event of the participant’s death, by will or under the laws of descent and distribution. Award agreements for non-qualified stock options may permit transfers solely to members of the participant’s immediate family, trusts or family partnerships or other entities, in the Committee’s discretion. The Committee retains the right to call options in the event of plan termination due to a merger or acquisition or upon occurrence of a Change in Control of the Company.
Stock Appreciation Rights.  As is the case under the Current Plan, stock appreciation rights may be granted under the Amended Plan as individual awards, in tandem with options or any combination thereof. Stock appreciation rights granted in tandem with options may be granted with or any time after the option is granted, so long as the option’s term has not expired and the grant price of the stock appreciation right is equal to the Fair Market Value of the stock on the date the option was granted. Otherwise, the grant price of the stock appreciation right will be equal to the Fair Market Value per share of stock covered by the stock appreciation right, as determined on the award date.
As is the case under the Current Plan, upon exercise of a stock appreciation right, a participant will be entitled to receive payment from the Company in an amount equal to the number of shares of stock as to which the stock appreciation right is exercised, multiplied by any excess of the Fair Market Value of a share on the date of exercise of the stock appreciation right over the grant price specified in the award agreement. At the discretion of the Committee, the payment upon exercise of a stock appreciation right may be specified in cash, Company stock or a combination of the two.
Restricted Stock and Stock Units.  As is the case under the Current Plan, restricted stock and stock units may be granted under the Amended Plan, subject to restrictions on transferability and other restrictions established by the Committee for a restriction period. The restrictions lapse after the restriction period, which extends from the date of the award to a specific date or until the participant achievesand/or completes specified performance goals, service periods, or other criteria set by the Committee. The Committee may provide for the lapse of restrictions in installments.
As is the case under the Current Plan, if a participant terminates service with the Company within specified periods prior to the expiration of the restriction period, all shares of restricted stock generally will be


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forfeited and reacquired by the Company, unless the Committee determines otherwise. Awards of stock units may earn dividend equivalents, if permitted by the Committee and specified in the award agreement. Upon the vesting date of a stock unit, shares of stock or cash or a combination thereof will be distributed to the participant.
Performance Shares and Performance Units.  As is the case under the Current Plan, performance shares and performance units may be granted under the Amended Plan, subject to the participant’s completion of a performance period and the achievement of performance goals, as set by the Committee for each grant of performance shares or units. The Committee may base the performance goals on Company-wide goals, divisional goals, individual performance goals,and/or the goals listed in the “Performance goals” section above. The Committee may adjust any performance goals for outstanding performance shares of performance units that were not intended to qualify as performance-based awards under Code Section 162(m), unless the Committee restricts its authority to do so. With respect to awards intended to qualify as performance-based awards under Code Section 162(m), the Committee may not adjust the performance goals in a way that would cause the awards to no longer qualify as performance-based awards under Code Section 162(m).
Upon the vesting of performance shares or performance units, the shares of stock underlying the performance shares or the cash value of the performance units shall be distributed to the participant, unless the Committee decides to pay such awards in cash, stock or a combination thereof.
Cash Awards.  As is the case under the Current Plan, the Committee may make cash awards under the Amended Plan. The Committee will specify any terms and conditions that the cash award will be subject to, including, without limitation, any vesting dates, vesting criteria and the right of the Company to require the participant to repay any cash awards (with or without interest) upon termination of employment within specified periods.
Performance-Based Awards.  As is the case under the Current Plan, the Amended Plan also provides for specific terms for awards made under Code Section 162(m). Awards made under the Amended Plan may be designated as qualified performance-based compensation. To meet this requirement, the Committee must, at a time when the outcome of the performance goals remain substantially uncertain and before the expiration of the lesser of 90 days into the performance period or before 25% of the performance period has elapsed, establish in writing the individual or class of participants eligible for such awards and that the vesting or payment of the award will be contingent upon the attainment of specified performance goals selected by the Committee (as listed in the “Performance goals” section, above). In addition, at the time of the grant, the Committee must be comprised solely of two or more “outside directors,” as defined in Code Section 162(m) and any Treasury Regulations thereunder. No compensation attributable to such awards may be paid to participants until after the performance period has expired and the Committee has certified the extent to which the performance goals have been met and the amount payable to the participant. The Committee may not adjust any performance goal (unless such adjustment is permitted under Code Section 162(m) or any Treasury regulations thereunder) or increase the amount of compensation payable upon attainment of such performance goals.
Election to Defer Compensation Attributable to Awards.  As is the case under the Current Plan, in the Committee’s discretion and subject to Code Section 409A, a participant may elect to defer the receipt of any compensation attributable to any awards granted under the Amended Plan. Any deferral must comply with the provisions of Code Section 409A and any Treasury Regulations or other guidance issued thereunder.
Restrictive Covenants.  As is the case under the Current Plan, the Committee may provide in an award agreement that the violation of any non-compete, non-solicitation, non-disclosure or other restrictive covenant, whether during or after the participant’s employment by the Company, will result in the forfeiture of all awards granted under the Amended Plan (whether or not vestedand/or exercisable) and any profit realized on the exercise of any options within 6 months of the participant’s separation from service with the Company.


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Change in Control or Other Significant Event
In the event of a Change in Control (as defined in the Amended Plan) and a participant’s subsequent termination within 24 months of the Change in Control either (i) by the Company other than for “Cause” or (ii) by the participant for “Good Reason,” unless the Committee expressly provides otherwise in an applicable award agreement, any outstanding awards held by the participant will immediately become vested and exercisable in full. “Cause” and “Good Reason” have the meanings set forth in (i) any applicable employment, consulting, severance or other written agreement between the Company and the participant or, if none, (ii) any award agreement or, if none, (iii) the Amended Plan.
As is the case under the Current Plan, the Committee has the discretion to terminate all or a portion of any outstanding awards upon a Change in Control, after giving notice to each affected participant. Each affected participant would receive an amount equal to the value of such award on the date of the Change in Control or, with respect to each share of stock subject to an option or stock appreciation right, an amount equal to the excess of the Fair Market Value of the shares of stock immediately prior to the occurrence of the Change in Control over the exercise price per share of such option or stock appreciation right. Such amounts would be payable in cash, other property or a combination thereof, in the Committee’s discretion. The Committee may also provide that awards under the Amended Plan may be assumed by any entity acquiring the Companyand/or substituted for similar awards under an acquiring entity’s compensation plans.
To the extent necessary to avoid subjecting participants to interest and additional taxes under Code Section 409A, a Change in Control will not be deemed to occur unless and until a change in control event described in Code Section 409A and Treasury RegulationSection 1.409A-3(i)(5) occurs.
Termination of Service
Death or Disability.  As is the case under the Current Plan, subject to any written agreement between a participant and the Company, if a participant terminates his or her employment with the Company due to death or Disability (as defined in the Amended Plan), (i) all non-vested awards will immediately vest on the date of death or Disability, and (ii) all vested portions of options and stock appreciation rights remain exercisable until the earlier of the12-month period following the participant’s death or Disability or the date the option or stock appreciation right would otherwise expire.
Cause.  As is the case under the Current Plan, subject to any written agreement between a participant and the Company, if a participant is terminated for Cause, all awards held by the participant (whether vested or non-vested) will be immediately forfeited by the participant.
Other Terminations.  As is the case under the Current Plan, subject to any written agreement between a participant and the Company, if a participant is terminated for any reason other than those described above, all non-vested portions of awards held by the participant will be immediately forfeited by the participant. All vested portions of options and stock appreciation rights held by the participant will remain exercisable until the end of the90-day period following the participant’s termination or the date the option or stock appreciation right would otherwise expire.
Amendment and Termination of the Plan
As is the case under the Current Plan, the Amended Plan reserves for the Board the right to alter and amend the Amended Plan at any time and the right to revoke or terminate the Amended Plan or to suspend the granting of awards pursuant to the Amended Plan. However, no such action may terminate, reduce or change the terms of any outstanding award already granted under the Amended Plan, except as specifically provided for in the Amended Plan. The Board may further amend the Amended Plan at any time without prior notice, provided that any amendment reducing outstanding awards will not be effective without the affected participants’ consent.
The Plan expressly prohibits repricing or exchanging awards.


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As is the case under the Current Plan, no alteration or amendment of the Amended Plan may, without prior stockholder approval: (i) increase the total number of shares that may be issued or delivered under the Amended Plan; (ii) increase the maximum number of shares with respect to all awards measured in stock that may be granted to any individual under the Amended Plan; (iii) increase the maximum dollar amount that may be paid with respect to all awards measured in cash; or (iv) or make any changes in the class of eligible individuals. Furthermore, the Board cannot make any changes that would (i) require stockholder approval under the rules and regulations of any securities exchange or market on which the Company’s stock is traded or (ii) disqualify any incentive stock option granted under the Amended Plan.
Certain Federal Income Tax Considerations
The following is a general description of the current U.S. federal income tax consequences to participants and the Company relating to stock options, performance units, restricted stock, restricted stock units, stock appreciation rights and other awards that may be granted under the Amended Plan. The Amended Plan is not qualified under the Internal Revenue Code Section 401(a). This discussion only applies to U.S. citizensand/or residents and does not purport to cover all tax consequences relating to awards granted under the Amended Plan. This description is intended for use by our stockholders in determining how to vote at our annual meeting and not as tax advice to persons who receive awards under the Amended Plan.
Non-Qualified Stock Options.  A participant generally will not recognize income, and the Company will not be entitled to a deduction from income, at the time of grant of a non-qualified stock option. When the option is exercised, the participant will recognize ordinary income equal to the difference, if any, between the aggregate exercise prices paid and the Fair Market Value, as of the date the option is exercised, of the shares received. The participant’s tax basis in shares acquired upon exercise will equal the exercise price paid plus the amount recognized by the participant as ordinary income. The Company generally will be entitled to a federal income tax deduction in the tax year in which the option is exercised, equal to the ordinary income recognized by the participant as described above. If the participant holds shares acquired through exercise of a non-qualified stock option for more than one year after the exercise of the option, the gain or loss realized upon the sale of those shares generally will be a long-term capital gain or loss. The participant’s holding period for shares acquired upon the exercise of an option will begin on the date of exercise.
Incentive Stock Options.  A participant generally will not recognize income, and the Company will not be entitled to a deduction from income, at the time of grant of an incentive stock option. If the option is exercised during employment, or within three months thereafter (or one year in the case of a permanently and totally disabled employee), the participant generally will not recognize any income and the Company will not be entitled to a deduction. However, the excess of the Fair Market Value of the shares on the date of exercise over the option price generally is included in computing the participant’s alternative minimum taxable income.
Generally, if the participant disposes of shares acquired by exercise of an incentive stock option within either two years after the date of grant or one year after the date of exercise, the participant will recognize ordinary income, and the Company will be entitled to a deduction equal to the excess of the Fair Market Value of the shares on the date of exercise over the option price (limited generally to the gain on the sale). The balance of any gain or loss will be treated as a capital gain or loss to the participant. If shares are disposed of after the two-year and one-year periods described above expire, the Company will not be entitled to any deduction, and the entire gain or loss for the participant will be treated as a long-term capital gain or loss.
Stock Appreciation Rights.  A participant generally will not recognize income, and the Company will not be entitled to a deduction from income, at the time of grant of a stock appreciation right. When the stock appreciation right is exercised, the participant will recognize ordinary income equal to the difference between the aggregate grant price and the Fair Market Value, as of the date the stock appreciation right is exercised, of our common stock. The participant’s tax basis in shares acquired upon exercise of a stock-settled stock appreciation right will equal the amount recognized by the participant as ordinary income. The Company generally will be entitled to a federal income tax deduction in the year in which the stock appreciation right is exercised, equal to the ordinary income recognized by the participant as described above. If the participant holds shares acquired through exercise of a stock-settled stock appreciation right for more than one year after the exercise of the stock appreciation right, the gain or loss realized upon the sale of those shares will be a


