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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended June 30, 2020
☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from                     to                     .
Commission File Number: 001-39375
II-VI INCORPORATED
(Exact name of registrant as specified in its charter)
Pennsylvania 25-1214948
(State or other jurisdiction of
incorporation or organization) 		(I.R.S. Employer
Identification No.)
375 Saxonburg Blvd.
Saxonburg, PA
16056
(Address of principal executive offices) (Zip code)
Registrant’s telephone number, including area code: 724-352-4455
Securities registered pursuant to Section 12(b) of the Act:

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, no par value IIVI Nasdaq Global Select Market
Series A Mandatory Convertible Preferred Stock, no par value IIVIP Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes  ☒    No  ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.     Yes   ☐    No   ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes   ☒    No   ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
 
Large Accelerated Filer ☒ Accelerated filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐


Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes  ☐    No  ☒
Aggregate market value of outstanding Common Stock, no par value, held by non-affiliates of the Registrant at December 31, 2019, was approximately $3,031,733,938 based on the closing sale price reported on the Nasdaq Global Select Market. For purposes of this calculation only, directors and executive officers of the Registrant and their spouses are deemed to be affiliates of the Registrant.
Number of outstanding shares of Common Stock, no par value, at August 20, 2020, was 103,668,355.



DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement, which will be issued in connection with the 2020 Annual Meeting of Shareholders of II-VI Incorporated, are incorporated by reference into Part III of this Annual Report on Form 10-K.
Forward-Looking Statements
This Annual Report on Form 10-K (including certain information incorporated herein by reference) contains forward-looking statements made pursuant to Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). The statements in this Annual Report on Form 10-K that are not purely historical, but are forward-looking statements, including, without limitation, statements regarding our expectations, assumptions, beliefs, intentions or strategies regarding the future.  In some cases, these forward-looking statements can be identified by terminology such as, “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “intends,” “estimates,” “predicts,” “projects,” “potential,” or “continue” or the negative of these terms or other comparable terminology. Forward-looking statements address, among other things, our assumptions, our expectations, our assessments of the size and growth rates of our markets, our growth strategies, our efforts to increase bookings, sales and revenues, projections of our future profitability, cash generation, success of our research, development and engineering investments, results of operations, capital expenditures, our financial condition, our ability to integrate acquired businesses or other “forward-looking” information and include statements about revenues, costs, investments, earnings, margins, or our projections, actions, plans or strategies.
The forward-looking statements in this Annual Report on Form 10-K involve risks and uncertainties, which could cause actual results, performance or trends to differ materially from those expressed in the forward-looking statements herein or in previous disclosures. We believe that all forward-looking statements made by us have a reasonable basis, but there can be no assurance that these expectations, beliefs or projections will actually occur or prove to be correct, at least on the timetable of our expectations. Actual results could differ materially. We claim the protection of the safe harbor for forward-looking statements contained in the PSLRA for our forward-looking statements.
The following risk factors, among others, in some cases have affected and in the future could affect our financial performance and actual results, and could cause actual results for fiscal 2021 and beyond to differ materially from those expressed or implied in any forward-looking statements included in this Annual Report on Form 10-K or otherwise made by our management:
•Investments in future markets of potential significant growth may not result in the expected return.
•Our competitive position depends on our ability to develop new products and processes.
•Widespread health crises, including the global novel coronavirus (COVID-19) pandemic, could materially and adversely affect our business, financial condition and results of operations.
•Global economic downturns, including any downturn related to COVID-19, may adversely affect our business, operating results and financial condition.
•Some systems that use our products are complex in design, and our products may contain defects that are not detected until deployed, which could increase our costs, reduce our revenues, cause us to lose key customers, and may expose us to litigation related to our products.
•Foreign currency risk may negatively affect our revenues, cost of sales and operating margins, and could result in foreign exchange losses.
•Our competitive position may still require significant investments.
•We may be unable to successfully implement our acquisitions strategy or integrate acquired companies and personnel with existing operations.
•Although II-VI continues to expect that its acquisition of Finisar will result in cost savings, synergies, and other benefits, the combined company may not realize those benefits, or be able to retain those benefits even if realized.
•Our future success depends on continued international sales, and our global operations are complex and present multiple challenges to manage.
•We are subject to complex and rapidly changing import and export regulations which could limit our sales and decrease our profitability.
•Changes in trade policies, such as increased import duties, could increase the cost of goods imported into the United States or China. The inclusion of companies, such as Huawei, on the U.S. Entity List, could decrease our access to customers and markets and materially impact our revenues in the aggregate.
•Any inability to access financial markets from time to time to raise required capital, finance our working capital requirements or our acquisition strategies, or otherwise to support our liquidity
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needs could negatively impact our ability to finance our operations, meet certain obligations or implement our growth strategy.
•We may not be able to settle conversions of our convertible senior notes in cash or repurchase the notes in accordance with their terms.
•Our credit agreement restricts our operations, particularly our ability to respond to changes or to take certain actions regarding our business.
•We may fail to accurately estimate the size and growth of our markets and our customers’ demands.
•We may encounter increased competition and we may fail to accurately estimate our competitors’ or our customers’ willingness and capability to backward integrate into our competencies and thereby displace us.
•There are limitations on the protection of our intellectual property and we may from time to time be involved in costly intellectual property litigation or indemnification.
•A significant portion of our business is dependent on cyclical industries.
•Our global operations are subject to complex legal and regulatory requirements.
•Changes in laws and regulations governing data privacy and data protection could have a material adverse impact on our business.
•Data breach incidents and breakdown of information and communication technologies could disrupt our operations and impact our financial results.
•We have entered into supply agreements that commit us to supply products on specified terms.
•We depend on highly complex manufacturing processes that require feeder materials, components, and products from limited sources of supply.
•Increases in commodity prices may adversely affect our results of operations and financial condition.
•We use and generate potentially hazardous substances that are subject to stringent environmental regulations.
•We have a substantial amount of debt, which could adversely affect our business, financial condition, or results of operations and prevent us from fulfilling its debt-related obligations.
•Unfavorable changes in tax rates, tax liabilities, or tax accounting rules could negatively affect future results.
•Natural disasters or other global or regional catastrophic events could disrupt our operations, give rise to substantial environmental hazards, and adversely affect our results.
•Our success depends on our ability to attract, retain and develop key personnel and requires continued good relations with our employees.
•We contract with a number of large end-user service providers and product companies that have considerable bargaining power, which may require us to agree to terms and conditions that could have an adverse effect on our business or ability to recognize revenues.
•We may be adversely affected by climate change regulations.
•We depend on large purchases from a few significant customers, and any loss, cancellation, reduction, or delay in purchases by these customers could harm our business.
•The manufacturing of our products may be adversely affected if we are unable to manufacture certain products in our manufacturing facilities.
•Failure to accurately forecast our revenues could result in additional charges for obsolete or excess inventories or noncancelable purchase commitments.
•If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
•Our stock price has been volatile in the past and may be volatile in the future.
•Provisions in our Amended and Restated Articles of Incorporation (the “Articles of Incorporation”) and Amended and Restated By-Laws (the “By-Laws”) and the Pennsylvania Business Corporation Law (the “BCL”) may delay or prevent our acquisition by a third party, which could also reduce the market price of our capital stock.
•Because we do not currently intend to pay dividends, holders will benefit from an investment in our common stock only if it appreciates in value and by the intended anti-dilution actions of our share-buyback program.
•Our ability to declare and pay dividends on our capital stock may be limited, including by the terms of our existing Credit Agreement.
•The Mandatory Convertible Preferred Stock may adversely affect the market price of our common stock.
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•Our common stock is subordinate to our existing and future indebtedness; the Mandatory Convertible Preferred Stock, when issued; and any other preferred stock we may issue in the future. Our Mandatory Convertible Preferred Stock ranks junior to all of our and our subsidiaries’ consolidated liabilities.
•Our board of directors can issue, without approval of the holders of our common stock, preferred stock with voting and conversion rights that could adversely affect the voting power of the holders of our common stock, the rights of holders of shares of our capital stock or the market price of our capital stock.
•Reports published by securities or industry analysts, freelance bloggers and credit rating agencies, including projections in those reports that exceed our actual results, could adversely affect our share price and trading volume.
•Regulatory actions may adversely affect the trading price and liquidity of the Mandatory Convertible Preferred Stock.
•Holders of Mandatory Convertible Preferred Stock have no voting rights with respect to the Mandatory Convertible Preferred Stock, except under limited circumstances.
•We depend on our subsidiaries for cash to fund our operations and expenses, including future dividend payments with respect to the Mandatory Convertible Preferred Stock.
The foregoing and additional risk factors are described in more detail herein under Item 1A. “Risk Factors”. All such factors, as well as factors described or referred to in other filings we make with the Securities and Exchange Commission (the “SEC”) from time to time, should be considered in evaluating our business and prospects. Many of these factors are beyond our reasonable control. In addition, we operate in a highly competitive and rapidly changing environment, and, therefore, new risk factors can arise and be present without market participants like us knowing until a substantial amount of time has passed. It is not possible for management to predict all such risk factors, assess the impact of all such risk factors on our business or estimate the extent to which any individual risk factor, or combination of risk factors, may impact our business. It is also not possible for management to mitigate all such risks, and therefore any such risk factor may cause results to differ materially from those contained in any forward-looking statement. The forward-looking statements included in this Annual Report on Form 10-K speak only as of the date of this Annual Report on Form 10-K. We do not assume any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or developments, or otherwise, except as may be required by the securities laws. We caution you not to rely on them unduly.
II-VI Incorporated does communicate with securities analysts from time to time and those communications are conducted in accordance with applicable securities laws. Investors should not assume that II-VI Incorporated agrees with any statement or report issued by any analyst, irrespective of the content of the statement or report.