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long-term capital gain or loss. The participant’s holding period for shares acquired upon the exercise of a stock-settled stock appreciation right will begin on the date of exercise.
Restricted Stock.  Restricted stock subject to a substantial risk of forfeiture results in income recognition equal to the excess of the Fair Market Value of the shares over the purchase price (if any) only at the time the restrictions lapse (unless the Participant elects to accelerate recognition as of the date of grant through an election under Code Section 83(b)). The Company generally will have (at the time the participant recognizes income) a corresponding deduction.
Stock Units.  Restricted stock units generally are subject to tax at the time of vesting or payment and the Company generally will have a corresponding deduction when the participant recognizes income.
Performance Shares and Performance Units.  Performance shares and performance units generally are subject to tax at the time of vesting or payment. The Company will generally have (at the time the participant recognizes income) a corresponding deduction.
Cash Awards.  Cash awards generally are subject to tax at the time of payment. The Company generally will have (at the time the participant recognizes income) a corresponding deduction.
Compliance with Code Section 409A.  The American Jobs Creation Act of 2004 revised the federal income tax law applicable to certain types of awards that may be granted under the Amended Plan. To the extent applicable, it is intended that the Amended Plan and any grants made under the Amended Plan either be exempt from, or, in the alternative, comply with the provisions of Code Section 409A, including the exceptions for stock rights and short- term deferrals. The Company intends to administer the Amended Plan and any grants made thereunder in a manner consistent with the requirements of Code Section 409A.
If any provision of the Amended Plan or an award agreement needs to be revised to satisfy the requirements of Code Section 409A, then such provision will be modified or restricted to the extent necessary to be in compliance with the requirements of Code Section 409A, while attempting to maintain the same economic results as were intended under the Amended Plan and the award agreement. The right to any dividends or dividend equivalents declared and paid on the number of shares underlying a stock option or stock appreciation right may not be contingent, directly or indirectly, upon the exercise of the stock option or stock appreciation right. Further, to the extent necessary to avoid subjecting participants to interest and additional taxes under Code Section 409A, a change in control will not be deemed to occur unless and until Code Section 409A(a)(2)(A)(v) is satisfied. Any reference to Code Section 409A includes any proposed temporary or final regulations, or any other guidance, promulgated with respect to such section by the Internal Revenue Service.
Committee Discretion.  The Committee will have the discretion to determine the type, terms and conditions and recipients of awards granted under the Amended Plan. Accordingly, it is not possible to determine the amount of the awards that will be received by any employee, group employee, non-employee director or independent contractor of the Company under the Amended Plan if it is approved.
Number of Employees Eligible to Participate in the Amended Plan.  Although all employees are eligible to participate in the Amended Plan, typically about 210 employees annually received awards or grants under the Company’s past incentive plans. The identity of the individuals eligible to receive awards and the amount of awards under the Amended Plan is not yet determinable.
New Plan Benefits.  The number of awards that an employee, non-employee director or consultant may receive under the Amended Plan is at the discretion of the Committee and therefore cannot be determined in advance. If the amendment to the Plan is approved by the stockholders, Participants will receive the aggregate benefits described in the following table in 2010, depending on the price per share of our common stock on the grant date:
   
NameAlign our Officer Pay with Performance:
Our Named Executive Officer compensation is tied to Company performance and Positionstockholder returns. Performance drives pay.
 Dollar ValueNumber
No Retirement Benefits:
We have no supplemental executive retirement plans (SERPs) or defined benefit pension plans with any of Sharesour Named Executive Officers.
 
Executive Group
Balance Short-Term and Long-Term Incentives:
The incentive programs provide an appropriate balance of annual and long-term incentives and include multiple measures of performance.
 N/A
No Tax Gross-Ups: We do not provide tax gross reimbursements for change in control payments or executive perquisites, which are minimal.
 N/A
Non-Employee Director Group
Use Long-Term Incentives to Link Executive Pay to Company Performance:
35% of pay for our Named Executive Officers consists of long-term incentives linked to increasing our stock price. We conserve equity by not awarding long-term incentives to our Chief Executive Officer, the founder, whose interests are aligned with the stockholders. We have four-year cliff vesting for annual equity awards.
 N/A
No Hedging and Limits on Pledging of Company Stock:
Our Named Executive Officers are prohibited from hedging their company stock. In 2013, we added a policy limiting the pledging of Company stock.
 N/A
Non-Executive Officer Employee Group
Cap Incentive Awards:
Short-term incentive plan awards are capped.
 N/ANo Option Repricing without Stockholder Approval
 N/A
Maximize Stockholder Value While Mitigating Risk:
Our equity incentives drive performance and reward growth over the long-term, which discourages short-term risk taking. The Committee reviews the Company's risk assessment.
No Single-Trigger Change in Control Provisions:
Our agreements do not make automatic payments to executives solely upon a change in control, i.e., no “single-trigger” arrangements.
Require Named Executive Officers to Maintain Stock Ownership:
 All substantially exceed our ownership guidelines.
No Severance For "Cause" Terminations:
We do not pay severance for "cause" terminations.
Require Non-compete, Non-solicitation and Confidentiality Agreements:
We require executives to enter into non-competition, non-solicitation and confidentiality agreements as a condition of employment and as a condition of severance payments.


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Equity Compensation Plan Information
The following table provides information as of December 31, 2010 about the Company’s compensation plans under which shares of our common stock may be issuedPursuant to employees, consultants and members of our Board:
             
        Number of Securities
 
  Number of Securities
     Remaining Available
 
  to be Issued Upon
  Weighted-Average
  for Future Issuance
 
  Exercise of
  Exercise Price of
  Under Equity
 
  Outstanding
  Outstanding
  Compensation Plans
 
  Options, Warrants
  Options, Warrants
  (Excluding Securities
 
  and Rights
  and Rights
  Reflected in Column (a))
 
Plan Category
 (a)  (b)  (c) 
 
Equity Compensation Plans Approved by Security Holders  2,736,443  $10.33   1,526,358 
Equity Compensation Plans Not Approved by Security Holders  —       — 
             
Total  2,736,443       1,526,358 
             
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” APPROVAL OF THE AMENDMENTS TO THE IPG PHOTONICS CORPORATION 2006 INCENTIVE COMPENSATION PLAN
PROPOSAL 4: ADVISORY RESOLUTION ON EXECUTIVE COMPENSATION
In accordance with the recently adopted Section 14A of the Exchange Act, which was added pursuant to the Dodd-Frank Act, we are asking stockholdersyou to vote, in an advisory manner, to approve an advisory resolution on the Company’s executive compensation for its Named Executive Officers as reported in this proxy statement.
Our executive compensation programs are designed to support the Company’s long-term success. In 2010, the Company had record financial performance, achieving net sales of $299.3 million and net income of $54.0 million. These results represented a 61% increase in net sales and a 900% increase in net income in 2009. We believe that our performance-based executive compensation programs provide incentives that are aligned with the best interests of our stockholders and have facilitated the Company’s performance.
We urge stockholders to read the “Compensation Discussion and Analysis” above, which describes in more detail how our executive compensationphilosophy, policies and procedures operate and are designed to achieve our compensation objectives, as well as the Summary Compensation Table and related compensation tables and narrative above, which provide detailed information on the compensation of our Named Executive Officers. The Compensation Committee and the Board believe that the policies and procedures articulateddescribed in the “CompensationCompensation Discussion and Analysis” are effective in achieving our goalsAnalysis (“CD&A”) section of this proxy statement, and that the compensation of our Named Executive Officers, reportedas disclosed in this proxy statement has supportedstatement.
As an advisory vote, the results of this vote will not be binding upon the Board or the Company. However, the Board values the opinions of our stockholders, and contributed to the Company’s success.
Why You Should Approve our Executive Compensation Program
Our compensation philosophy is designed to attract and retain executive talent and emphasize pay for performance, primarily through the creation of stockholder value. Our compensation programs include base salary, annual incentive compensation, long-term stock-based incentives, and a very limited perquisite package. We believe our compensation programs and policies are appropriate and effective in implementing our compensation philosophy and in achieving our goals, and that they are aligned with stockholder interests and worthy of continued stockholder support.
We believe that stockholders shouldwill consider the following information in determining whether to approve this proposal.


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Compensation Program is Highly Aligned with Stockholder Value
A majority portion of our executives’ compensation is directly linked to our performance and the creation of stockholder value. Our long-term stock incentive awards (which vest over four or more years) consist of two vehicles: stock options and restricted stock units. We believe this mix appropriately motivates long-term performance and rewards executives for both absolute gains in share price and relative performance on total stockholder return.
Only the Compensation Committee may approve equity grants. The equity plan does not permit repricing or replacing underwater stock options or stock appreciation rights without prior stockholder approval (including cash buyouts).
StrongPay-for-Performance Orientation
Short-term incentive plan awards are aligned with our performance: In 2009, we did not make STIP awards because we did not meet our financial goals and we did not provide any relief in the form of increased compensation in other areas to offset the zero payout. STIP awards in 2010 were limited at two times the target even though the STIP award formulas permitted higher awards based on the performanceoutcome of the Company.
Base Salaries:  In 2009, the Chief Executive Officer, other Named Executive Officers and other executives took voluntary salary reductions as a result of the deteriorating market conditions that led to our decreased performance. The Compensation Committee did not approve increases in base salaries in 2010 for the Chief Executive Officer or the Named Executive Officers (except for one officer).
Employment Agreements:  We provide no multi-year guarantees for salary increases or non-performance-based bonuses. We use one-year contracts for Vice Presidents and a two-year contract for the Chief Executive Officer.
Summary of Key Compensation Practices
We seek to align our compensation programs and practices with evolving good governance standards. Our long-term 2006 Incentive Compensation Plan expressly prohibits repricing or exchanging awards.
We do not pay or provide any of the following:
• supplemental executive retirement plans (SERPs) or other nonqualified plans for executives;
• single-trigger change in control payments;
• taxgross-up payments for parachute payment under Code Section 280G;
• taxgross-up payments for executive perquisites (which are minimal, in any event);
• payments for Cause terminations or resignations other than for Good Reason;
• perquisites for former or retired executives;
• extraordinary relocation or home buyout benefits; or
• personal use of corporate aircraft, personal security systems maintenanceand/or installation or executive life insurance.
Compensation Program Has Appropriate Long-term Orientation
Our compensation programs and policies have a long-term focus:
• Extended vesting for equity awards — We encourage a long-term orientation by our executives by gradually vesting options and restricted stock awards over four or more years.


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• Officers are subject to stock ownership guidelines — We have stock ownership requirements for executive officers and directors to ensure that our executive officers and directors have a substantial personal stake in the Company’s long-term success.
• We prohibit executives from engaging in hedging and derivative trading with respect to our common stock.
Compensation Committee Stays Current on Good Governance Practices
We regularly update our Board and the Compensation Committee on compensation good governance practices and trends. In addition, the Compensation Committee engaged an independent compensation consultant to provide advice on compensation trends and market information to assist the Compensation Committee in designing our compensation programs andvote when making compensation decisions. In addition, the Company made improvements to certain elements of our executive compensation programs in 2010 and 2011 to further align them with current market best practices.
The Compensation Committee meets the independence standards of the Dodd-Frank Act. The Compensation Committee is advised by an independent compensation consultant, Radford, who is retained directly by and reports to the Compensation Committee, and who performs no other work for IPG. The compensation consultant had no prior relationship with our Chief Executive Officer or any other Named Executive Officer. The Compensation Committee meets without management present at least four times per year. Directors are elected annually and no Board members may serve on the boards of more than three other public companies.
Non-employee directors meet without management present at least four times per year. Non-employee directors meet in executive sessions to discuss Chief Executive Officer succession planning. The Compensation Committee maintains a charter and reviews its provisions annually.
We are asking stockholders to approve the following advisory resolution at the annual meeting:
“RESOLVED, that the stockholders of IPG Photonics Corporation (the “Company”) approve, on an advisory basis, the compensation of the Company’s named executive officers listed in the Summary Compensation Table included in the proxy statement for this meeting, as such compensation is disclosed pursuant to Item 402 ofRegulation S-K in this proxy statement under the section entitled “Executive Compensation,” including the Compensation Discussion and Analysis, the compensation tables and other narrative executive compensation disclosures set forth under that section.”
This advisory votefuture decisions on the compensation of our Named Executive Officers commonly referredand our executive compensation philosophy, policies and procedures.
The Board has determined to as a“say-on-pay”hold tri-annual advisory votes on executive compensation. At our stockholders meeting in 2011, the advisory proposal to hold “say-on-pay” advisory votes every three years received the greatest amount of votes. Accordingly, the next advisory vote giveson executive compensation will occur at the 2017 annual meeting of stockholders, another mechanismunless the Board of Directors modifies its policy on the frequency of holding such advisory votes.
Before you vote, we encourage you to convey their views aboutreview the Compensation Discussion and Analysis on pages 19-30 of this proxy statement for additional details on our compensation programsexecutive compensation.
OUR BOARD RECOMMENDS AN ADVISORY VOTE "FOR" THE APPROVAL OF THE COMPANY’S EXECUTIVE COMPENSATION PHILOSOPHY, POLICIES AND PROCEDURES DESCRIBED IN THE CD&A SECTION OF THIS PROXY STATEMENT AND THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS AS DISCLOSED IN THIS PROXY STATEMENT