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PART I
Item 1.  BUSINESS
Definitions
II-VI Incorporated (“II-VI,” the “Company,” “we,” “us,” or “our”) was incorporated in Pennsylvania in 1971. Our headquarters are located at 375 Saxonburg Boulevard, Saxonburg, Pennsylvania 16056. Our telephone number is 724-352-4455. Reference to “II-VI,” the “Company,” “we,” “us,” or “our” in this Annual Report on Form 10-K, unless the context requires otherwise, refers to II-VI Incorporated and its wholly owned subsidiaries. The Company’s name is pronounced “Two Six Incorporated.” The name II-VI refers to Groups II and VI of the periodic table of elements from which II-VI originally designed and produced infrared optics for high-power CO2 lasers used in materials processing. The majority of our revenues are attributable to the sale of engineered materials and optoelectronic components, devices, and subsystems for the optical communications, industrial materials processing, aerospace and defense, and consumer electronics markets. Reference to “fiscal” or “fiscal year” means our fiscal year ended June 30 for the year referenced.

The following terms are defined for reference: bismuth telluride (“Bi2Te3”); cadmium telluride (“CdTe”); carbon dioxide (“CO2”); carbon monoxide (“CO”); chemical vapor deposition (“CVD”) of materials including diamond; deep ultraviolet (“DUV”) lithography; dense wavelength division multiplexing (“DWDM”); extreme-ultraviolet (“EUV”) lithography; 5th-generation (“5G”) wireless; 4th-generation (“4G”) wireless; gallium arsenide (“GaAs”); gallium nitride (“GaN”); gigabit Ethernet (“GbE”); gigabit per second (“Gbps”); high-definition multimedia interface (“HDMI”); high-electron-mobility transistor (“HEMT”); indium phosphide (“InP”); infrared (“IR”); intellectual property (“IP”); light detection and ranging (“LiDAR”); liquid crystal (“LC”); liquid crystal on silicon (“LCOS”); nanometers (“nm”); near-infrared (“NIR”); optical channel monitor (“OCM”); organic light-emitting diode (“OLED”); original equipment manufacturer (“OEM”); optical time-domain reflectometer (“OTDR”); polymerase chain reaction (“PCR”); radio frequency (“RF”); reconfigurable optical add/drop multiplexer (“ROADM”); research and development (“R&D”); research, development, and engineering (“RD&E”); silicon carbide (“SiC”); terabit per second (“Tbps”); three-dimensional (“3D”); ultraviolet (“UV”); vertical cavity surface-emitting laser (“VCSEL”); wavelength division multiplexing (“WDM”); wavelength selective switching (“WSS”); zinc selenide (“ZnSe”); and zinc sulfide (“ZnS”).

Acquisition of Finisar Corporation
On September 24, 2019 (the “Closing Date”), the Company completed its acquisition of Finisar Corporation ("Finisar"), a global technology leader for subsystems and components for fiber-optic communications. Additional information regarding the Company’s acquisition of Finisar is set forth below and in Note 3. Acquisitions to our Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. Due to timing of the acquisition, the results of Finisar for the three months ended September 30, 2019, have not been allocated to an Operating Segment, and are presented in Unallocated and Other within Note 14. Segment and Geographic Reporting to our Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. Beginning on October 1, 2019, the results of Finisar have been allocated to the Photonic Solutions and Compound Semiconductors Segments.
General Description of Business
We develop, manufacture, and market engineered materials, optoelectronic components, and devices for use in optical communications, industrial materials processing, aerospace and defense, consumer electronics, semiconductor capital equipment, life sciences, and automotive applications and markets. We use advanced engineered materials growth technologies and proprietary high-precision fabrication, microassembly, optical thin-film coating, and electronic integration to manufacture complex optoelectronic devices and modules. Our products are deployed in a variety of applications, including (i) optical, data, and wireless communications products; (ii) laser cutting, welding, and marking operations; (iii) 3D sensing consumer applications; (iv) aerospace and defense applications including intelligence, surveillance, and reconnaissance; (v) semiconductor processing tools; and (vi) thermoelectric cooling and power-generation solutions.
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Through RD&E investments and its strategic acquisitions, II-VI has expanded its portfolio of materials and product platforms. We believe that the materials we grow and fabricate are differentiated by one or a combination of unique optical, electrical, thermal, and mechanical properties. II-VI’s optics are shaped by precision surfacing techniques to meet the most stringent requirements for flat or curved geometries, functionalized with smooth or structured surfaces, or with patterned metallization. Proprietary processes developed at our global optical coating centers differentiate our products’ durability against high-energy lasers and extreme operating environments. Optical coatings also provide the desired spectral characteristics, ranging from the ultraviolet to the far-infrared. II-VI leverages these capabilities to deliver miniature- to large-scale precision optical assemblies, including those in combination with thermal management components, integrated electronics, and/or software.
II-VI also offers a broad portfolio of compound semiconductor lasers that are used in a variety of applications in our end markets. These compound semiconductor lasers enable optical signal transmission, reception, and amplification in terrestrial and submarine communications networks; high-bit-rate server connectivity between and within datacenters; optical communications network monitoring; materials processing; and fast and accurate measurements in biomedical instruments and consumer electronics.
II-VI continues to improve its operational capabilities, develop next-generation products, and invest in new technology platforms to drive our growth in the short term while keeping the long term in mind. With a strategic focus on fast-growing and sustainable markets, II-VI pursues its mission of enabling the world to be safer, healthier, closer, and more efficient, and strives to attain its vision of a world transformed through innovative materials vital to a better life today and the sustainability of future generations.
Information Regarding Market Segments and Foreign Operations
Financial data regarding our revenues, results of operations, industry segments, and international sales for the three years ended June 30, 2020, are set forth in the Consolidated Statements of Earnings (Loss) and in Note 14. Segment and Geographic Reporting to our Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K and are incorporated herein by reference. We also discuss certain Risk Factors set forth in Item 1A – Risk Factors of this Annual Report on Form 10-K related to our foreign operations, which are incorporated herein by reference.
Effective July 1, 2019, the Company realigned its organizational structure into two reporting segments for the purpose of making operational decisions and assessing financial performance: (i) Photonic Solutions and (ii) Compound Semiconductors. Refer to Note 14. Segment and Geographic Reporting for further information on reporting segments.
Bookings and Backlog
We define our bookings as customer orders received that are expected to be converted to revenues over the next 12 months. The Company reports as bookings only those orders that are expected to be converted into revenues within 12 months from the end of the reporting period. Bookings are adjusted if changes in customer demands or production schedules cause the expected time of a delivery to extend beyond 12 months. For the fiscal year ended June 30, 2020, our bookings were approximately $2.7 billion, compared with bookings of approximately $1.4 billion for the fiscal year ended June 30, 2019.
We define our backlog as bookings that have not been converted to revenues by the end of the reporting period. As of June 30, 2020, our backlog was approximately $957 million, compared with approximately $500 million as of June 30, 2019.
Global Operations
II-VI is headquartered in Saxonburg, Pennsylvania, with RD&E, manufacturing, and sales facilities worldwide. Our U.S. production and RD&E operations are located in Arizona, California, Colorado, Connecticut, Delaware, Florida, Illinois, Massachusetts, Michigan, Mississippi, New Jersey, New York, Ohio, Oregon, Pennsylvania, and Texas, and our non-U.S. production and RD&E operations are based in Australia, China, Germany, Malaysia, the Philippines, Singapore, Sweden, Switzerland, the United Kingdom, and Vietnam. We also utilize contract manufacturers and strategic suppliers. In addition to sales offices co-located at most of our manufacturing sites, we have sales and marketing subsidiaries in Belgium, Canada, China, Germany, Hong Kong, Italy, Japan, South Korea, Switzerland, Taiwan, and the United Kingdom.
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Employees
The table below summarizes the number of our employees as of June 30, 2020, in the main functions. We have a long-standing practice of encouraging active employee participation in areas of operations and quality management. We believe our relations with our employees are good. We reward substantially all of our employees with some form of variable compensation based on achievement of performance goals. There are approximately 161 employees located in the United States and the Philippines who are covered under collective bargaining agreements. The Company’s five-year collective bargaining agreement in the United States is up for renewal in January 2021, and the Company's two-year collective bargaining agreement in the Philippines is up for renewal in June 2021. There are 450 employees of II-VI in China who work under contract manufacturing arrangements for a customer of the Company, Corning Incorporated.

Number of
employees 		Percent of
total
Direct production 15,101 66%
Research, development, engineering, sales and marketing 4,058 16%
General administration 3,810 18%
Total: 22,969 100%

Manufacturing Processes
Our success in developing and manufacturing many of our products depends on our ability to manufacture and to tailor the optical and physical properties of technically challenging materials and components. The ability to produce, process, and refine these complex materials and to control their quality and in-process yields is an expertise of the Company that is critical to the performance of our customers’ subsystems and systems. In the markets we serve, there is a limited number of high-quality suppliers of many of the components we manufacture, and there are very few industry-standard products.
Our network of worldwide manufacturing sites allows us to manufacture our products in regions that provide cost-effective and risk management advantages. We employ numerous advanced manufacturing technologies and systems at our manufacturing facilities. These include metal-organic chemical vapor deposition and molecular beam epitaxy reactors, automated computer numeric control optical fabrication, high-throughput thin-film coaters, nanoprecision metrology, and custom-engineered automated furnace controls for crystal growth processes. Manufacturing products for use across the electromagnetic spectrum requires the capability to repeatedly manufacture products with high yields to atomic tolerances. II-VI continuously updates its comprehensive quality management systems that feature manufacturing quality best practices. II-VI is committed to delivering products within specification, on time, and with high quality, with a goal of fully satisfying customers and continually improving.
Sources of Supply
Among the raw materials we use are zinc, selenium, zinc selenide, zinc sulfide, hydrogen selenide, hydrogen sulfide, arsine, phosphine, hydrogen, silane, tellurium, yttrium oxide, aluminum oxide, iridium, platinum, bismuth, silicon, thorium fluoride, antimony, graphite, gallium arsenide, gallium nitride, indium phosphide, copper, gold, nickel, germanium, molybdenum, quartz, optical glass, silicon carbide, and carbon in its diamond form.
We utilize numerous optical, electrical, and mechanical parts in our processes that we often also commonly refer to as raw materials, including integrated circuits, mechanical housings, and optical components from third-party suppliers.
The continued high quality of and access to these raw materials are critical to the stability and predictability of our manufacturing yields. We specify and test these raw materials at the onset of and throughout the production process. Additional research and capital investment may be needed to better define future raw materials specifications. As a result of COVID-19, we have experienced some production delays due to shortages of raw materials, and we are driving the development of strategic second sources as part of our overall business continuity Planning. We do occasionally experience problems associated with vendor-supplied raw materials not meeting contract specifications for quality or purity. As discussed in greater detail in Item 1A – Risk Factors of this Annual Report on Form 10-K, significant failure of our suppliers to deliver sufficient quantities of necessary high-quality raw materials to our specifications on a timely basis could have a materially adverse effect on our results of operations.
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Business Units
The Company’s organizational structure is divided into two reporting segments for the purpose of making operational decisions and assessing financial performance: (i) Photonic Solutions and (ii) Compound Semiconductors. These segments, and the business units within the segments, are reflected in the Company's current organizational chart below:
IIVI-20200630_G1.JPG

The Photonic Solutions Segment leverages II-VI’s compound semiconductor technology platforms to deliver components and subsystems that are differentiated based on deep knowledge of end-user applications for our key end markets.

The Compound Semiconductors Segment is a market leader in differentiated materials and devices such as those based on GaAs, InP, GaN, and SiC by independently driving investments that advance its technology roadmaps. We may from time to time reorganize parts of a given segment or corporate center to drive the focus of certain priorities as identified by the CEO.








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II-VI’s segments are organized by business unit at the group or division level. Each of these business units develops and markets products as described below.

Segment
Business Unit
Our Products
Photonic Solutions
ROADM
•Products and solutions that enable high-bit-rate interconnects for datacenters and communications service providers, datacenter interconnects, ROADM systems, and undersea fiber-optic transmission
Coherent Optics
•High-speed optoelectronics and modules for optical communications in telecom networks, including for datacenter interconnects and for metro, regional, long-haul, and ultralong-haul networks
Transceivers
•Pluggable transceivers for Ethernet and fiber channel applications in cloud and enterprise datacenter applications
Advanced Optics
•Fiber optics and precision optics used in projection displays; crystal materials and components for optical communications; high-power UV, visible, and NIR optics for industrial lasers; filters and assemblies for life sciences as well as for sensors, instrumentation, and semiconductor equipment
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Segment
Business Unit
Our Products
Compound Semiconductors
Engineered Materials & Laser Optics
•Laser optics and accessories for CO2 lasers used in materials processing, semiconductors, and life sciences
•High-power fiber and direct-diode laser optics
•Infrared thermal imaging optics and assemblies
•Polycrystalline materials production including ZnSe, ZnS, and CVD diamond
•Thermoelectric components, subassemblies, and systems for heating, cooling, temperature tuning, thermal cycling, and power generation in aerospace and defense, medical, industrial, automotive, consumer, telecommunications, and energy-production markets
•Specialty refining, recycling, and materials recovery services for high-purity rare metals such as selenium and tellurium, as well as related chemical products such as tellurium dioxide for optics, photovoltaics, semiconductors, thermoelectric coolers, metallurgy, agriculture, and industrial applications
•Advanced ceramic and metal-matrix composite products for semiconductor capital equipment, flat-panel displays, industrial and optical equipment, and defense applications
Laser Devices & Systems
•High-power semiconductor lasers and laser bars enabling fiber and direct-diode lasers for materials processing, medical, defense, consumer, and printing applications
•Laser heads and modules; Q-switched laser modules; high-power, uncooled pump laser modules; laser solutions for super-hard materials processing; high-brightness direct-diode laser engines
•Laser processing heads and beam delivery systems for laser materials processing with industrial lasers
•High-speed VCSELs for optical communications
•High-power pumps for amplifiers and optical communications
Aerospace & Defense
•Precision optical assemblies, objectives, infrared optics, thin-film coatings, and optical materials
•Optical solutions for critical and complex design, engineering, and production challenges in defense and aerospace
Wide Bandgap Semiconductors
•SiC and advanced semiconductor materials for high-frequency and high-power electronic device applications in defense, telecommunications, automotive, and industrial markets
Optoelectronic & RF Devices
•VCSELs for sensing, including 3D sensing in consumer electronics and automotive applications
•GaAs-based RF electronic devices
•Integrated circuits for transceivers for optical communications
•III-V epitaxial wafers to enable higher-performance photonic and RF components for consumer, communications, network, and mobile applications
InP Devices
•Semiconductor lasers and detectors for optical interconnects and sensing applications


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Our Markets
Our market-focused businesses are currently organized by technologies and products. Our businesses address the following primary markets: optical and wireless communications, industrial materials processing, aerospace and defense, consumer electronics, semiconductor capital equipment, life sciences, and automotive. As we grow, we may add new primary markets.
Communications Market

II-VI’s optical communications and wireless products and technologies enable the digital transformation in the next generation of high-speed optical transmission systems, networks, and datacenter solutions necessary to meet the accelerating global bandwidth demand.

Demand for our products is largely driven by the continually growing need for additional network bandwidth created by the ongoing proliferation of data and video traffic from video downloads and streaming, live TV, social networking, on-line gaming, file sharing, enterprise IP/internet traffic, cloud computing, and datacenter virtualization that must be handled by both wireline and wireless networks. Mobile traffic is increasing as a result of the proliferation of smartphones, tablet computers, and other mobile devices.

We are a global technology leader in optical communications, providing materials, components, modules, and subsystems to optical component and module manufacturers, networking equipment manufacturers, datacenter operators, and telecom service providers. We design products that meet the increasing demands for network bandwidth and data storage.

Our optical communications products can be divided into two main groups, optical transmission and optical transport.
Our optical transmission products consist primarily of transmitters, receivers, transceivers, transponders, and active optical cables, which provide the fundamental optical-electrical, or optoelectronic, interface for interconnecting the electronic equipment used in these networks. This equipment includes switches, routers, and servers used in wireline networks as well as antennas and base stations used in wireless networks. These products rely on advanced components such as semiconductor lasers and photodetectors in conjunction with integrated circuits and novel optoelectronic packaging to provide a cost-effective means for transmitting and receiving digital signals over fiber-optic cable at speeds ranging from less than 1 Gbps to more than 400 Gbps, over distances of less than 10 meters to more than 5,000 kilometers, using a wide range of network protocols and physical configurations.