AUDIT COMMITTEE REPORT
The primary role of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities by reviewing the financial information proposed to be provided to stockholders and policies. Although non-binding,others, the adequacy of the system of internal control over financial reporting and disclosure controls and procedures established by management and the Board, and the Compensationaudit process and the independent registered public accounting firm’s qualifications, independence and performance.
Management has primary responsibility for the financial statements and is responsible for establishing and maintaining the Company’s system of internal controls and for preparation of the Company’s financial statements. The Company’s independent registered public accounting firm, Deloitte & Touche LLP, is responsible for performing an integrated audit of the Company’s consolidated financial statements and the effectiveness of internal controls over financial reporting in accordance with standards of the Public Company Accounting Oversight Board (United States) (PCAOB) and issuing an opinion on the financial statements and the effectiveness of internal controls over financial reporting. The Audit Committee also employs an international auditing firm to conduct internal audits throughout the Company of various financial, operational and information technology areas as selected each year by the Audit Committee. The Audit Committee has met and held discussions with management, the internal auditors and the Company’s independent registered public accounting firm, and has also met separately with the internal auditors and the Company’s independent registered public accounting firm, without management present, to review the adequacy of the Company’s internal controls, financial reporting practices and audit process.
The Audit Committee has reviewed and discussed the Company’s audited consolidated financial statements for the year ended December 31, 2013 with management and the independent registered public accounting firm. As part of this review, the Audit Committee discussed with Deloitte & Touche LLP the required communications described in PCAOB AU Section 380, Communication with Audit Committees, and those matters required to be reviewed pursuant to Rule 2-07 of Regulation S-X as well as the results of their audit of the effectiveness of internal controls over financial reporting.
The Audit Committee has received from Deloitte & Touche LLP a written statement describing all relationships between that firm and the Company that might bear on their independence, consistent with PCAOB Ethics and Independence Rule 3526, Communications with Audit Committees Concerning Independence. The Audit Committee has discussed the written statement with the independent registered public accounting firm and has considered whether its provision of any other non-audit services to the Company is compatible with maintaining the auditors’ independence.
Based on the above-mentioned reviews and discussions, the Audit Committee recommended to the Board of Directors that the Company’s audited consolidated financial statements be included in its Annual Report on Form 10-K for the year ended December 31, 2013, as filed with the SEC.
AUDIT COMMITTEE
William S. Hurley, Chair
Michael C. Child
Henry E. Gauthier
February 25, 2014
PROPOSAL 3: RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Deloitte & Touche LLP currently serves as our independent registered public accounting firm and audited our consolidated financial statements for the year ended December 31, 2013. Our Audit Committee has appointed Deloitte & Touche LLP to serve as our independent registered public accounting firm for 2014, and to conduct an integrated audit of our consolidated financial statements for the year ending December 31, 2014 and of our internal control over financial reporting as of December 31, 2014.
Our Audit Committee is responsible for selecting and appointing our independent registered public accounting firm, and this appointment is not required to be ratified by our stockholders. However, our Audit Committee has

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recommended that the Board submit this matter to the stockholders as a matter of good corporate practice. If the stockholders fail to ratify the appointment, the Audit Committee will carefullyreconsider whether to retain Deloitte & Touche LLP, and may retain that firm or another without re-submitting the matter to our stockholders. Even if the appointment is ratified, the Audit Committee may, in its discretion, direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and our stockholders.
We expect that representatives of Deloitte & Touche LLP will attend the annual meeting of stockholders, will have an opportunity to make a statement if they desire to do so, and will be available to respond to appropriate questions.
Fees Paid to Deloitte & Touche. The fees for services provided by Deloitte & Touche LLP, member firm of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, “Deloitte & Touche”), to the Company in the last three fiscal years were as follows:
  Fees
Fee Category 2013 2012 2011
Audit fees $1,197,733
 $1,086,580
 $1,016,013
Audit-related fees $37,000
 146,200
 24,000
Tax fees $200,000
 7,500
 —
Total Fees $1,434,733
 $1,240,280
 $1,040,013
Audit fees. These fees comprise fees for professional services rendered in connection with the audit of the Company’s consolidated financial statements that are customary under auditing standards generally accepted in the United States. Audit fees also include fees for consents and reviews related to SEC filings and quarterly services with respect to the preparation of our unaudited quarterly financial statements.
Audit-related fees. These fees comprise fees for services that are reasonably related to the performance of the audit or review of the Company’s financial statements. The audit-related fees in 2013 were principally for audit work related to acquisitions, and considervaluation of goodwill and contingent consideration.
Tax fees. Fees for tax services consist of fees for tax compliance services and tax planning and advice services. Tax compliance services are services rendered based upon facts already in existence or transactions that have already occurred to document, compute and obtain government approval for amounts to be included in tax filings. Tax planning and advice are services rendered with respect to proposed transactions or that alter a transaction to obtain a particular tax result. The tax fees in 2013 relate to assistance with documentation of research and development tax credits.
Policy on Pre-Approval of Audit and Permissible Non-Audit Services. The Audit Committee pre-approves all audit and permissible non-audit services provided by the voting results when evaluatingindependent registered public accounting firm. These services may include audit services, audit-related services and tax services as well as specifically designated non-audit services that, in the opinion of the Audit Committee, will not impair the independence of the independent registered public accounting firm. Pre-approval is generally provided for each fiscal year, and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent registered public accounting firm and our executive compensation program.management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent registered public accounting firm in accordance with the pre-approval, including the fees for the services performed to date. In addition, the Audit Committee also may pre-approve particular services on a case-by-case basis, as required.
YOUROUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 4 TO APPROVE THE NON-BINDING COMPENSATION RESOLUTION ON EXECUTIVESRATIFICATION
OF DELOITTE & TOUCHE LLP AS OUR INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM FOR 2014

PROPOSAL 5: ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES ON EXECUTIVE COMPENSATION
In accordance with the recently adopted Section 14A of the Exchange act, which was added pursuant to the Dodd-Frank Act, the Company is also providing stockholders an advisory vote on the frequency with which the Company’s stockholders will have the advisory vote on our Named Executive Officers compensation, provided for in Proposal 4 above. For convenience in this Proposal 5, the stockholders’ advisory vote on executive compensation provided for in Proposal 4 above is referred to as thesay-on-pay vote.
The advisory vote on the frequency of thesay-on-pay vote is a non-binding vote as to how often thesay-on-pay vote should occur: every year, every two years, or every three years. In addition, stockholders may abstain from voting. The Dodd-Frank Act requires the Company to hold the advisory vote on the frequency of thesay-on-pay vote at least once every six years.


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After careful consideration, the Board recommends that futuresay-on-pay votes occur every three years (triennially). We believe that this frequency is appropriate for the following reasons:41

• our compensation programs do not change significantly from year to year and we seek to be consistent;
• a longer frequency is consistent with long-term compensation objectives (we do not want to encourage a short-term view in our compensation practices);
• our compensation programs are designed to reward and incentivize long-term performance and a triennial vote closely corresponds with the four to five year vesting of our long-term incentive awards; and
• our directors are elected annually for terms of one year, allowing stockholders to express their views through the annual election process.

For the foregoing reasons, we encourage our stockholders to evaluate our executive compensation programs over a multi-year horizon.
In addition, we believe that a triennialsay-on-pay vote reflects the appropriate time frame for the Compensation Committee and the Board to evaluate the results of the most recentsay-on-pay vote, to discuss the implications of that vote with stockholders to the extent needed, to develop and implement any adjustments to our executive compensation programs that may be appropriate in light of a pastsay-on-pay vote, and for stockholders to observe and evaluate the Compensation Committee’s actions in context.
In this regard, because thesay-on-pay vote occurs after we have already implemented our executive compensation programs for the current year, and because the different elements of compensation are designed to operate in an integrated manner and to complement one another, we expect that in certain cases it may not be appropriate or feasible to fully address and respond to any one year’ssay-on-pay vote by the time of the following year’s annual meeting of stockholders.
We are aware that some stockholders believe that annualsay-on-pay votes will enhance or reinforce accountability. However, we have been in the past, and will in the future continue to be, engaged with our stockholders. Thus, we view thesay-on-pay vote as an additional, but not exclusive, opportunity for our stockholders to communicate with us regarding their views on the Company’s executive compensation programs.
In addition, because our executive compensation programs have typically not changed materially from year to year and are designed to operate over the long term and to enhance long-term performance, we are concerned that an annualsay-on-pay vote could lead to a near-term perspective that is inappropriate for evaluating our executive compensation programs.
Finally, although we believe that holding asay-on-pay vote every three years will reflect the right balance of considerations in the normal course, we will periodically reassess that view and can provide for asay-on-pay vote on executive compensation on a more frequent basis if changes in our compensation programs or other circumstances indicate that such a vote would be appropriate.
We are asking stockholders to approve the following advisory resolution at the annual meeting:
“RESOLVED, that the stockholders of IPG Photonics Corporation determine, on an advisory basis, that the frequency with which the stockholders of the Company shall have an advisory vote on the compensation of the Company’s Named Executive Officers set forth in the Company’s proxy statement is every three years.”
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE TO SELECT “THREE YEARS” ON THE PROPOSAL RECOMMENDING THE FREQUENCY OF ADVISORY VOTES ON EXECUTIVE COMPENSATION


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OTHER MATTERS
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who beneficially own more than 10% of a registered class of our equity securities, to file reports of ownership of, and transactions in, our securities with the SEC. These directors, executive officers, and persons who beneficially own more than 10% of a registered class of our equity securities to file reports of ownership of, and transactions in, our securities with the SEC. These directors, executive officers and 10% stockholders are also required to furnish us with copies of all Section 16(a) forms that they file. Based solely on aits review of the copies of such forms received by us,it and onthe written representations from certainof its Reporting Persons, the Company has determined that no such persons known to it were delinquent with respect to their reporting persons, we believe that during 2010 our directors, executive officers and 10% stockholders complied with all applicableobligations as set forth in Section 16(a) filing requirements, except Dr. Ovtchinnikov and Mr. Gauthier were late in filing Forms 4, relating toof the sale of shares on September 14, 2010, and the grant of restricted stock units and options on August 5, 2010, respectively. The Forms 4 were filed on October 28, 2010 and September 1, 2010, respectively.
Exchange Act.
20122015 Annual Meeting and Nominations
Stockholders may present proposals for action at a future meeting and nominations for director if they comply with applicable SEC rules and our bylaws.by-laws. If you would like us to consider including a proposal in our proxy statement or nominating a director next year,pursuant to Rule 14a-8 under the Exchange Act, it must be received by our Secretary, at IPG Photonics Corporation, 50 Old Webster Road, Oxford, Massachusetts 01540, on or before December 17, 2011.16, 2014. If you would like to present a proposal at the 20122015 annual meeting or nominate a director next year, but not to have such proposal or nominee included in our proxy statement relating to that meeting, such proposal or nomination must be received by our Secretary not earlier than February 1, 20123, 2015 and not later than March 2, 2012.5, 2015. Our bylawsby-laws contain additional specific requirements regarding a stockholder’s ability to nominate a director or to submit a proposal for consideration at an upcoming meeting. Our bylawsby-laws require that the notice to the Company include (i) information relating to the name, age and experience of the nominee and such other information concerning such nominee as would be required under the then-current rules of the SEC to be included in a proxy statement soliciting proxies for the election of the nominee, (ii) the nominee’s written consent to being named in the proxy statement and serving as a director, if elected and (iii) the name and address of the record holder and beneficial holder of the shares, the number of shares held of record or beneficially owned, and representations as described in our bylaws.by-laws. If the Nominating and Corporate Governance Committee or the Board determines that any nomination made by a stockholder was not made in accordance with the Company’s procedures, the rules and regulations of the SEC or other applicable laws or regulations, such nomination will be void. If you would like a copy of the requirements contained in our bylaws,by-laws, please contact our Secretary.
No Incorporation by Reference
In our filings with the SEC, information is sometimes “incorporated by reference.” This means that we are referring you to information that has previously been filed with the SEC and the information should be considered as part of the particular filing. As provided under SEC regulations, the “AuditCompensation Committee Report”Report and the “CompensationAudit Committee Report”Report contained in this proxy statement specifically are not incorporated by reference into any of our other filings with the SEC, are not to be deemed soliciting materials or subject to the liabilities of Section 18 of the Exchange Act. In addition, this proxy statement includes several website addresses. These website addresses are intended to provide inactive, textual references only. The information on these websites is not part of this proxy statement.


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42



Appendix A
Note: This document is marked to show changes from the current 2006 Incentive
Compensation Plan (“Plan”). Underlined text indicates additions to the current Plan and text
with strikethroughs indicate deletions from the current Plan.
IPG PHOTONICS CORPORATION
2006 INCENTIVE COMPENSATION PLAN
(Asamended April 28, 2008)Amended February 23, 2011)
IPG Photonics Corporation, USA, Inc. (the “Company”)hereby establishesoriginally established the IPG Photonics Corporation 2006 Incentive Compensation Plan for the benefit of its eligible Participants (as hereinafter defined) for the purposes hereinafter set forth. The Plan permits the award of Stock Options, Restricted Stock, Performance Shares, Performance Units, Stock Units, Cash, and SARs. The Company adopted this amendment of the Plan effective February 23, 2011.
1.  DEFINITIONS
The following terms shall have the following meanings unless the context indicates otherwise:
1.1. “Affiliate” shall mean a corporation that, for purposes of Section 422 of the Code, is a Parent or Subsidiary of the Company within the meaning of Sections 424(e) and 424(f) of the Code.
1.2.  “Award”shall mean a Stock Option, a SAR, a Restricted Stock Award, a Stock Unit, a Performance Share, a Performance Unit, or a Cash Award.
1.3. “Award Agreement” shall meana writtenan agreement between the Company and a Participant that establishes the terms, conditions, restrictionsand/or limitations applicable to an Award, in addition to those established by the Plan and by the Committee. With respect to any Award, the date of the grant or award specified by the Committee in a resolution or other writing, duly adopted, and as set forth in the Award Agreement, shall be the “Award Date,” provided that such Award Date will not be earlier than the date of the Committee action.
1.4. “Board” shall mean the Board of Directors of the Company.
1.5. “Cash Award” shall mean a grant by the Committee to a Participant of an award of cash as described in Section 11 below.
1.6. “Cause” shall have the meaning set forth in any employment, consulting, or other written agreement between the Participant and the Company, a Group Company or Affiliate. If there is no employment, consulting, or other written agreement between the Participant and the Company, a Group Company or Affiliate, or if such agreement does not define “Cause,” then “Cause” shall have the meaning specified in the Award Agreement; provided, that if the Award Agreement does not so specify, “Cause” shall mean, as determined by the Committee in its sole discretion, the Participant: (i) engages in conduct that cause financial or reputational injury to the Company a Group Company or Affiliate; (ii) engages in any act of dishonesty or misconduct that results in damage to the Company, a Group Company or Affiliate, or their business or reputation or that the Committee determines to adversely affect the value, reliability or performance of the Participant to the Company, a Group Company or Affiliate; (iii) refuses or fails to substantially comply with the human resources rules, policies, directionsand/or restrictions relating to harassmentand/or discrimination, or with compliance or risk management rules, policies, directionsand/or restrictions of the Company, a Group Company or Affiliate; (iv) fails to cooperate with the Company, a Group Company or Affiliate in any internal investigation or administrative, regulatory or judicial proceeding; or (v) continuously fails to perform his or her duties to the Company, a Group Company or Affiliate (which may include any sustained and unexcused absence of the Participant from the performance of such duties, which absence has not been certified in writing as due to physical or mental illness or Disability), after a written demand for performance has been delivered to the Participant identifying the manner in which the Participant has failed to substantially perform his or her duties. If any part of the definition of Cause set forth in clauses (i) through (v) above is deemed


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applicable to a Participant, this shall not preclude or prevent the reliance by the Company or the Committee on any other part of the preceding sentence that also may be applicable. Unless otherwise defined in the Participant’s employment or other agreement, an act or omission is “willful” for this purpose if it was knowingly done, or knowingly omitted to be done, by the Participant not in good faith and without reasonable belief that the act or omission was in the best interest of the Company. In addition, the Participant’s Service will be deemed to have terminated for Cause if, based on facts and circumstances discovered after the Participant’s employment has terminated, the Board determines in reasonable good faith, within one year after the Participant’s employment terminated, that the Participant committed an act that would have justified a termination for Cause.
1.7. “Change in Control” shall mean the occurrence of any one or more of the following:
(a) Any “person” (as such term is defined in Section 3(a)(9) of the Exchange Act and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), including a “group” (as defined in Section 13(d)(3) of the Exchange Act), other than (i) the Company, (ii) any wholly-owned subsidiary of the Company, or (iii) any employee benefit plan (or related trust) sponsored or maintained by the Company or any Affiliate, becomes a “beneficial owner” (as defined inRule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company having fifty percent (50%) or more of the combined voting power of the then-outstanding securities of the Company that may be cast for the election of directors of the Company (other than as a result of an issuance of securities initiated by the Company in the ordinary course of business) (the “Company Voting Securities”); provided, however, that the event described in this paragraph (a) shall not be deemed to be a Change in Control by virtue of any underwriter temporarily holding securities pursuant to an offering of such securities;
(b) During any period of two consecutive years, individuals who at the beginning of any such period constitute the Board (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board, unless the election, or the nomination for election by the stockholders of the Company, of each new director of the Company during such period was approved by a vote of at least two-thirds of the Incumbent Directors then still in office;
(c) As the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of all or substantially all of the assets or contested election, or any combination of the foregoing transactions, less than a majority of the combined voting power of the then-outstanding securities of the Company or any successor corporation or entity entitled to vote generally in the election of the directors of the Company or such other corporation or entity after such transaction is held in the aggregate by the holders of the securities of the Company entitled to vote generally in the election of directors of the Company immediately prior to such transaction; or
(d) The shareholders of the Company approve a plan of complete liquidation of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any person acquires beneficial ownership of more than fifty percent (50%) of the Company Voting Securities as a result of the acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding; provided, however, that if after such acquisition by the Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control transaction shall then occur.
1.8. “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.
1.9. “Committee” shall mean (i) the Board or (ii) a committee or subcommittee of the Board appointed by the Board from among its members. The Committee may be the Board’s Compensation Committee. Unless the Board determines otherwise, the Committee shall be comprised solely of not less than two members who each shall qualify as:
(a) a “Non-Employee Director” within the meaning ofRule 16b-3(b)(3) (or any successor rule) under the Exchange Act, and


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(b) an “outside director” within the meaning of Code Section 162(m) and the Treasury Regulations thereunder.
1.10. “Common Stock”shall mean the voting, common stock, $0.0001 par value per share, of the Company.
1.11. “Company”shall mean IPG Photonics Corporation USA, a Delaware corporation.
1.12. “Disability” means the total and permanent disability of a Participant (incurred while in the active service of the Company, an Affiliate or a Group Company) based on proof satisfactory to the Committee. Total and permanent disability shall be as defined in the Company’s long-term disability plan, if any, or as otherwise provided by the Company. Notwithstanding the foregoing, for purposes of determining the period of time after termination of Service during which a Participant may exercise an ISO, “Disability” will have the meaning set forth in Code Section 22(e)(3), which is, generally, that the Participant is unable to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of at least twelve months.
1.13. “Dividend Equivalent Right”shall mean the right to receive an amount equal to the amount of any dividend paid with respect to a share of Common Stock multiplied by the number of shares of Common Stock underlying or with respect to a Stock Option, a SAR, a Stock Unit or a Performance Unit, and which shall be payable in cash, in Common Stock, in the form of Stock Units or Performance Units, or a combination of any or all of the foregoing.
1.14. “Effective Date”shall mean the date on which the Board adopts the Plan.
1.15. “Employee”shall mean an employee of the Company or any Affiliate, as described in TreasuryRegulation Section 1.421-1(h).
1.16. “Exchange Act”shall mean the Securities Exchange Act of 1934, as amended from time to time, including applicable regulations thereunder.
1.17. “Exercise Price”shall mean the price at which each share of Common Stock covered by a Stock Option may be purchased.
1.18. “Fair Market Value”shall mean:
(a) if the Common Stock is readily tradable on a national securities exchange or other market system, the closing price of the Common Stock on the date of calculation (or on the last preceding trading date if Common Stock was not traded on such date), or
(b) if the Common Stock is not readily tradable on a national securities exchange or other market system, the value as determined by the reasonable and consistent application of a reasonable valuation method, in good faith by the Board, in accordance with Code Section 409A and TreasuryRegulation Section 1.409A-1(b)(5)(iv) (or any similar or successor provision), thereunder, as the Board or the Committee will in its discretion select and apply at the time of the Award Date, time of exercise, or other date of calculation.
1.19. “Group Company”shall mean any business entity deemed by the Board to be a member of the IPG Group, including, but not limited to, any business entity that has a significant financial interest in the Company and any business entity in which the Company has a significant financial interest, such entities to be referred to collectively as the “Group Companies”.
1.20. “Group Employee”shall mean any employee of a Group Company who is not an Employee.
1.21. “Independent Contractor”shall mean a person (other than a person who is an Employee, Group Employee or a Nonemployee Director) or an entity that renders services to the Company, an Affiliate or a Group Company.
1.22. “IPO” shall mean the first date that the Common Stock is registered under the Securities Act of 1934 and offered for sale to the public.


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1.23. “ISO”shall mean a right to purchase a specified number of shares of Common Stock at a specified price, which is intended to comply with the terms and conditions as an “incentive stock option” as set forth in Code Section 422, as such section may be in effect from time to time.
1.24. “Leave of Absence”means any leave of absence approved by the Company.
1.25. “Nonemployee Director”shall mean a member of the Board who is not an Employee.
1.26. “Nonqualified Stock Option”shall mean a Stock Option to purchase a specified number of shares of Common Stock at a specified price, which does not qualify as an ISO.
1.27. “Nonvoting Stock” shall mean the capital stock of any class or classes having no voting power to elect the directors of a corporation.
1.28. “Parent”shall mean a corporation or any other business entity that directly or indirectly has an ownership interest of 50 percent or more of the Voting Stock of the Company.
1.29. “Participant”shall mean any Employee, Group Employee, Nonemployee Director or Independent Contractor to whom an Award has been granted by the Committee under the Plan.
1.30. “Performance-Based Award”shall mean an Award subject to the achievement of certain performance goals as described in Section 12 below.
1.31. “Performance Share”shall mean the grant by the Committee to a Participant of an Award of shares of Common Stock subject to restrictions on transferability, a risk of forfeiture, and certain other terms and conditions under the Plan or specified by the Committee, as described in Section 10.1 below.
1.32. “Performance Unit”shall mean the grant by the Committee to a Participant of an Award of a hypothetical share of the value of the Company, represented by a notional account that shall be established and maintained (or caused to be established or maintained) by the Company for such Participant, as described in Section 10.2 below.
1.33. “Plan”shall mean the IPG Photonics 2006 Incentive Compensation Plan.
1.34. “Prior Plan”shall mean the IPG Photonics 2000 Incentive Compensation Plan.
1.35. “Recapitalization” shall mean any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the Company’s outstanding shares of capital stock as a class without the Company’s receipt of consideration.
1.36. “Reorganization” shall mean any of the following: (a) a merger or consolidation in which the Company is not the surviving entity; (b) a sale, transfer or other disposition of all or substantially all of the Company’s assets; (c) a reverse merger in which the Company is the surviving entity but in which the Company’s outstanding voting securities are transferred in whole or in part to a person or persons different from the persons holding those securities immediately prior to the merger; or (d) any transaction effected primarily to change the state in which the Company is incorporated or to create a holding company structure.
1.37. “Restricted Stock Award”shall mean a grant by the Committee to a Participant of an Award of shares of Common Stock subject to restrictions on transferability, a risk of forfeiture, and certain other terms and conditions under the Plan or specified by the Committee, as described in Section 9.1 below.
1.38. “Retirement” means retirement from active employment or other Service with the Company pursuant to the normal or early retirement policy and procedures of the Company.
1.39. “Stock Appreciation Right”or“SAR”shall mean a grant by the Committee to a Participant of a the contingent right to receive Common Stock or cash, as specified in the Award Agreement, in the future, based on the value, or the appreciation in the value, of Common Stock, as described in Section 8 below.
1.40. “Service”means the provision of services to the Company, an Affiliate or a Group Company in the capacity of (i) an Employee, (ii) a Group Employee, (iii) a Nonemployee Director, or (iv) an Independent Contractor.


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1.41. “Stock Option”shall mean a grant by the Committee to a Participant of an option or right to purchase a specified number of shares of Common Stock at a specified price, as described in Section 7 below.
1.42. “Stock Unit”shall mean a grant by the Committee to a Participant of an Award of a hypothetical share of Common Stock represented by a notional account established and maintained (or caused to be established or maintained) by the Company for such Participant, as described in Section 9.2 below.
1.43. “Subsidiary”shall mean a corporation of which the Company directly or indirectly owns 50 percent or more of the Voting Stock or any other business entity in which the Company directly or indirectly has an ownership interest of 50 percent or more.
1.44. “Treasury Regulations”shall mean the regulations promulgated under the Code by the United States Department of the Treasury, as amended from time to time.
1.45. “Vest”shall mean:
(a) with respect to Stock Options and SARs, when the Stock Option or SAR (or a portion of such Stock Option or SAR) first becomes exercisable and remains exercisable subject to the terms and conditions of such Stock Option or SAR; or
(b) with respect to Awards other than Stock Options and SARs, when the Participant has:
(i) an unrestricted right, title and interest to receive the compensation (whether payable in Common Stock, cash or a combination of both) attributable to an Award (or a portion of such Award) or to otherwise enjoy the benefits underlying such Award; and
(ii) a right to transfer an Award subject to no Company-imposed restrictions or limitations other than restrictionsand/or limitations imposed by Section 14 below.
1.46. “Vesting Date”shall mean the date or dates on which an Award Vests, at which time the Award shall be deemed “Vested.”
1.47. “Voting Stock”shall mean the capital stock of any class or classes having general voting power under ordinary circumstances, in the absence of contingencies, to elect the directors of a corporation.
2.  PURPOSE AND TERM OF PLAN
2.1.  Purpose.  The purpose of the Plan is to motivate certain Employees, Group Employees, Nonemployee Directors and Independent Contractors to put forth maximum efforts toward the growth, profitability, and success of the Company, Affiliates and Group Companies by providing incentives to such Employees, Group Employees, Nonemployee Directors and Independent Contractors through cash paymentsand/or through the ownership and performance of the Common Stock. In addition, the Plan is intended to provide incentives that will attract and retain highly qualified individuals as Employees, Group Employees and Nonemployee Directors and to assist in aligning the interests of such Employees, Group Employees and Nonemployee Directors with those of the Company’s shareholders.
2.2.  Term.  The Plan shall be effective as of the Effective Date;provided, however, that the Plan shall be approved by the shareholders of the Company at an annual meeting or any special meeting of shareholders of the Company within 12 months before or after the Effective Date. The Committee may not award ISOs before the date the Company’s shareholders approve the Plan. The Plan shall terminate on the 10th anniversary of the Effective Date, unless sooner terminated by the Board under Section 16.1 below.
3.  ELIGIBILITY AND PARTICIPATION
3.1.  Eligibility.  All Employees, Group Employees, Nonemployee Directors and Independent Contractors shall be eligible to participate in the Plan and to receive Awards.
3.2.  Participation.  Participants shall consist of such Employees, Group Employees, Nonemployee Directors and Independent Contractors as the Committee in its sole discretion designates to receive Awards under the Plan. Awards under the Plan shall be made on a one time basis for Participants and designation of a