Our optical transport products are at the core of both terrestrial and undersea optical networks; our market-leading 980 nm pump lasers are the key enablers of our erbium-doped fiber amplifiers, which boost the power of optical signals in fiber-optic cables at intervals spanning typically 80 km to allow high-speed signals to be transmitted over longer distances. Our latest generation of components for coherent transceivers is critical to a new generation of small-size, long-reach DWDM transmission modules operating from 100 Gbps to 1 Tbps and beyond.

Customers continue to rely on us for our industry-leading optical amplification and embedded monitoring solutions for their next-generation ROADM systems to compensate for inherent signal loss and to monitor signal integrity. Our proprietary OTDR modules allow systems to automatically detect and pinpoint issues along the transmission path in real time. Together with our OCM solutions, which monitor the optical power of the channels transmitted in an fiber-optic link, they enable real-time intelligence to perform preventive maintenance so as to preserve data transmission. In addition, we offer a portfolio of WSS products, which we also incorporate into ROADM line cards and subsystems.

The accelerating adoption of applications such as cloud computing is driving the rapid growth of datacenter buildouts. Our high-speed 25 Gbps VCSELs enable transceivers for intra-datacenter communication. Our miniature WDM thin-film filter assemblies are used to increase the bandwidth within 100 GbE transceivers by combining wavelengths at the transmitter end and separating them out at the receiver end.

In the mobile wireless market, II-VI is a global leader in the strategic supply chain for materials and devices utilized in the latest 4G and 5G base station infrastructure. The deployment of 5G wireless is accelerating globally, driving the demand for RF power amplifiers that can operate efficiently in new high-frequency bands and be manufactured on a technology platform that can scale to meet the growing demand. Gallium nitride on silicon carbide (GaN-on-SiC) RF power amplifiers have superior performance, compared with devices based on silicon, over a wide spectrum of 5G operating frequencies in the gigahertz range, including in the millimeter-wave bands.

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We are a market leader in the development and manufacture of 100 mm and 150 mm semi-insulating SiC substrates. These substrates are utilized by customers worldwide to manufacture GaN-on-SiC HEMT RF power amplifier devices that are embedded in remote radio heads in 4G/5G wireless base stations. In areas of high bandwidth demand, 5G antennas with beamforming technology utilizing multiple devices per antenna are expected to be densely deployed, increasing the demand for GaN-on-SiC power amplifiers by approximately an order of magnitude or more versus previous 4G antennas. Looking forward, II-VI continues to advance the state of the art in SiC substrates, with a strong technology portfolio of 30 active patents using highly differentiated and proprietary manufacturing platforms and technologies including crystal growth, substrate fabrication, and polishing. Our recent demonstration of the world’s first prototype 200 mm semi-insulating SiC substrates will enable the RF power amplifier market to continue to scale, increasingly replacing functions performed by devices based on silicon and enabling new applications.

Leveraging this materials expertise, II-VI has invested aggressively in a world-class 150 mm compound semiconductor manufacturing platform and is developing a fully vertically integrated, 150 mm wafer fabrication platform to manufacture the state-of-the-art GaN-on-SiC HEMT devices that will enable these next-generation wireless networks.
Materials Processing Market
Our industrial laser optics and solutions for the materials processing market remain well-positioned, although we were impacted by the global industrial slowdown associated with COVID-19. Our vertically integrated and market-leading ZnSe optics and components, due to their inherent low loss at around the 10-micron wavelength, have enabled high-power CO2 laser systems for many decades and remain critical to the steady stream of new deployments as well as to continued operation, serving as replacement optics for the installed base of CO2 lasers. II-VI continues to introduce products that address new and growing applications for low-power CO2 lasers, such as cutting plastics, textiles, leather, wood, and other organic materials, for which the CO2 laser’s 10-micron wavelength is ideally suited. CO2 lasers are also at the core of EUV lithography systems, which are now emerging on the market to enable a new generation of smaller and more powerful integrated circuits.
Fiber lasers that operate at about the 1-micron wavelength in pulsed or continuous mode have taken a central role in many materials processing applications, especially for precision machining such as marking and microdrilling. II-VI supplies a broad set of laser optics and fused-fiber products that enable many functions within these fiber lasers, from the laser chips that generate the input optical power to the beam delivery systems that direct the output optical power to the target. The same set of II-VI products is at the core of existing and emerging direct-diode laser systems. II-VI is also driving innovation with a direct-diode laser engine small enough to be mounted on a robotic arm so that the end user can apply square beams directly to the workpiece at wavelengths optimized to process specific metals or alloys.
II-VI’s broad portfolio of coated optics and crystal materials serves all of these growing laser markets.
Aerospace and Defense Market

II-VI’s aerospace and defense solutions enable mission-critical capabilities for applications in high-energy lasers (HELs); contested space; and intelligence, surveillance, and reconnaissance (ISR). From uniquely grown single crystals and advanced ceramics, to completely engineered gimbal subsystems, II-VI solutions are embedded on nearly every platform in the field as well as those under development. Recently acquired coherent laser beam combining (CBC) and advanced lightweight gimbal technologies, along with domestically produced high-power fiber laser pumps and amplifiers, are enabling next-generation HEL systems and space-based laser communications applications. With the addition of nano-machined single-crystal silicon and grating technologies, together with II-VI’s advanced HEL coating capabilities, we enable advanced spectral beam combining and novel microstructured surface capabilities, which are highly valued within the aerospace and defense industry.

Our advanced missile warning, electro-optical targeting, and imaging systems are deployed on virtually every U.S. fixed-wing and rotary platform. Our advanced sapphire, germanium, and multispectral domes provide unique protection to our advanced imaging, seeker, and laser solutions packaged behind them. They provide hemispherical coverage for airborne, naval, and ground-based systems.

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Our solutions for the Lunar Reconnaissance Orbiter (LRO) provided the first images proving that the footprints on the moon are still there. The LRO continues to orbit the moon and provide rich information for future lunar landing sites. The LRO camera, and more advanced derivatives, are the basis for many advanced space imaging applications being pursued by our customers. Our solution for the OSIRIS-REx mission enables the first-ever ability for a NASA satellite to touch down on an asteroid (Bennu) and to retrieve a sample and return it to Earth. Our advanced imaging lenses and windows ensure our customers’ vehicles are able to safely and accurately dock with the Space Station. Our advanced telescope solution for the Geostationary Lightning Mapper enables the GOES satellites to detect early lightning strikes and predict tornados a full 20 minutes before previous technology. It forms the basis for many of our customers’ advanced multispectral imaging solutions.

II-VI’s Aerospace & Defense (A&D) division maintains separate business development, accounting, finance, engineering, and manufacturing facilities in the United States with strictly controlled access; they are dedicated to our U.S. government-supported contracts.
Semiconductor Capital Equipment Market
Semiconductor capital equipment requires advanced materials to meet the need for tighter tolerances, enhanced thermal stability, faster wafer transfer speeds, and reduced stage settling times. Our metal-matrix composites and reaction-bonded ceramics enable these applications, thanks to their optimum combination of light weight, strength, hardness, and coefficient of thermal expansion. Our reaction-bonded SiC materials are used to manufacture wafer chucks, lightweight scanning stages, and high-temperature, corrosion-resistant wafer support systems. Our cooled SiC mirrors and precision patterned reticles are used in the illumination systems of lithography tools.
Our products enable legacy DUV lithography equipment that is widely deployed in semiconductor fabs. In the emerging market of EUV lithography systems, CO2 lasers are used to generate extreme-ultraviolet light. These CO2 lasers and beam delivery systems leverage our broad portfolio of CO2 laser optics, CdTe modulators, and high-power damage-resistant polycrystalline CVD diamond windows to route the powerful laser beam to a tin droplet from which EUV light will emanate. Due to its very high mechanical and thermal performance characteristics, our reaction-bonded SiC is used in structural support systems that are integral to EUV lithography optics to meet critical requirements for optical system stability.
Life Sciences Market

Within the life sciences end market, II-VI focuses on light-based analytical instruments that are found in modern biotechnology laboratories. Applications include flow cytometry, genome sequencing, PCR, molecular diagnostics, imaging, and spectroscopy, to name a few. Our broad product portfolio delivers solutions covering illumination, light management, and thermal control. Visible-wavelength “QOMO” lasers and multicolored laser engines provide low-noise, high-performance, reliable light sources. Optical components and subassemblies such as filters, lenses, flow cells, gratings, objective lenses, and patterned reticles are embedded into these instruments to manage light delivery to and from samples. Our state-of-the-art thermal engines precisely control temperature and uniformity across large areas such as plate and block assemblies, even extending to reagent or sample chilling.