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Participant in any year shall not require the Committee to designate such person or entity to receive an Award in any other year or, once designated, to receive the same type or amount of Award as granted to the Participant in any other year. The Committee shall consider such factors as it deems pertinent in selecting Participants and in determining the type and amount of their respective Awards.
4.  ADMINISTRATION
4.1.  Responsibility.  The Committee will administer the Plan. The Committee shall have the responsibility, in its sole discretion, to control, operate, manage and administer the Plan in accordance with its terms.
4.2.  Award Agreement.  Each Award granted under the Plan shall be evidenced by an Award Agreement;provided, however, that in the event of any conflict between a provision of the Plan and any provision of an Award Agreement, the provision of the Plan shall prevail.
4.3.  Authority of the Committee.  The Committee shall have all the discretionary authority that may be necessary or desirable to enable it to discharge its responsibilities with respect to the Plan, including but not limited to the following:
(a) to determine eligibility for participation in the Plan;
(b) to determine eligibility for and the type and size of an Award granted under the Plan;
(c) to supply any omission, correct any defect, interpret any provision or reconcile any inconsistency in the Plan in such manner and to such extent as it shall deem appropriate in its sole discretion to carry the same into effect;
(d) to issue administrative guidelines as an aid to administer the Plan and make changes in such guidelines as it, from time to time, deems proper;
(e) to make rules for carrying out and administering the Plan and make changes in such rules as it, from time to time, deems proper;
(f) to the extent permitted under the Plan, grant waivers of Plan terms, conditions, restrictions, and limitations;
(g) to accelerate the Vesting of any Award when such action or actions would be in the best interest of the Company;
(h) to grant an Award in replacement of Awards previously granted under this Plan or any other executive compensation plan of the Company; and
(i) to take any and all other actions it deems necessary or desirable for the proper operation or administration of the Plan.
4.4.  Action by the Committee.  The Committee may act only by a majority of its members. A determination of the Committee may be made, without a meeting, by a writing signed by all members of the Committee. In addition, the Committee may authorize any one or more of its members to execute and deliver documents on behalf of the Committee. Meetings of the Committee may be held telephonically or via videoconference, and participation via telephone or videoconference shall have the same force and effect as physical presence at any Committee meeting.
4.5.  Delegation of Authority.  The Committee may delegate to one or more of its members, or to one or more agents, such administrative duties as it may deem advisable;provided, however, that any such delegation shall be in writing. In addition, the Committee, or any person to whom it has delegated duties under this Section 4.5, may employ one or more persons to render advice with respect to any responsibility the Committee or such person may have under the Plan. The Committee may employ such legal or other counsel, consultants and agents as it may deem desirable for the administration of the Plan and may rely upon any opinion or computation received from any such counsel, consultant or agent. Expenses incurred by the Committee in the engagement of such counsel, consultant or agent shall be paid by the Company, or the Affiliate or Group Company whose employees have benefited from the Plan, as determined by the Committee.


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The Board may delegate authority to the Company’s Chief Executive Officer to grant specified numbers of Options (as determined by the Board from time to time and during such time periods determined by the Board) to existing or prospective Employees (other than those individuals who are subject to Section 16(a) of the Exchange Act at the time of the grant) as the Chief Executive Officer determines appropriate without further action of the Board, but subject to rules and guidelines established by the Board or the Committee .
4.6.  Determinations and Interpretations by the Committee.  All determinations and interpretations made by the Committee shall be binding and conclusive on all Participants and their heirs, successors, and legal representatives.
4.7.  Liability.  No member of the Board, no member of the Committee and no Employee or Group Employee shall be liable for any act or failure to act hereunder, except in circumstances involving his or her bad faith, gross negligence or willful misconduct, or for any act or failure to act hereunder by any other member or employee or by any agent to whom duties in connection with the administration of the Plan have been delegated.
4.8.  Indemnification.  Each person who is or has been a member of the Committee or the Board, and any individual or individuals to whom the Committee has delegated authority under this Section 4, will be indemnified and held harmless by the Company, Group Company and Affiliates from and against any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or as a result of any claim, action, suit or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken, or failure to act, under the Plan, except in circumstances involving such person’s bad faith, gross negligence or willful misconduct. Each such person will also be indemnified and held harmless by the Company Group Company and Affiliates from and against any and all amounts paid by him or her in a settlement approved by the Company, or paid by him or her in satisfaction of any judgment, of or in a claim, action, suit or proceeding against him or her and described in the previous sentence, so long as he or she gives the Company an opportunity, at its own expense, to handle and defend the claim, action, suit or proceeding before he or she undertakes to handle and defend it. The foregoing right of indemnification will not be exclusive of any other rights of indemnification to which a person who is or has been a member of the Committee or the Board may be entitled under the Articles of Incorporation or By-Laws of the Company, Group Company or Affiliate, as a matter of law, agreement or otherwise, or any power that the Company may have to indemnify him or her or hold him or her harmless.
5.  SHARES SUBJECT TO PLAN
5.1.  Available Shares.  The aggregate number of shares of Common Stock that shall be available under the Plan during its term shall be4,000,00010,000,000 shares, subject to any adjustments made in accordance with Section 5.2 below. Such shares of Common Stock may be either authorized but unissued shares, shares of issued stock held in the Company’s treasury, or a combination of both, at the discretion of the Company. Any shares of Common Stock (i) underlying an Award under the Plan or the Prior Plan which expires without being exercised, or are forfeited, canceled, settled or otherwise terminated without a distribution of Common Stock to the Participant; (ii) that are delivered (either actually or by attestation) to or withheld by the Company in connection with the exercise of a Stock Option awarded under the Plan or the Prior Plan, or in payment of any required income tax withholding for the exercise of a Stock Option or the vesting of Restricted Stock awarded under the Plan or the Prior Plan, shall again be available under the Plan. Awards that are payable only in cash are not subject to this Section 5.1.
(a) The total number ofIn addition to the maximum shares of Common Stockthat may be issued in connection with the awards of Restricted Stock under the Plan shall not exceed 2,333,333.available for Awards under the Plan described above, the remaining shares of Common Stock shall be reduced by 1.60 for each share of Common Stock awarded pursuant to Restricted Stock, Performance Shares, Performance Units, Stock Units, or other Awards with value denominated in full shares of Common Stock for purposes of determining any individual or aggregate award limitations under the Plan and for purposes of calculating the aggregate amount of Common Stock available for Awards under the Plan. Except as contemplated by the provisions of Section 5.2 hereof, the Committee shall not increase the number of


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shares of Common Stock available for issuance in connection with Awards under the Plan or to any one individual as set forth above. In no event shall Awards be outstanding at any one time that have resulted or could result in the issuance of a number of shares of Common Stock in excess of the number then remaining reserved and available for issuance under the Plan.
(b) The maximum number of shares of Common Stock that may be issued to Participants in the aggregate under the Plan as ISOs is 833,333.
(c) Notwithstanding the foregoing, Awards granted through the assumption of, or in substitution or exchange for, similar awards in connection with the acquisition of another corporation or business entity shall not be counted for purposes of applying the above limitations on numbers of shares available for Awards generally or any particular kind of Award under the Plan.
5.2.  Adjustment to Shares.  If there is any change in the Common Stock of the Company, through merger, consolidation, Reorganization, recapitalization, stock dividend, stock split, reverse stock split,split-up, split-off, spin-off, combination of shares, exchange of shares, dividend in kind or other like change in capital structure or distribution (other than normal cash dividends) to shareholders of the Company, an adjustment shall be made to each outstanding Award so that each such Award shall thereafter be with respect to or exercisable for such securities, cashand/or other property as would have been received in respect of the Common Stock subject to such Award had such Award been paid, distributed or exercised in full immediately prior to such change or distribution. Such adjustment shall be made successively each time any such change or distribution shall occur. In addition, in the event of any such change or distribution, in order to prevent dilution or enlargement of Participants’ rights under the Plan, the Committee shall have the authority to adjust, in an equitable manner, the number and kind of shares that may be issued under the Plan, the number and kind of shares subject to outstanding Awards, the Exercise Price applicable to outstanding Stock Options, and the Fair Market Value of the Common Stock and other value determinations applicable to outstanding Awards. Appropriate adjustments may also be made by the Committee in the terms of any Awards granted under the Plan to reflect such changes or distributions and to modify any other terms of outstanding Awards on an equitable basis, including modifications of performance goals and changes in the length of performance periods;provided,however, that any such modificationsand/or changes to Performance-Based Awards does not disqualify compensation attributable to such Awards as “performance-based compensation” under Code Section 162(m). In addition, the Committee is authorized to make adjustments to the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events affecting the Company or the financial statements of the Company, or in response to changes in applicable laws, regulations, or accounting principles. Notwithstanding anything contained in the Plan, any adjustment with respect to an ISO due to a change or distribution described in this Section 5.2 shall comply with the rules of Code Section 424(a), and in no event shall any adjustment be made which would render any ISO granted hereunder to be disqualified as an incentive stock option for purposes of Code Section 422.
6.  MAXIMUM INDIVIDUAL AWARDS
6.1.  Maximum Aggregate Number of Shares Underlying Stock-Based Awards Granted Under the Plan to Any Single Participant in Any Calendar Year.  The maximum aggregate number of shares of Common Stock underlying all Awards measured in shares of Common Stock (whether payable in Common Stock, cash or a combination of both) that may be granted to any single Participant in any calendar year shall be 1,666,667 shares, subject to adjustment as provided in Section 5.2 above. For purposes of the preceding sentence, such Awards that arecancelled or repricedforfeited due to vesting or other restrictions shall continue to be counted in determining such maximum aggregate number of shares of Common Stock that may be granted to any single Participant in any calendar year. The maximum aggregate number of shares of Common Stock underlying Awards that may be granted to any single Participant in any calendar year as ISOs shall be 133,333.


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7.  STOCK OPTIONS
7.1.  In General.  The Committee may, in its sole discretion, grant Stock Options to Employees, Group Employees, Nonemployee Directorsand/or Independent Contractors on or after the Effective Date. The Committee shall, in its sole discretion, determine the Employees, Group Employees, Nonemployee Directors and Independent Contractors who will receive Stock Options and the number of shares of Common Stock underlying each Stock Option. With respect to Employees who become Participants, the Committee may grant such Participants ISOs or Nonqualified Stock Options or a combination of both. With respect to Group Employees, Nonemployee Directors and Independent Contractors who become Participants, the Committee may grant such Participants only Nonqualified Stock Options. Each Stock Option shall be subject to such terms and conditions consistent with the Plan as the Committee may impose from time to time and set forth in the Award Agreement. In addition, each Stock Option shall be subject to the terms and conditions set forth in Sections 7.2 through 7.8 below.
7.2.  Exercise Price.  The Committee shall specify the Exercise Price of each Stock Option in the Award Agreement;provided, however, that (i) the Exercise Price of an ISO shall not be less than 100 percent of the Fair Market Value of the Common Stock on the date of grant, and (ii) the Exercise Price of a Nonqualified Stock Option shall not be less than 100 percent of the Fair Market Value of the Common Stockon the date of grant unless the Committee in its sole discretion and due to special circumstances determines otherwise on the date of grant.
7.3.  Term of Stock Option.  The Committee shall specify the term of each Stock Option in the Award Agreement;provided, however, that (i) no ISO shall be exercisable after the 10th anniversary of the date of grant of such ISO and (ii) no Nonqualified Stock Option shall be exercisable after the 10th anniversary of the date of grant of such Nonqualified Stock Option. Each Stock Option shall terminate at such earlier times and upon such conditions or circumstances as the Committee shall, in its sole discretion, set forth in the Award Agreement on the date of grant.
7.4.  Vesting Date.  The Committee shall specify in the Award Agreement the Vesting Date for each Stock Option. The Committee may grant Stock Options that are Vested, either in whole or in part, on the date of grant. If the Committee fails to specify a Vesting Date in the Award Agreement, twenty-five percent (25%) of such Stock Option shall become exercisable on each of the first four (4) one-year anniversaries of the date of grant and shall remain exercisable following such anniversary date until the Stock Option expires in accordance with its terms under the Award Agreement or under the terms of the Plan. The Vesting of a Stock Option may be subject to such other terms and conditions as shall be determined by the Committee and set forth in the Award Agreement, including, without limitation, accelerating the Vesting if certain performance goals are achieved, or a Change in Control of the Company occurs and a Participant’s Service is terminated.
7.5.  Exercise of Stock Options.  The Stock Option Exercise Price may be paid in cash or, in the sole discretion of the Committee, by delivery to the Company of shares of Common Stock then owned by the Participant, or by the Company’s withholding a portion of the shares of Common Stock for which the Stock Option is exercisable, or by a combination of these methods. If the Common Stock is readily tradable on a national securities exchange or other market system, payment may also be made by delivering a properly executed exercise notice to the Company and delivering a copy of irrevocable instructions to a broker directing the broker to promptly deliver to the Company the amount of sale or loan proceeds to pay the Exercise Price. To facilitate the foregoing, the Company may enter into agreements for coordinated procedures with one or more brokerage firms. The Committee may prescribe any other method of paying the Exercise Price that it determines to be consistent with applicable law and the purpose of the Plan, including, without limitation, in lieu of the delivery to the Company of shares of Common Stock then owned by the Participant, providing the Company with a notarized statement attesting to the number of shares owned by the Participant, where, upon verification by the Company, the Company would issue to the Participant only the number of incremental shares to which the Participant is entitled upon exercise of the Stock Option. In determining which methods a Participant may utilize to pay the Exercise Price, the Committee may consider such factors as it determines are appropriate;provided,however, that with respect to ISOs, all such discretionary determinations shall be made by the Committee at the time of grant and specified in the Award Agreement.


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7.6.  Restrictions Relating to ISOs.  In addition to being subject to the terms and conditions of this Section 7, ISOs shall comply with all other requirements under Code Section 422. Accordingly, ISOs may be granted only to Participants who are employees (as described in TreasuryRegulation Section 1.421-1(h)) of the Company or of any “Parent Corporation” (as defined in Code Section 424(e)) or of any “Subsidiary Corporation” (as defined in Code Section 424(f)) on the date of grant. The aggregate market value (determined as of the time the ISO is granted) of the Common Stock with respect to which ISOs (under all option plans of the Company and of any Parent Corporation and of any Subsidiary Corporation) are exercisable for the first time by a Participant during any calendar year shall not exceed $100,000. For purposes of the preceding sentence, (i) ISOs shall be taken into account in the order in which they are granted and (ii) ISOs granted before 1987 shall not be taken into account. ISOs shall not be transferable by the Participant other than by will or the laws of descent and distribution and shall be exercisable, during the Participant’s lifetime, only by such Participant. The Committee shall not grant ISOs to any Employee who, at the time the ISO is granted, owns stock possessing (after the application of the attribution rules of Code Section 424(d)) more than 10 percent of the total combined voting power of all classes of stock of the Company or of any Parent Corporation or of any Subsidiary Corporation unless the Exercise Price of the ISO is fixed at not less than 110 percent of the Fair Market Value of the Common Stock on the date of grant and the exercise of such ISO is prohibited by its terms after the 5th anniversary of the ISO’s date of grant.
7.7.  Conversion Stock Options.  The Committee may, in its sole discretion, grant a Stock Option to any holder of an option (hereinafter referred to as an “Original Option”) to purchase shares of stock of any corporation:
(a) the stock or assets of which were acquired, directly or indirectly, by the Company, an Affiliate or Group Company, or
(b) which was merged with and into the Company, an Affiliate or Group Company,
so that the Original Option is converted into a Stock Option (hereinafter referred to as a “Conversion Stock Option”); provided, however, that such Conversion Stock Option as of the date of its grant (the “Conversion Stock Option Grant Date”) shall have the same economic value as the Original Option as of the Conversion Stock Option Grant Date. In addition, unless the Committee, in its sole discretion determines otherwise, a Conversion Stock Option that is converting an Original Option intended to qualify as an ISO shall have the same terms and conditions as applicable to the Original Option in accordance with Code Section 424 and the Treasury Regulations thereunder so that the conversion (x) is treated as the issuance or assumption of a stock option under Code Section 424(a) and (y) is not treated as a modification, extension or renewal of a stock option under Code Section 424(h).
7.8.  Right to Call Stock Options or Common Stock.  Notwithstanding any other provision of this Plan and without regard to the completion of an IPO, any Stock Option granted under this Plan shall be subject to a right of call by the Committee in the event of termination of the Plan due to merger or acquisition of the Company. Prior to an IPO, any Stock held by a Participant as a result of an Award under this Plan shall be subject to a right of call by the Committee in the event of termination of the Plan due to merger or acquisition of the Company or upon the occurrence of Change in Control of the Company, whether or not the Plan is terminated. If the Committee exercises the right to call the Common Stock, the Participant must return the shares of Common Stock to the Company within seven (7) days of the call notice.
(a) Upon the call of Common Stock, the owner of the Common Stock shall, unless otherwise determined by the Committee pursuant to subsection (b) below, be entitled to receive from the Company an amount equal to the Fair Market Value of the returned Common Stock.
(b) Upon the call of a Stock Option, the Committee shall pay the optionee an amount equal to the excess of (i) the Fair Market Value the number of shares of Common Stock subject to the Option, over (y) the Exercise Price of such shares of Common Stock.
(c) The Company shall have the right to defer payment of the proceeds under this Section 7.9, and make such payment in the form of single lump sum or in installments over such periods as the Committee may determine in its discretion, subject to Code Section 409A.


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8.  SARS
8.1.  In General.  The Committee may, in its sole discretion, grant SARs to Employees, Group Employees, Nonemployee Directors,and/or Independent Contractors. A SAR is a right to receive a payment in cash, Common Stock or a combination of both, in an amount equal to the excess of (x) the Fair Market Value of a specified number of shares of Common Stock on the date the SAR is exercised over (y) the Fair Market Value of such shares of Common Stock on the date the SAR is granted, all as determined and set forth in the Award Agreement by the Committee;provided, however, that if a SAR is granted retroactively in tandem with or in substitution for a Stock Option, the designated Fair Market Value of the Common Stock in the Award Agreement may be the Fair Market Value of the Common Stock on the date such Stock Option was granted. Each SAR shall be subject to the terms of the Plan and to such terms and conditions, including, but not limited to, the Vesting Date, an expiration date and a provision that automatically converts a SAR into a Stock Option on a conversion date specified at the time of grant, as the Committee shall impose from time to time in its sole discretion and set forth in the Award Agreement.
9.  RESTRICTED STOCK AWARDS AND STOCK UNITS
9.1.  Restricted Stock Awards.  The Committee may, in its sole discretion, grant Restricted Stock Awards to Employees, Group Employees, Nonemployee Directors,and/or Independent Contractors as additional compensation or in lieu of other compensation for services to the Company, an Affiliate or a Group Company. A Restricted Stock Award shall consist of shares of Common Stock that are subject to such terms and conditions as the Committee in its sole discretion determines appropriate and sets forth in the Award Agreement including, without limitation, restrictions on the sale or other disposition of such shares, the Vesting Date with respect to such shares, and the right of the Company to reacquire such shares for no consideration upon termination of the Participant’s Service within specified periods. The Committee may require the Participant to deliver a duly signed stock power, endorsed in blank, relating to the Common Stock covered by such Restricted Stock Awardand/or that the stock certificates evidencing such shares be held in custody or bear restrictive legends until the restrictions thereon shall have lapsed. With respect to shares of Common Stock subject to a Restricted Stock Award, the Participant shall have all of the rights of a holder of shares of Common Stock, including the right to receive dividends and to vote the shares, unless the Committee determines otherwise on the date of grant.
9.2.  Stock Units.  The Committee may, in its sole discretion, grant Stock Units to Employees, Group Employees, Nonemployee Directors, and Independent Contractors as additional compensation or in lieu of other compensation for services to the Company, an Affiliate or a Group Company. A Stock Unit is a hypothetical share of Common Stock represented by a notional account established and maintained (or caused to be established or maintained) by the Company for such Participant who receives a grant of Stock Units. Stock Units shall be subject to such terms and conditions as the Committee, in its sole discretion, determines appropriate and sets forth in the Award Agreement including, without limitation, determinations of the Vesting Date with respect to such Stock Units and the criteria for the Vesting of such Stock Units. Subject to Section 9.3, a Stock Unit granted by the Committee shall provide for payment in shares of Common Stock at such time or times as the Award Agreement shall specify. The Committee shall determine whether a Participant who has been granted a Stock Unit shall also be entitled to a Dividend Equivalent Right.
9.3.  Payout of Stock Units.  Subject to a Participant’s election to defer in accordance with Section 17.4 below, upon the Vesting Date of a Stock Unit, the shares of Common Stock representing the Stock Unit shall be distributed to the Participant, unless the Committee, in its sole discretion, provides for the payment of the Stock Unit in cash (or partly in cash and partly in shares of Common Stock) equal to the value of the shares of Common Stock which would otherwise be distributed to the Participant.
10.  PERFORMANCE SHARES AND PERFORMANCE UNITS
10.1.  Performance Shares.  The Committee may, in its sole discretion, grant Performance Shares to Employees, Group Employees, Nonemployee Directors,and/or Independent Contractors as additional compensation or in lieu of other compensation for services to the Company, an Affiliate or a Group Company. A


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Performance Share shall consist of a share or shares of Common Stock that are subject to such terms and conditions as the Committee, in its sole discretion, determines appropriate and sets forth in the Award Agreement including, without limitation, determining the performance goal or goals that, depending on the extent to which such goals are met, will determine the numberand/or value of the Performance Shares that will be paid out or distributed to the Participant and any other Vesting Date criteria. Performance goals may be based on, without limitation, Company-wide, divisionaland/or individual performance, as the Committee, in its sole discretion, may determine, and may be based on the performance measures listed in Section 12.3 below.
10.2.  Performance Units.  The Committee may, in its sole discretion, grant Performance Units to Employees, Group Employees, Nonemployee Directors,and/or Independent Contractors as additional compensation or in lieu of other compensation for services to the Company, an Affiliate or Group Company. A Performance Unit is a hypothetical share of the value of the Company, represented by a notional account that the Company shall establish and maintain (or caused to be established or maintained) for such Participant who receives a grant of Performance Units. Performance Units shall be subject to such terms and conditions as the Committee, in its sole discretion, determines appropriate and sets forth in the Award Agreement including, without limitation, determining the performance goal or goals that, depending on the extent to which such goals are met, will determine the numberand/or value of the Performance Units that will accrue to the Participant and any other Vesting Date criteria. Performance goals may be based on, without limitation, Company-wide, divisionaland/or individual performance, as the Committee, in its sole discretion, may determine, and may be based on the performance measures listed in Section 12.3 below.
10.3.  Adjustment of Performance Goals.  With respect to any Performance Shares or Performance Units that are not intended to qualify as Performance-Based Awards (as described in Section 12 below), the Committee shall have the authority at any time to adjust, as it deems necessary or desirable, the performance goals for any outstanding Performance Shares or Performance Units unless, at the time of establishment of such performance goals, the Committee precludes its authority to make such adjustments. Notwithstanding the foregoing, with respect to Awards intended to qualify as Performance-Based Awards (as defined below), the Committee shall not adjust such goals in a manner that would cause the Awards to no longer qualify as Performance-Based Awards.
10.4.  Payout of Performance Shares or Performance Units.  Subject to a Participant’s election to defer distribution in accordance with Section 17.4 below, upon the Vesting of a Performance Share or a Performance Unit, the shares of Common Stock representing the Performance Share or the cash value of the Performance Unit shall be distributed to the Participant, unless the Committee, in its sole discretion, determines to make the payment for the Performance Share in cash, or the Performance Unit in shares of Common Stock (or partly in cash and partly in shares of Common Stock) equal to the value of the shares of Common Stock or cash that would otherwise be distributed to the Participant.
11.  CASH AWARDS
11.1.  In General.  The Committee may, in its sole discretion, grant Cash Awards to Employees, Group Employees, Nonemployee Directors,and/or Independent Contractors as additional compensation or in lieu of other compensation for services to the Company, an Affiliate or Group Company. A Cash Award shall be subject to such terms and conditions as the Committee, in its sole discretion, determines appropriate and sets forth in the Award Agreement including, without limitation, determining the Vesting Date with respect to such Cash Award, the criteria for the Vesting of such Cash Award, and the right of the Company to require the Participant to repay the Cash Award (with or without interest) upon termination of the Participant’s Service within specified periods.
12.  PERFORMANCE-BASED AWARDS
12.1.  In General.  The Committee, in its sole discretion, may designate Awards granted under the Plan as Performance-Based Awards (as defined below). An Award granted under the Plan may be granted in such a manner that the compensation attributable to such Award is intended by the Committee to qualify as