Medical and clinical procedures are increasingly performed with systems that integrate our lasers, optics, and thermal solutions. These applications are performed at or near the patient, requiring extreme precision and often complex designs and typically reaching into the NIR and IR wavelengths. Applications are varied, from laser-based treatments and surgeries to medical imaging and even point of care. II-VI’s semiconductor laser bars and stacks are used in applications such as hair and wrinkle removal procedures. Crystals and laser cavities, along with custom-designed lens assemblies, are integrated and used for ophthalmic, dental, and dermatological surgeries. Finally, thermal components and subassemblies deliver solutions for medical-based applications such as delivering heating and cooling to the human body and medical laser temperature control.

II-VI solutions are the building blocks of scientific molecular spectroscopy and imaging-based platforms. These tools typically target environmental applications such as water, air, food/beverage, pharmaceutical, and agricultural testing and monitoring. II-VI continues to leverage its core laser, optics, and temperature-control expertise to deliver custom components and subassembly-level solutions.
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Consumer Electronics Market
II-VI manufactures VCSELs, VCSEL arrays, and filters for the consumer electronics market. Our VCSEL products leverage our world-class 6-inch GaAs platform, combining our epitaxial wafer growth and wafer fabrication capabilities. Our VCSELs, unlike many on the market, have already been designed into consumer products such as computer mice and mobile phones as well as vehicle steering wheels. Our VCSELs are also widely deployed in datacenters and in the emerging market for HDMI optical cables. This expertise in VCSEL technology has been leveraged for the emerging 3D sensing market. 3D sensing was the first application to drive the demand for relatively large two-dimensional VCSEL arrays. A typical design for 3D sensing requires tens of VCSELs per chip in order to scale up the optical power required, for example, for face recognition applications. Therefore, 3D sensing applications drove an entirely new manufacturing infrastructure to enable 6-inch wafer processing. Today, II-VI is one of the very few vertically integrated 6-inch VCSEL manufacturers with a proven track record in high-volume manufacturing of high-reliability, large multi-emitter VCSEL dies designed for 3D sensing. An increasing number of consumer devices are coming on the market with embedded VCSELs, including multiple smartphones and augmented reality headsets.
Automotive Market

II-VI is a global leader in SiC substrates for power electronics that improve the energy efficiency of electric and hybrid-electric vehicles. Power electronics based on SiC enable systems to achieve significantly improved power utilization and conversion efficiencies, lower operating temperatures, and reduced thermal loads. This in turn enables either increased driving range or reductions in required battery capacity for a given range, which results in a significant cost reduction. Our comprehensive understanding of crystal growth and materials processing was acquired over decades of sustained R&D and manufacturing, allowing us to continuously evolve our technology and IP portfolio. We offer a full range of substrate diameters, including the world’s first 200 mm substrate.

Our industry-leading semiconductor lasers, optics, and materials are at the core of LiDAR systems embedded in advanced driver-assistance systems (ADAS) and autonomous vehicles. LiDAR sensors enable ADAS to perform functions such as emergency braking and adaptive cruise control. LiDAR sensors are also expected to be embedded in autonomous vehicles.
II-VI enables LiDAR sensors with a broad portfolio of components and modules, including high-power laser diodes, fiber amplifiers, frequency-modulated continuous wave detection (FMCW) solutions, optical filters for detection, mirrors for scanning, and thermoelectric coolers for temperature control. Our product offerings include edge-emitters and VCSELs that are capable of providing high peak powers for direct illumination and imaging. Emission and return windows on LiDAR systems are available in ultrahard bulk materials, such as SiC and diamond, and with optical coatings that are water-shedding and oil-resistant. Our thermoelectric coolers are qualified to automotive standards and enable LiDAR systems to operate with optimal performance and efficiency.

New generations of vehicles will be equipped with a greater number of sensors that can monitor a driver’s alertness and let occupants interact with the console using touch sensing or gesture recognition. In the event of a collision, sensors can help provide critical information about the position and attention of occupants to activate restraints and deploy airbags in the best possible manner. II-VI’s products enable the most advanced in-cabin control and monitoring systems for the latest applications in human-vehicle interactions. Our VCSELs are ideal for optical touch sensors integrated in dashboards or steering wheels. Our VCSEL arrays can provide infrared cabin illumination and structured light projection to enable gesture recognition.

Automotive manufacturers continue to differentiate their products with comfort features such as temperature-controlled car seats and cup holders, all of which require thermoelectric devices. II-VI offers thermal management solutions that are qualified to stringent automotive industry standards and tailored to various applications.
Sales and Marketing
We market our products through a direct sales force and through representatives and distributors around the world. Our market strategy is focused on understanding our customers’ requirements and building market awareness and acceptance of our products. New products are continually being developed and introduced to our new and established customers in all markets.
The Company has centralized its worldwide sales and its strategic marketing functions. Sales offices have been strategically realigned to best serve and distribute products to our worldwide customer base. There are significant cooperation, coordination, and synergies among our business units, which capitalize on the most efficient and appropriate marketing channels to address diverse applications within our markets.
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Our sales force develops effective communications with our OEM and end-user customers worldwide. Products are actively marketed through key account relationships, personal selling, select advertising, attendance at trade shows, and customer partnerships. Our sales force includes a highly trained technical sales support team to assist customers in designing, testing, and qualifying our products as key components of our customers’ systems. As of June 30, 2020, we employed approximately 336 individuals in sales, marketing, and support.
We do business with a number of customers in the aerospace and defense industry, who in turn generally contract with a governmental entity, typically a U.S. government agency. Most governmental programs are subject to funding approval and can be modified or terminated without warning by a legislative or administrative body.
Customers
The representative groups of customers by segment are as follows:

Segment: Business Unit: Our Customers Are: Representative Customers:
Photonic Solutions ROADM Worldwide network system and subsystem providers of telecommunications, data communications, and CATV
•Ciena Corporation
•Fujitsu Network Communications
•Nokia Solutions and Networks
•Nippon Electric Company Ltd. (NEC Corporation)

Coherent Optics
Transceivers Cloud service providers, telecom service providers, enterprises with internal datacom networks, datacom OEMs, telecom OEMs
•Cisco Systems Inc.
Advanced Optics Global manufacturers of industrial and medical laser optics and crystals including commercial and consumer products used in a wide array of instruments, sensors, fiber lasers, displays, and projection devices
•Corning Incorporated
•Coherent Inc.
•Han’s Laser Technology Industry Group Co. Ltd.
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Compound Semiconductors
Engineered Materials & Laser Optics
OEM and system integrators of industrial, medical, personal comfort, and aerospace and defense laser systems; laser end users who require replacement optics for their existing laser systems
•TRUMPF GmbH + Co. KG
•Bystronic Laser AG
•Coherent Inc.
Manufacturers and developers of integrated-circuit capital equipment for the semiconductor capital equipment industry
•ASML Holding NV
•Carl Zeiss AG
•Nikon Corporation
•KLA-Tencore Corporation
Primary mineral processors, refiners, and providers of specialized materials used in laser optics, photovoltaics, semiconductors, thermoelectric coolers, metallurgy, and industrial products
•Aurubis AG
Laser Devices & Systems
Manufacturers of industrial laser components, optical communications equipment, and consumer technology applications; automotive manufacturers
•Ford Motor Company
•Laserline GmbH
•Wuhan Raycus Fiber Laser Technologies Co. Ltd.
•Hisense Broadband
OEM and subsystem integrators of aiming, machine vision, biomedical instruments, and fiber lasers; laser cutting machines for superhard materials
•BGI Complete Genomics, Shenzhen Co. Ltd.
•TRUMPF GmbH + Co. KG
Aerospace & Defense Manufacturers of equipment and devices for aerospace, defense, and commercial markets
•Lockheed Martin Corporation
Wide Bandgap Semiconductors Manufacturers and developers of equipment and devices for high-power RF electronics and high-power, voltage-switching, and power-conversion systems for both commercial and aerospace and defense applications
•Sumitomo Electric Device Innovations Inc.
•Showa Denko KK
•STMicroelectronics
•IQE PLC
•Infineon Technologies AG
•Dynax Semiconductor Inc.
Optoelectronic & RF Devices
Manufacturers of consumer electronics and transceivers
•Sumitomo Electric Devices
InP Devices Manufacturers of transceivers



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Competition
II-VI is a global leader in many of its product families. We compete partly on the basis of our reputation for offering highly engineered products, product and technology roadmaps, intellectual property, ability to scale, quality, on-time delivery, technical support, and pricing. We believe that we compete favorably with respect to these factors and that our vertical integration, manufacturing facilities and equipment, experienced technical and manufacturing employees, and worldwide marketing and distribution channels provide us with competitive advantages. The representative groups of our competitors by segment are as follows:

Segment: Areas of Competition: Competitors:
Photonic Solutions Optics, optical components, modules, and subsystems for optical communications
•      Molex LLC
•      Lumentum Operations LLC
Optical and crystal components, thin-film coatings, and subassemblies for lasers and metrology instruments
•      Casix Inc.
•      CASTECH Inc.
•      Hellma GmbH & Co. KG
•      Research Electro-Optics Inc.
•      IDEX Corporation
Compound Semiconductors Infrared laser optics
•      Sumitomo Electric Industries Ltd.
•      MKS Instruments Inc.
•      Wavelength Opto-Electronic Pte. Ltd.
•      Sigma Koki Co. Ltd.
Automated equipment and laser materials processing tools to deliver high-power 1-micron laser systems
•      Optoskand AB
•      Precitec GmbH & Co. KG
•      Mitsubishi Cable Industries Ltd.
Biomedical instruments for flow cytometry, DNA sequencing, and fluorescence microscopy
•      Coherent Inc.
•      Pavilion Integration Corporation
•      Shimadzu Corporation
Semiconductor laser diodes for the industrial and consumer markets
•      Lumentum Operations LLC
•      Broadcom Ltd.
•      ams AG
•      Jenoptik AG
•      OSRAM Licht AG
•      Sony Corporation
•      Hamamatsu Photonics KK
Infrared optics for aerospace and defense applications
•In-house fabrication and thin-film coating capabilities of major aerospace and defense customers
Thermoelectric components, subassemblies, and systems
•      Komatsu Ltd.
•      Laird PLC
•      Ferrotec Corporation
Metal-matrix composites and reaction-bonded ceramic products
•      Berliner Glas KGaA
•      Herbert Kubatz GmbH & Co.
•      CoorsTek Inc.
•      Japan Fine Ceramics Co. Ltd.
Single-crystal SiC substrates
•      Cree Inc.
•      Dow Corning Corporation
•      SICC Co. Ltd.
•      TankeBlue Semiconductor Co. Ltd.
•      ROHM Co. Ltd.
Refining and materials recovery services for high-purity rare metals
•      Vital Materials Co. Ltd.
•      5N Plus Inc.
•      RETORTE GmbH Selenium Chemicals & Metals
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In addition to competitors who manufacture products similar to those we produce, there are other technologies and products available that may compete with our technologies and products.
Our Strategy
Our strategy is to grow businesses with world-class engineered materials capabilities to advance our current customers’ strategies, penetrate new markets through innovative technologies and platforms, and enable new applications in large and growing markets. A key strategy of ours is to develop and manufacture high-performance materials and, in certain cases, components from those materials, that are differentiated from those produced by our competitors. We focus on providing components that are critical to the heart of our customers’ products serving the applications mentioned above.
We have grown the number and size of our key accounts substantially. A significant portion of our business is based on sales orders with market leaders, which enables our forward planning and production efficiencies. We intend to continue capitalizing and executing on this proven model, participating effectively in the growth of the markets discussed above, and continuing our focus on operational excellence as we execute our primary business strategies:

Key Business Strategies: Our Plan to Execute:
Identify New Products and Markets Identify new technologies, products, and markets to meet evolving customer requirements for high-performance engineered materials through our dedicated RD&E programs to increase new product revenue and maximize return on investment
Balanced Approach to Research and Development Internally and externally funded RD&E expenditures, targeting an overall investment of between 7%–11% of revenues depending on the nature of the investment in terms of technology platforms or products
Leverage Vertical Integration Combine RD&E and manufacturing expertise, operating with a bias toward components and production machines; reducing cost and lead time to enhance competitiveness, time to market, profitability, and quality; and enabling our customers to offer competitive products
Investment in Scalable Manufacturing Strategically invest in, evaluate, and identify opportunities to consolidate and automate manufacturing operations worldwide to increase production capacity, capabilities, and cost-effectiveness
Enhance Our Performance and Reputation as a Quality and Customer Service Leader Continue to improve upon our established reputation as a consistent, high-quality supplier of engineered materials and optoelectrical components that are built into our customers’ products
Execute our global quality transformation process, eliminating costs of nonconforming materials and processes
Identify and Complete Strategic Acquisitions and Alliances Identify acquisition opportunities that accelerate our access to emerging, high-growth segments of the markets we serve and further leverage our competencies and economies of scale
Research, Development, and Engineering
During the fiscal year ended June 30, 2020, the Company continued to identify, invest in, and focus our research and development on new products and platform technologies in an effort to accelerate our organic growth. This approach is managed under a disciplined innovation program that we refer to as the “II-VI Phase Gate Process.”
We devote significant resources to RD&E programs directed at the continuous improvement of our existing products and processes and to the timely development of new materials, technologies, and products. We believe that our RD&E activities are essential to establishing and maintaining a leadership position in each of the markets we serve. In addition, certain manufacturing personnel support or participate in our research and development efforts on an ongoing basis. We believe this interaction between the development and manufacturing functions enhances the direction of our projects, reducing costs and accelerating technology transfers.



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During the fiscal year ended June 30, 2020, we focused our RD&E investments in the following areas:
Segment: Area of Development: Our RD&E Investments:
Photonic Solutions
 
Photonics design Continuing to develop and improve crystal materials, precision optical parts, and laser device components for photonics applications
Datacom transceivers Continuing cost reduction on 10G-100G products, leveraging our engineering resources and manufacturing scale; continuing to develop high-end 200G/400G products, including RF and packaging designs; exploring high-density, high-bandwidth co-packaged designs through silicon photonics; continuing to develop vertically integrated designs, including with lasers and ICs
Coherent optics Driving further integration to reduce size and power consumption; optimizing product cost with new design architectures and more efficient manufacturing flow
Pump lasers Continuing to invest in our next-generation GaAs pump laser portfolio and flexible manufacturing footprint to address evolving terrestrial and undersea markets
Developing InP growth and processing capability together with associated packaging technology
Optical amplifiers and subsystems Investing and broadening the range of amplifiers and integrated subsystems, including ROADMs
Wavelength selective switching Developing LC and LCOS technologies and associated module designs for WSS; investing in manufacturing equipment and the automation platform
Optical monitoring Continuing optical channel monitoring investment
Developing OTDRs to monitor the health of the fiber plant
Micro-optics manufacturing Shifting toward smaller, more compact optics and automated assembly platforms and packages
Investing in manufacturing equipment for computerized processes
Compound Semiconductors High-power laser diodes, semiconductor lasers, and devices for optical communications and sensing, and high-volume manufacturing Focusing on increasing fiber-coupled optical output power of multi-emitter modules
Developing high-power VCSELs for consumer devices and next-generation, high-speed VCSELs for 3D sensing and datacom applications
Developing high-power and high-speed InP lasers, detectors, and components for applications in optical communications
High-power beam delivery Developing multi-kW beam delivery systems and cables for welding and cutting
CVD diamond technology Developing CVD diamond for EUV applications
Broadening our portfolio beyond infrared window applications
SiC technology Developing advanced SiC substrate growth technologies to support emerging markets in GaN RF and SiC power electronics
Continuous improvement to maintain world-class, high-quality, large-diameter substrates and epitaxial wafers
Thermoelectric materials and devices
Continuing to develop leading Bi2Te3 materials for thermoelectric cooling/heating
Focusing on thermoelectric power-generation capability in order to introduce new products to the market
Metal-matrix composites and reaction-bonded ceramics Support industrial customers in developing application-specific wear and thermal management solutions
Fiber laser technologies Developing high-power fiber laser technologies for aerospace, defense, and commercial applications
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The development of our products and manufacturing processes is largely based on proprietary technical know-how and expertise. We rely on a combination of contract provisions, trade secret laws, invention disclosures, and patents to protect our proprietary rights. We have entered into selective intellectual property licensing agreements. We have asserted in the past, and expect that we will continue to assert, as well as vigorously protect, our intellectual property rights. We have a total of approximately 2,450 patents globally.
Internally funded research and development expenditures were $339.1 million, $139.2 million, and $116.9 million for the fiscal years 2020, 2019, and 2018, respectively. For these same periods, externally funded research and development expenditures were $16.4 million, $14.7 million, and $12.7 million, respectively, and were included in cost of goods sold in the Consolidated Statements of Earnings (Loss).

Import and Export Compliance
We are required to comply with various import/export and economic sanctions laws and regulations, including:
•The import regulations administered by U.S. Customs and Border Protection;
•The International Traffic in Arms Regulations administered by the U.S. Department of State, Directorate of Defense Trade Controls, which among other things impose licensing requirements on the export from the United States of certain defense articles and defense services, generally including items that are specially designed or adapted for a military application and/or listed on the United States Munitions List;
•The Export Administration Regulations administered by the U.S. Department of Commerce, Bureau of Industry and Security, which among other things impose licensing requirements on certain dual-use goods, technology, and software, i.e., items that potentially have both commercial and military applications; and
•The regulations administered by the U.S. Department of the Treasury, Office of Foreign Assets Control, implementing economic sanctions against designated countries, governments, and persons based on U.S. foreign policy and national security considerations.

Foreign governments have also implemented similar import and export control laws and regulations. For additional discussion regarding our import and export compliance, see the discussion set forth in Item 1A – Risk Factors of this Annual Report Form on Form 10-K.
Trade Secrets, Patents, and Trademarks
Our use of trade secrets, proprietary know-how, trademarks, copyrights, patents, contractual confidentiality, and IP ownership provisions help us develop and maintain our competitive position with respect to our products and manufacturing processes. We aggressively pursue process and product patents in certain areas of our businesses and in certain jurisdictions across the globe. We have entered into selective intellectual property licensing agreements. We have confidentiality and noncompetition agreements with certain personnel. We require that our U.S. employees sign a confidentiality and noncompetition agreement upon commencement of their employment with us.
Executive Officers of the Registrant
The executive officers of the Company and their respective ages and positions as of June 30, 2020, are set forth below. Each executive officer listed has been appointed by the board of directors to serve until removed or until such person’s successor is appointed and qualified.

Name Age Position
Vincent D. Mattera, Jr. 64 Chief Executive Officer; Director
Walter R. Bashaw II
55 President
Mary Jane Raymond 59 Chief Financial Officer and Treasurer and Assistant Secretary
Giovanni Barbarossa 58 Chief Strategy Officer and President, Compound Semiconductors
Jo Anne Schwendinger 64 Chief Legal Officer and Compliance Officer and Secretary
Christopher Koeppen 49 Chief Technology Officer