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“performance-based compensation” (as such term is used in Code Section 162(m) and the Treasury Regulations thereunder) and thus be exempt from the deduction limitation imposed by Code Section 162(m) (“Performance-Based Awards”).
12.2.  Qualification of Performance-Based Awards.  Awards shall qualify as Performance-Based Awards under the Plan only if:
(a) at the time of grant the Committee is comprised solely of two or more “outside directors” (as such term is used in Code Section 162(m) and the Treasury Regulations thereunder);
(b) with respect to either the granting or Vesting of an Award (other than (i) a Nonqualified Stock Option or (ii) a SAR, which are granted with an Exercise Price at or above the Fair Market Value of the Common Stock on the date of grant), such Award is subject to the achievement of a performance goal or goals based on one or more of the performance measures specified in Section 12.3 below;
(c) the Committee establishes in writing (i) the objective performance-based goals applicable to a given performance period, and (ii) the individual employees or class of employees to which such performance-based goals apply no later than 90 days after the commencement of such performance period (but in no event after 25 percent of such performance period has elapsed);
(d) no compensation attributable to a Performance-Based Award will be paid to or otherwise received by a Participant until the Committee certifies in writing that the performance goal or goals (and any other material terms) applicable to such performance period have been satisfied; and
(e) after the establishment of a performance goal, the Committee shall not revise such performance goal (unless such revision will not disqualify compensation attributable to the Award as “performance-based compensation” under Code Section 162(m)) or increase the amount of compensation payable with respect to such Award upon the attainment of such performance goal.
12.3.  Performance Measures.  The Committee may use the following performance measures (either individually or in any combination) to set performance goals with respect to Awards intended to qualify as Performance-Based Awards: net sales; pretax income before allocation of corporate overhead and bonus; budget; cash flow; earnings per share; net income; division, group or corporate financial goals; return on shareholders’ equity; return on assets; attainment of strategic and operational initiatives; appreciation inand/or maintenance of the price of the Common Stock or any other publicly-traded securities of the Company; market share; gross profits; earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; economic value-added models; comparisons with various stock market indices; increase in number of customers; revenue backlog; margins realized on delivered goods or services;and/or reductions in costs.
12.4.  Shareholder Reapproval.As required by TreasuryRegulation Section 1.162-27(e)(vi), the material terms of performance goals as described in this Section 12 shall be disclosed to and reapproved by the Company’s shareholders no later than the first shareholder meeting that occurs in the 5th year following the year in which the Company’s shareholders previously approved such performance goals.
13.  CHANGE IN CONTROL
13.1.  Accelerated Vesting Upon Termination of Service.  Notwithstanding any other provision of this Plan to the contrary,unless the terms of an Award Agreement expressly provide otherwise,if there is a Change in Control of the Company,and, within two years following the Change in Control, the Company terminates a Participant’s Service other than for Cause or the Participant terminates Service for Good Reason, any outstanding Awards held by the Participant shall Vest. For this purpose, Good Reason will have the meaning set forth in any employment, consulting, severance, or other written agreement between the Participant and the Company or an Affiliate. If there is no employment, consulting, or other written agreement between the Company or an Affiliate and the Participant or if such agreement does not define “Good Reason,” then “Good Reason ‘” will have the meaning specified in the Award Agreement; provided, that if the Award Agreement does not so specify, “Good Reason ‘” will mean, as determined bythe Committee, in its sole discretion, may


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take such actions as it deems appropriate with respect to outstanding Awards, including, without limitation, accelerating the Vesting Dateand/or payout of such Awards;provided,however, that such action shall not conflict with any provision contained in an Award Agreement unless such provision is amended in accordance with Section 16.3 below. in its sole discretion and solely with respect to this Plan and any Award made hereunder, the Participant’s “Good Reason” means the occurrence of any of the following events without the Participant’s express written consent:
(a)The material reduction of the Participant’s authorities, duties, and position with the Company;
(b)A reduction by the Company of the Participant’s base compensation by more than fifteen percent (15%), other than a reduction approved by the Board that similarly applies to all executive officers of the Company; or
(c)A change in the offices of the Participant to a place that is more than thirty-five (35) miles in distance farther from the Participant’s home than the current executive offices of the Company in Oxford, MA.
The Participant must provide notice to the Company of the existence of one or more of the foregoing conditions within ninety (90) days of the initial existence of the condition, upon the notice of which the Company will have thirty (30) days during which it may remedy the condition and not be required to Vest the Awards. For a Participant’s termination of Service to be on account of “Good Reason,” it must occur within one hundred eighty (180) days following the initial existence of the applicable condition.
13.2.  Cashout.  The Committee, in its sole discretion, may determine that, upon the occurrence of a Change in Control of the Company, all or a portion of certain outstanding Awards shall terminate within a specified number of days after notice to the holders, and each such holder shall receive an amount equal to the value of such Award on the date of the Change in Control, and with respect to each share of Common Stock subject to a Stock Option or SAR, an amount equal to the excess of the Fair Market Value of such shares of Common Stock immediately prior to the occurrence of such Change in Control of the Company over the Exercise Price per share of such Stock Option or SAR. Such amount shall be payable in cash, in one or more kinds of property (including the property, if any, payable in the transaction) or in a combination thereof, as the Committee, in its sole discretion, shall determine.
13.3.  Assumption or Substitution of Awards.  Notwithstanding anything contained in the Plan to the contrary, the Committee may, in its sole discretion, provide that an Award may be assumed by any entity which acquires control of the Company or may be substituted by a similar award under such entity’s compensation plans.
14.  TERMINATION OF SERVICE
14.1.  Termination of Service Due to Death or Disability.  Subject to any written agreement between the Company, an Affiliate or a Group Company and a Participant, if a Participant’s Service is terminated due to death or Disability:
(a) all non-Vested portions of Awards held by the Participant on the date of the Participant’s death or Disability shall immediately Vest; and
(b) all Vested portions of Stock Options and SARs held by the Participant on the date of the Participant’s death or Disability shall remain exercisable until the earlier of:
(i) the end of the12-month period following the date of the Participant’s death or Disability, or
(ii) the date the Stock Option or SAR would otherwise expire.
14.2.  Termination of Service for Cause.  Subject to any written agreement between the Company, an Affiliate or Group Company and a Participant, if a Participant’s Service is terminated by the Company, the Affiliate or the Group Company, as the case may be, for Cause, all Awards held by the Participant on the date of the termination of Service, whether Vested or non-Vested, shall immediately be forfeited by the Participant as of such date, and, in the event a Participant’s Service is terminated by the Company, an Affiliate or Group


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Company for Cause prior to an IPO, the Company shall have the right to call any shares of Common Stock received by the Participant as a result of the exercise of Stock Options under the Plan and the Participant shall be entitled to receive from the Company an amount equal to the Exercise Price paid for such shares. A Participant’s Service shall be deemed to have terminated for Cause if, after the Participant’s Service has terminated, facts and circumstances are discovered that would have justified a termination for Cause.
14.3.  Other Terminations of Service.  Subject to any written agreement between the Company, an Affiliate or Group Company and a Participant, if a Participant’s Service is terminated for any reason other than for Cause or other than due to death or Disability:
(a) all non-Vested portions of Awards held by the Participant on the date of the termination of his or her Service shall immediately be forfeited by such Participant as of such date; and
(b) all Vested portions of Stock Optionsand/or SARs held by the Participant on the date of the termination of his or her Service shall remain exercisable until the earlier of (i) the end of the90-day period following the date of the termination of the Participant’s Service or (ii) the date the Stock Option or SAR would otherwise expire.
Notwithstanding the foregoing, the Vesting, expiration and forfeiture of any Stock Optionsand/or SARs Awarded to a Independent Contractor shall be governed by the terms of the written Award Agreement.
14.4.  ISOs.  Notwithstanding anything contained in the Plan to the contrary, (i) the provisions contained in this Section 14 shall be applied to an ISO only if the application of such provision maintains the treatment of such ISO as an ISO.
14.5.  Leave of Absence.  A Participant shall not cease to be an Employee for purposes of this Plan solely on account of a Leave of Absence. For purposes of ISOs, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the one hundred eighty-first (181st) day of such leave any ISO held by the Participant shall cease to be treated as an ISO and shall be treated for tax purposes as a Nonqualified Stock Option. Notwithstanding anything in the Plan to the contrary, the Committee, in its sole discretion, reserves the right to designate a Participant’s leave of absence as “Personal Leave;” provided that military leaves and approved family or medical leaves shall not be considered Personal Leave. No Awards shall be made to a Participant during Personal Leave. A Participant’s un-Vested Awards shall remain un-Vested during such Personal Leave and the time spent on such Personal Leave shall not count towards the vesting of such Awards. A Participant’s Vested Stock Options that may be exercised shall remain exercisable upon commencement of Personal Leave until the earlier of (i) a period of one year from the date of commencement of such Personal Leave; or (ii) the remaining exercise period of such Stock Options. Notwithstanding the foregoing, if a Participant returns to the Company from a Personal Leave of less than one year and the Participant’s Stock Options have not lapsed, the Stock Options shall remain exercisable for the remaining exercise period as provided at the time of grant and subject to the conditions contained herein.
15.  TAXES
15.1.  Withholding Taxes.  With respect to Employees and Group Employees, the Company, or the applicable Affiliate or Group Company, may require a Participant who has Vested in his or her Restricted Stock Award, Stock Unit, Performance Share or Performance Unit granted hereunder, or who exercises a Stock Option or SAR granted hereunder, to reimburse the corporation that employs such Employee or Group Employee for any taxes required by any governmental regulatory authority to be withheld or otherwise deducted and paid by such corporation or entity in respect of the issuance or disposition of such shares or the payment of any amounts. In lieu thereof, the corporation that employs such Employee or Group Employee shall have the right to withhold the amount of such taxes from any other sums due or to become due from such corporation to the Employee or Group Employee upon such terms and conditions as the Committee shall prescribe. The corporation that employs the Employee or Group Employee may, in its discretion, hold the stock certificate to which such Employee or Group Employee is entitled upon the vesting of a Restricted Stock


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Award, Stock Unit, Performance Share or Performance Unit or the exercise of a Stock Option or SAR as security for the payment of such withholding tax liability, until cash sufficient to pay that liability has been accumulated.
15.2.  Use of Common Stock to Satisfy Withholding Obligation.  With respect to Employees and Group Employees, at any time that the Company or an Affiliate or Group Company that employs such Employee or Group Employee becomes subject to a withholding obligation under applicable law with respect to the vesting of a Restricted Stock Award, Stock Unit, Performance Share or Performance Unit or the exercise of a Nonqualified Stock Option (the “Tax Date”), except as set forth below, a holder of such Award may elect to satisfy, in whole or in part, the holder’s related personal tax liabilities (an “Election”) by (i) directing the Company, the Affiliate or the Group Company that employs such Employee or Group Employee to withhold from shares issuable in the related vesting or exercise either a specified number of shares, or shares of Common Stock having a specified value in each case equal to the related minimum statutory personal withholding tax liabilities with respect to the applicable taxing jurisdiction, (ii) tendering shares of Common Stock previously issued pursuant to the exercise of a Stock Option or other shares of the Common Stock owned by the holder, or (iii) combining any or all of the foregoing Elections in any fashion. An Election shall be irrevocable. The withheld shares and other shares of Common Stock tendered in payment shall be valued at their Fair Market Value of the Common Stock on the Tax Date. The Committee may disapprove any Election, suspend or terminate the right to make Elections or provide that the right to make Elections shall not apply to particular shares or exercises. The Committee may impose any additional conditions or restrictions on the right to make an Election as it shall deem appropriate, including conditions or restrictions with respect to Section 16 of the Exchange Act.
15.3.  No Guarantee of Tax Consequences.  No person connected with the Plan in any capacity, including, but not limited to, the Company, an Affiliate or a Group Company and their directors, officers, agents and employees makes any representation, commitment, or guarantee that any tax treatment, including, but not limited to, federal, state and local income, estate and gift tax treatment, will be applicable with respect to amounts deferred under the Plan, or paid to or for the benefit of a Participant under the Plan, or that such tax treatment will apply to or be available to a Participant on account of participation in the Plan.
16.  AMENDMENT AND TERMINATION
16.1.  Termination of Plan.  The Board may suspend or terminate the Plan at any time with or without prior notice;provided, however, that no action authorized by this Section 16.1 shall reduce the amount of any outstanding Award or change the terms and conditions thereof without the Participants’ consent, except as expressly provided herein.
16.2.  Amendment of Plan.  The Board may amend the Plan at any time with or without prior notice;provided, however, that no action authorized by this Section 16.2 shall reduce the amount of any outstanding Award or change the terms and conditions thereof without the Participants’ consent, except as expressly provided herein. No amendment of the Plan shall, without the approval of the shareholders of the Company:
(a) increase the total number of shares of Common Stock that may be issued under the Plan;
(b) increase the maximum number of shares with respect to all Awards measured in Common Stock that may be granted to any individual under the Plan;
(c) increase the maximum dollar amount that may be paid with respect to all Awards measured in cash; or
(d) modify the requirements as to eligibility for Awards under the Plan.
In addition, the Plan shall not be amended without the approval of such amendment by the Company’s shareholders if such amendment (i) is required under the rules and regulations of the stock exchange or national market system on which the Common Stock is listed or (ii) will disqualify any ISO granted hereunder.


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16.3.  Amendment or Cancellation of Award Agreements.  The Committee may amend or modify any Award Agreement at any time by mutual agreement between the Committee and the Participant or such other persons as may then have an interest therein.; provided, that (i) no such amendment, modification, extension, cancellation, renewal, exchange, substitution or replacement will be to the detriment of a Participant with respect to any Award previously granted without the affected Participant’s written consent, and (ii), any such amendment, modification, extension, cancellation, renewal exchange, substitution, or replacement must satisfy the requirements for exemption under Section 409A, and (iii) in no event will the Committee be permitted to (A) reduce the Exercise Price of any outstanding Stock Option, or (B) exchange or replace an outstanding Stock Option with a new Stock Option with a lower Exercise Price, except pursuant to Section 5.2. In addition, by mutual agreement between the Committee and a Participant or such other persons as may then have an interest therein, Awards may be granted to an Employee, Group Employee, Nonemployee Director or Independent Contractor in substitution and exchange for, and in cancellation of, any Awards previously granted to such Employee, Group Employee, Nonemployee Director or Independent Contractor under the Plan, or any award previously granted to such Employee, Group Employee, Nonemployee Director or Independent Contractor under any other present or future plan of the Company or any present or future plan of an entity which (i) is purchased by the Company, (ii) purchases the Company, or (iii) merges into or with the Company.
17.  MISCELLANEOUS
17.1.  Other Provisions.  Awards granted under the Plan may also be subject to such other provisions (whether or not applicable to an Award granted to any other Participant) as the Committee determines on the date of grant to be appropriate, including, without limitation, for the installment purchase of Common Stock under Stock Options, to assist the Participant in financing the acquisition of Common Stock, for the forfeiture of, or restrictions on resale or other disposition of, Common Stock acquired under any Stock Option, for the acceleration of Vesting of Awards in the event of a Change in Control of the Company, for the payment of the value of Awards to Participants in the event of a Change in Control of the Company, or to comply with federal and state securities laws, or understandings or conditions as to the Participant’s Service in addition to those specifically provided for under the Plan.
17.2.  Restrictive Covenants and Other Terms and Conditions.  The Committee may provide, by way of the Award Agreement or otherwise, that, notwithstanding any other provision of this Plan to the contrary, if the Participant breaches the non-compete, non-solicitation, non-disclosure or other terms, conditions, restrictionsand/or limitations of the Award Agreement, whether during or after termination of Service, in addition to any other penalties or restrictions that may apply under any employment agreement, state law, or otherwise, the Participant will forfeit:
(a) any and all Awards granted to him or her under the Plan, including Awards that have become Vested and exercisable; and/or
(b) forfeit the profit the Participant has realized on the exercise of any Stock Options, which is the difference between the Stock Options’ Exercise Price and the Fair Market Value of any Stock Option the Participant exercised after terminating Service and within the six month period immediately preceding the Participant’s termination of Service (the Participant may be required to repay such difference to the Company).
17.3.  Transferability.  Each Award granted under the Plan to a Participant shall not be transferable otherwise than by will or the laws of descent and distribution, and Stock Options and SARs shall be exercisable, during the Participant’s lifetime, only by the Participant. In the event of the death of a Participant, each Stock Option or SAR theretofore granted to him or her shall be exercisable during such period after his or her death as the Committee shall, in its sole discretion, set forth in the Award Agreement on the date of grant and then only by the executor or administrator of the estate of the deceased Participant or the person or persons to whom the deceased Participant’s rights under the Stock Option or SAR shall pass by will or the laws of descent and distribution. Notwithstanding the foregoing, the Committee, in its sole discretion, may permit the transferability of a Stock Option (other than an ISO) by a Participant solely to members of the Participant’s immediate family or trusts or family partnerships or other similar entities for the benefit of such


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persons, and subject to such terms, conditions, restrictionsand/or limitations, if any, as the Committee may establish and include in the Award Agreement.
17.4.  Election to Defer Compensation Attributable to Award.  The Committee may, in its sole discretion and subject to Code Section 409A, allow a Participant to elect to defer the receipt of any compensation attributable to an Award under guidelines and procedures to be established by the Committee after taking into account the advice of the Company’s tax counsel.
17.5.  Listing of Shares and Related Matters.  If at any time the Committee shall determine that the listing, registration or qualification of the shares of Common Stock subject to an Award on any securities exchange or under any applicable law, or the consent or approval of any governmental regulatory authority, is necessary or desirable as a condition of, or in connection with, the granting of an Award or the issuance of shares of Common Stock thereunder, such Award may not be exercised, distributed or paid out, as the case may be, in whole or in part, unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee.
17.6.  No Right, Title, or Interest in Company Assets.  Participants shall have no right, title, or interest whatsoever in or to any investments which the Company may make to aid it in meeting its obligations under the Plan. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any Participant, beneficiary, legal representative or any other person. To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid from the general funds of the Company, no special or separate fund shall be established, and no segregation of assets shall be made to assure payment of such amounts except as expressly set forth in the Plan. The Plan is not intended to be subject to the Employee Retirement Income Security Act of 1974, as amended.
17.7.  No Right to Continued Employment or Service or to Grants.  A Participant’s rights, if any, to continue to serve the Company, an Affiliate or a Group Company as a director, officer, employee, independent contractor or otherwise, shall not be enlarged or otherwise affected by his or her designation as a Participant under the Plan, and the Company, the Affiliate and the Group Company reserve the right to terminate the employment or Service of any Employee or Group Employee or the services of any Independent Contractor or director at any time. The adoption of the Plan shall not be deemed to give any Employee, Group Employee, Nonemployee Director, Independent Contractor or any other individual any right to be selected as a Participant or to be granted an Award.
17.8.  Awards Subject to Foreign Laws.  The Committee may grant Awards to individual Participants who are subject to the tax laws of nations other than the United States, and such Awards may have terms and conditions as determined by the Committee as necessary to comply with applicable foreign laws. The Committee may take any action that it deems advisable to obtain approval of such Awards by the appropriate foreign governmental entity;provided, however, that no such Awards may be granted pursuant to this Section and no action may be taken which would result in a violation of the Exchange Act or any other applicable law.
17.9.  Governing Law.  The Plan, all Awards granted hereunder, and all actions taken in connection herewith shall be governed by and construed in accordance with the laws of the State of Delaware without reference to principles of conflict of laws, except as superseded by applicable federal law. Participants, the Company, a Group Company and Affiliate each submit and consent to the jurisdiction of the courts in the Commonwealth of Massachusetts, County of Worster, including the Federal Courts located therein, should Federal jurisdiction requirements exist in any action brought to enforce (or otherwise relating to) this Plan or an Award Agreement.
17.10.  Other Benefits.  No Award granted under the Plan shall be considered compensation for purposes of computing benefits under any retirement plan of the Company, an Affiliate or a Group Company nor affect any benefits or compensation under any other benefit or compensation plan of the Company, and Affiliate or a Group Company, now or subsequently in effect.


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17.11.  No Fractional Shares.No fractional shares of Common Stock shall be issued or delivered pursuant to the Plan or any Award. The Committee shall determine whether cash, Common Stock, Stock Options, or other property shall be issued or paid in lieu of fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.
17.12.  Compliance With Code Section 409A.  Any provision of the Plan that becomes subject to Code Section 409A, will be interpreted and applied consistent with that Section and the applicable Treasury Regulations.With respect to any Award that is or becomes subject to Code Section 409A, a Change in Control would only be deemed to have occurred only upon a change in control event described in Code Section 409A and Treasury Regulations § 1.409A-3(i)(5).
17.13.Compensation Recovery Policy.  Notwithstanding any provision in the Plan or in any Award Agreement to the contrary, Awards granted or paid under the Plan will be subject to any Compensation Recovery Policy established by the Company and amended from time to time.


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IMPORTANT ANNUAL MEETING INFORMATION
  
IMPORTANT ANNUAL MEETING INFORMATION
Using a black ink pen, mark your votes with an X as shown in
this example. Please do not write outside the designated areas.
xý

Admission Ticket
Electronic Voting Instructions
You can vote by Internet or telephone!
Available 24 hours a day, 7 days a week!
Instead of mailing your proxy, you may choose one of the two
voting methods outlined below to vote your proxy.
VALIDATION DETAILS ARE LOCATED BELOW IN THE
TITLE BAR.
Proxies submitted by the Internet or telephone must be
received by 1:00 a.m., Central Time, on May 31, 2011.June 3, 2014.
Vote by Internet
•Log on to the Internet and go to
www.investorvote.com/ipgp
•Follow the steps outlined on the secured website.
www.investorvote.com/ipgp
Follow the steps outlined on the secured website.
Vote by telephone
•Ÿ Call toll free 1-800-652-VOTE (8683) within the
USA, US territories & Canada any time on a touch
tone telephone. There is NO CHARGE to you for
the call.
• Follow the instructions provided by the recorded
message.


 
Annual Meeting Proxy Card
Annual Meeting Proxy Card
IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.



AProposals — The Board recommends a voteFOR all nominees,FOR Proposals 2, 3 and 4 and every3 YRS for Proposal 5.
 
1.Election of Directors:ForWithholdForWithholdForWithhold+
                    
  
    Proposals — The Board recommends a vote FOR all nominees and FOR Proposal 2.
1.Election of Directors:For  Withhold  For  Withhold  For  Withhold  
+
01 - Valentin P.
    Gapontsev, Ph.D.
 o¨ o¨ 
02 - Eugene Scherbakov,
Ph.D.
 o¨ o¨ 
03 - Igor Samartsev
 o¨ o¨
    04 - Robert A. Blair
¨¨
05 - Michael C. Child
¨¨06 – Henry E. Gauthier¨¨
    07 - William S. Hurley
¨¨
08 - Eric Meurice
¨¨
09 – John R. Peeler
¨¨
                   
  04
    10 - Robert A. BlairThomas J. Seifert
 o¨ o¨ 05 - Michael C. Child o o 06 - Michael R. Kampfe o o
                   
  07 - Henry E. Gauthier o o 08 - William S. Hurley oFor oAgainst  09 - William F. Krupke, Ph.D.Abstain oo
                       
    For Against Abstain         For Against Abstain
2. To ratify the appointment of Deloitte & Touche LLP as the independent registered public accounting firm of IPG Photonics Corporation for 2011. o o o  3.  To approve the amendments to the 2006 Stock Incentive Plan. o o o
                3 Yrs 2 Yrs 1 Yr Abstain
4. To approve, by non-binding vote, our executive compensation. o o o  5.  To recommend, by non-binding vote, the frequency of executive compensation votes. Uninstructed shares will be voted for 3 years. o o o o
   
B Non-Voting Items
2.
To approve our executive compensation by non-binding advisory vote¨¨¨  
       
ForAgainst Abstain
3.
To ratify the appointment of Deloitte & Touche LLP as the independent registered public
accounting firm of IPG Photonics Corporation for 2014.
¨¨¨
Change of Address — Please print your new address below.































 
Comments — Please print your comments below.































 
Meeting Attendance
Mark the box to the right
if
you plan to attend the
Annual Meeting.
 o¨
C
C
Authorized Signatures — This section must be completed for your vote to be counted. — Date and Sign Below
Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title.
Date (mm/dd/yyyy) — Please print date below.
   Signature 1 — Please keep signature within
   the box.
Signature 2 — Please keep signature
within the box.
/           /



     
Date (mm/dd/yyyy) — Please print date below.Signature 1 — Please keep signature within the box.Signature 2 — Please keep signature within the box.
 /       /         
¢
     +
§+

20112014 Annual Meeting Admission Ticket

2011
2014 Annual Meeting of
Stockholders
IPG Photonics Corporation Shareholders
May 31, 2011
June 3, 2014
50 Old Webster Road,
Oxford, MAMassachusetts 01540

Upon arrival, please present this admission ticket
and photo identification at the registration desk.
If you plan to attend the annual meeting, please bring this admission ticket with you. This ticket admits a shareholder and one guest. All meeting attendees must present valid photo identification. For your safety, all personal items including bags, purses and briefcases are subject to inspection. The use of photographic and recording devices is prohibited in the building. Cell phone use is permitted only in the lobby area. No personal items, with the exception of purses, may be carried into the meeting area.
From the East
Travel the Mass Turnpike West to Auburn Exit 10. From the tollbooth bear to the left and take the second right, I-395 South, Oxford. Travel I-395 South and take Exit 4B Sutton Ave., Oxford. From Exit 4B go to the set of traffic lights and turn left onto Main Street (Rt. 12 South). Follow Main Street for approximately 1.5 miles turn right onto Harwood Street. Follow Harwood Street for 1.5 miles (bear left at fork in road), Harwood Street becomes Old Webster Road. IPG Photonics will be on your left.
From the West
Travel the Mass Pike East to Exit 10 Auburn, approximately a 15 minute drive. From the tollbooth, bear to the left and take the second right, I-395 South, Oxford. From Exit 4B go to the set of traffic lights and turn left onto Main Street (Rt. 12 South). Follow Main Street for approximately 1.5 miles turn right onto Harwood Street. Follow Harwood Street for 1.5 miles (bear left at fork in road), Harwood Street becomes Old Webster Road. IPG Photonics will be on your left.
IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.
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Proxy — IPG Photonics Corporation
 
Notice of 20112014 Annual Meeting of Stockholders
50 Old Webster Road, Oxford, MA 01540
Proxy Solicited by Board of Directors for Annual Meeting - May 31, 2011– June 3, 2014
Dr. Valentin P. Gapontsev and Angelo P. Lopresti, each with the power of substitution, are hereby authorized to represent and vote the shares of the undersigned, with all the powers which the undersigned would possess if personally present, at the Annual Meeting of Stockholders of IPG Photonics Corporation to be held on May 31, 2011June 5, 2012 or at any postponement or adjournment thereof.
Shares represented by this proxy will be voted by the stockholder. If no such directions are indicated, the Proxies will have authority to vote FOR all nominees, FOR Proposals 2 3 and 4 and every 3 years for Proposal 5.3.
In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting.
(Items to be voted appear on reverse side.)