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Vincent D. Mattera, Jr. Dr. Mattera initially served as a member of the II-VI board of directors from 2000 to 2002. Dr. Mattera joined the Company as a Vice President in 2004 and served as Executive Vice President from January 2010 to November 2013, when he became the Chief Operating Officer. In November 2014, Dr. Mattera became the President and Chief Operating Officer and was reappointed to the board of directors. In November 2015, he became the President of II-VI. In September 2016, Dr. Mattera became the Company’s third President and Chief Executive Officer in 45 years. During his career at II-VI, he has assumed successively broader management roles, including as a lead architect of the Company’s diversification strategy. He has provided vision, energy, and dispatch to the Company’s growth initiatives, including overseeing the acquisition-related integration activities in the United States, Europe, and Asia—especially in China—thereby establishing additional platforms. These have contributed to a new positioning of the Company into large and transformative global growth markets while increasing considerably the global reach of the Company, deepening the technology and IP portfolio, broadening the product roadmap and customer base, and increasing the potential of II-VI.
Prior to joining II-VI as an executive, Dr. Mattera had a continuous 20-year career in the Optoelectronic Device Division of AT&T Bell Laboratories, Lucent Technologies, and Agere Systems, during which he led the development and manufacturing of semiconductor laser-based materials and devices for optical and data communications networks. Dr. Mattera has 34 years of leadership experience in the compound semiconductor materials, device technology, operations, and markets that are core to II-VI’s business and strategy. Dr. Mattera holds a B.S. degree in chemistry from the University of Rhode Island (1979) and a Ph.D. in chemistry from Brown University (1984). He completed the Stanford University Executive Program (1996).
Walter R. Bashaw II has served as the Company's President since July 2019. Mr. Bashaw served as the Company's Senior Vice President, Corporate Strategy and Development, Administration from October 2018 to July 2019. Previously, Mr. Bashaw served as the Company's Interim General Counsel and Secretary from December 2015 until March 2017. Mr. Bashaw also previously was a Managing Shareholder and a Director of the law firm of Sherrard, German & Kelly, P.C. (SGK) in Pittsburgh, Pennsylvania, until October 2018 and Of Counsel at SGK from October 2018 until June 2019. Mr. Bashaw graduated from the Pennsylvania State University with a B.S. degree in Logistics and also holds a J.D. degree from the University of Pittsburgh School of Law.
Mary Jane Raymond has been Chief Financial Officer and Treasurer of the Company since March 2014. Previously, Ms. Raymond was Executive Vice President and Chief Financial Officer of Hudson Global Inc. (Nasdaq: HSON) from 2005 to 2013. Ms. Raymond was the Chief Risk Officer and Vice President and Corporate Controller at Dun and Bradstreet Inc. from 2002 to 2005. Additionally, she was the Vice President, Merger Integration, at Lucent Technologies from 1997 to 2002 and held several management positions at Cummins Engine Company from 1988 to 1997. Ms. Raymond holds a B.A. degree in Public Management from St. Joseph’s University, and an MBA from Stanford University.
Giovanni Barbarossa joined II-VI in October 2012 and has been the Chief Strategy Officer of the Company and the President of the Compound Semiconductors Segment since July 2019. Previously, he was the Chief Technology Officer of the Company and the President of the Laser Solutions Segment. Dr. Barbarossa was employed at Avanex Corporation from 2000 through 2009, serving in various executive positions in product development and general management, ultimately serving as President and Chief Executive Officer. When Avanex merged with Bookham Technology, forming Oclaro, Dr. Barbarossa became a member of the board of directors of Oclaro and served as such from 2009 to 2012. Previously, he held senior management roles in the Optical Networking Division of Agilent Technologies and in the Network Products Group of Lucent Technologies. He was previously a Member of Technical Staff, then Technical Manager at AT&T Bell Labs, and a Research Associate at British Telecom Labs. Dr. Barbarossa graduated from the University of Bari, Italy, with a B.S. degree in Electrical Engineering, and holds a Ph.D. in Photonics from the University of Glasgow, U.K.
Jo Anne Schwendinger has served as the Company’s Chief Legal and Compliance Officer and Secretary since November 2017. Ms. Schwendinger also served as the Company’s General Counsel and Secretary from when she joined the Company in March 2017 until November 2017. Prior to her employment with the Company, Ms. Schwendinger practiced law with the firm Blank Rome LLP from August 2016 until February 2017. Previously, Ms. Schwendinger served in various legal roles at Deere & Company from 2000 until August 2016, including Regional General Counsel–Asia-Pacific and Sub-Saharan Africa and Assistant General Counsel. Ms. Schwendinger holds a bachelor’s degree from the Université d'Avignon et des Pays de Vaucluse, a master’s degree from the Université de Strasbourg, and a J.D. degree from the University of Pittsburgh Law School.
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Christopher Koeppen joined the Company in 2011 following the acquisition of Aegis Lightwave, Inc., where he served as General Manager, Aegis-NJ. He was named General Manager of II-VI’s Agile Network Products Division in 2012 and Director of Corporate Strategic Technology Planning in 2015. He then served as Vice President of the Industrial Laser Group and Corporate Strategic Technology Planning from 2017 until his appointment as Chief Technology Officer in 2019. Previously, Dr. Koeppen was co-founder and Chief Executive Officer of CardinalPoint Optics, prior to its acquisition by Aegis Lightwave. He has more than two decades of progressively increasing general and technology management experience in high-tech companies, including at Meriton Networks, Mahi Networks, Photuris, and Lucent Technologies. Dr. Koeppen holds a Ph.D. in Physics from the University of Pennsylvania, where he was an AT&T Bell Laboratories Scholar, and B.S. degrees in Physics and Mathematics from the Pennsylvania State University.
Availability of Information
Our internet address is www.ii-vi.com. Information contained on our website is not part of, and should not be construed as being incorporated by reference into, this Annual Report on Form 10-K. We post the following reports on our website as soon as reasonably practical after they are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”): our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K, and any amendments to those reports or statements filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. In addition, we post our proxy statements on Schedule 14A related to our annual shareholders’ meetings as well as reports filed by our directors, officers, and 10% beneficial owners pursuant to Section 16 of the Exchange Act. In addition, all filings are available via the SEC’s website (www.sec.gov). We also make our corporate governance documents available on our website, including the Company’s Code of Business Conduct and Ethics, governance guidelines, and the charters for our board committees. All such documents are located on the Investors page of our website and are available free of charge.
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Item 1A. RISK FACTORS
The following are certain risk factors that could affect our business, results of operations, financial position or cash flows. These risk factors should be considered along with the forward-looking statements contained in this Annual Report on Form 10-K, because these factors could cause our actual results or financial condition to differ materially from those projected in forward-looking statements. The following discussion is not an all-inclusive listing of risks, although we believe these are the more material risks that we face. If any of the following occur, our business, results of operations, financial position, or cash flows could be adversely affected. You should carefully consider these factors, as well as the other information contained in this Annual Report on Form 10-K, when evaluating an investment in our securities.
Risks Relating to Our Business and Our Industry
Investments in future markets of potential significant growth may not result in the expected return.
We continue to make investments in programs with the goal of gaining a greater share of end markets using semiconductor lasers and other components including those used for 3D sensing and emerging 5G technology. We cannot guarantee that our investments in capital and capabilities will be sufficient. The potential end markets, as well as our ability to gain market share in such markets, may not materialize on the timeline anticipated or at all. We cannot be sure of the end market price, specification, or yield for products incorporating our technologies. Our technologies could fail to fulfill, partially or completely, our target customers’ specifications. We cannot guarantee the end market customers’ acceptance of our technologies. Further, we may be unable to fulfill the terms of our contracts with our target customers, which could result in penalties of a material nature, including damages, loss of market share, and loss of reputation.
Our competitive position depends on our ability to develop new products and processes.
To meet our strategic objectives, we must develop, manufacture, and market new products and continue to update our existing products and processes to keep pace with market developments to address increasingly sophisticated customer requirements. Our success in developing and selling new and enhanced products and processes depends upon a variety of factors, including strategic product selection, efficient completion of product design and development, timely implementation of manufacturing and assembly processes, effective sales and marketing, and high-quality and successful product performance in the market.
The introduction by our competitors of products or processes using new developments that are better or faster than ours could render our products or processes obsolete or unmarketable. We intend to continue to make significant investments in research, development, and engineering to achieve our goals. There can be no assurance that we will be able to develop and introduce new products or enhancements to our existing products and processes in a manner which satisfies customer needs or achieves market acceptance. The failure to do so could have a material adverse effect on our ability to grow our business and maintain our competitive position and on our results of operations and/or financial condition.
Widespread health crises, including the global novel coronavirus (COVID-19) pandemic, could materially and adversely affect our business, financial condition, and results of operations.
In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, which continues to spread throughout the United States and world. We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including the impact to our suppliers, customers, and employees as well as the impact to the countries and markets in which we operate. At the onset of the COVID-19 outbreak, we began focusing intensely on mitigating the adverse impacts of COVID-19 on our foreign and domestic operations, starting by protecting our employees, suppliers, and customers.
Significant reductions in demand for one or more of our products or a curtailment to one or more of our product lines may be caused by, among other things, the temporary inability of our customers to purchase and utilize our products in next-stage manufacturing due to shutdown orders or financial hardship.
Workforce constraints triggered by shutdown orders and stay-at-home polices may present challenges in meeting our obligations to our customers and achieving cost and operational targets. For example, approximately 45% of our global facilities are subject to a government order, including approximately 10% that are currently closed, most of which are administrative facilities where employees are working remotely. We expect facilities to continue to be subject to similar government orders for the foreseeable future.
We may face disruptions from our third-party manufacturing and raw materials supply arrangements caused by constraints over their workforce capacity or their own financial or operational difficulties. There is also heightened risk and uncertainty regarding the loss or disruption of other essential third-party service providers, including transportation services, contract manufacturing, marketing, and distribution services.
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Governmental and regulatory responses to the pandemic may include quarantines, import/export restrictions, price controls, or other governmental or regulatory actions, including closures or other restrictions that limit or close our operating and manufacturing facilities, restrict our workforce’s ability to travel or perform necessary business functions, or otherwise impact our suppliers or customers, which could adversely impact our operating results.
Such efforts to ensure the safety of our workforce, customers, and suppliers may result in increased operating expenses and potentially jeopardize the efficiency of operations. Such impacts may further increase the difficulty of planning for operations and may adversely impact our results.
We have made efforts to identify, manage, and mitigate the economic disruption impacts of the COVID-19 pandemic to the Company; however, there are factors beyond our knowledge or control, including the duration and severity of this outbreak or any such similar outbreak, as well as further governmental and regulatory actions.
Global economic downturns, including any downturn related to COVID-19, may adversely affect our business, operating results, and financial condition.
Current and future conditions in the global economy have an inherent degree of uncertainty. As a result, it is difficult to estimate the level of growth or contraction of the global economy as a whole. It is even more difficult to estimate growth or contraction in various parts, sectors, and regions of the economy, including the industrial, aerospace and defense, optical communications, telecommunications, semiconductor, consumer, and medical and life science markets in which we participate. All aspects of our Company’s forecast depend on estimates of growth or contraction in the markets we serve. Thus, prevailing global economic uncertainties render estimates of future income and expenditures very difficult to make.
Global economic downturns may affect industries in which our customers operate. These changes could include decreases in the rate of consumption or use of our customers’ products. Such conditions could have a material adverse effect on demand for our customers’ products and, in turn, on demand for our products.
Adverse changes may occur in the future as a result of declining or flat global or regional economic conditions, fluctuations in currency and commodity prices, wavering confidence, capital expenditure reductions, unemployment, decline in stock markets, contraction of credit availability, or other factors affecting economic conditions. For example, factors that may affect our operating results include disruption in the credit and financial markets in the United States, Europe, and elsewhere, adverse effects of slowdowns in the U.S., European, or Chinese economies, reductions or limited growth in consumer spending or consumer credit, global trade tariffs, and other adverse economic conditions that may be specific to the Internet, e-commerce, and payments industries.
Adverse changes could also occur as a result of economic upswings, such as increased wages and scarce labor pools, and increased interest rates.
These changes may negatively affect sales of products and increase exposure to losses from bad debt and commodity prices, the cost and availability of financing, and costs associated with manufacturing and distributing products. Any economic downturn could have a material adverse effect on our business, results of operations, or financial condition.
Some systems that use our products are complex in design, and our products may contain defects that are not detected until deployed, which could increase our costs, reduce our revenues, cause us to lose key customers, and may expose us to litigation related to our products.
Some systems that use our products are inherently complex in design and require ongoing maintenance. Our customers may discover defects in our products after the products have been fully deployed and operated under peak stress conditions. In addition, some of our products are combined with products from other vendors which may contain defects. Should problems occur, it may be difficult to identify the source of the problem. If we are unable to correct defects or other problems, we could experience, among other things, loss of customers, increased costs of product returns and warranty expenses, damage to our brand reputation, failure to attract new customers or achieve market acceptance, diversion of development and engineering resources, or legal action by our customers.
The occurrence of any one or more of the foregoing factors could have a material adverse effect on our business, results of operations, or financial condition.
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Foreign currency risk may negatively affect our revenues, cost of sales, and operating margins, and could result in foreign exchange losses.
We conduct our business and incur costs in the local currency of most countries in which we operate. Our net sales outside the United States represented a majority of our total sales in each of the last three fiscal years. We incur currency transaction risk whenever one of our operating subsidiaries enters into either a purchase or a sales transaction using a different currency from the currency in which it operates, or holds assets or liabilities in a currency different from its functional currency. Changes in exchange rates can also affect our results of operations when the value of sales and expenses of foreign subsidiaries are translated to U.S. dollars. We cannot accurately predict the impact of future exchange rate fluctuations on our results of operations. Further, given the volatility of exchange rates, we may not be able to effectively manage our currency risks, and any volatility in currency exchange rates may increase the price of our products in local currency to our foreign customers or increase the manufacturing cost of our products, either of which may have an adverse effect on our financial condition, cash flows, and profitability.
Our competitive position may still require significant investments.
We continuously monitor the marketplace for strategic opportunities, and our business strategy includes expanding our product lines and markets through both internal product development and acquisitions. Consequently, we expect to continue to consider strategic acquisition of businesses, products, or technologies complementary to our business. This may require significant investments of management time and financial resources. If market demand is outside our organic capabilities, if a strategic acquisition is required and we cannot identify one or execute on it, and/or if financial investments that we undertake distract management, do not result in the expected return on investment, expose us to unforeseen liabilities, or jeopardize our ability to comply with our credit facility covenants due to any inability to integrate the business, adjust to operating a larger and more complex organization, adapt to additional political and other requirements associated with the acquired business, retain staff, or work with customers, we could suffer a material adverse effect on our business, results of operations, or financial condition.
We may be unable to successfully implement our acquisitions strategy or integrate acquired companies and personnel with existing operations.
We have in the past acquired several companies, including the completion of our acquisition of Finisar Corporation (“Finisar”) in September 2019. We may continue to expand and diversify our operations with additional acquisitions. We may be unable to identify or complete prospective acquisitions for many reasons, including increasing competition from other potential acquirers, the effects of consolidation in our industries, and potentially high valuations of acquisition candidates. In addition, applicable antitrust laws and other regulations may limit our ability to acquire targets or force us to divest an acquired business line. If we are unable to identify suitable targets or complete acquisitions, our growth prospects may suffer, and we may not be able to realize sufficient scale and technological advantages to compete effectively in all markets.
To the extent that we are successful in making acquisitions, we may be unsuccessful in integrating acquired companies or product lines with existing operations, or the integration may be more difficult or more costly than anticipated. Some of the risks that may affect our ability to integrate or realize anticipated benefits from acquired companies, businesses, or assets include those associated with:
•unexpected losses of key employees of the acquired company;
•conforming the acquired company’s standards, processes, procedures, and controls with our operations, including integrating enterprise resource planning systems and other key business applications;
•coordinating new product and process development;
•increasing complexity from combining operations;
•increasing the scope, geographic diversity, and complexity of our operations;
•difficulties in consolidating facilities and transferring processes and know-how; and
•diversion of management’s attention from other business concerns.






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In connection with acquisitions, we may:
•use a signification portion of our available cash;
•issue equity securities, which would dilute current shareholders’ percentage ownership;
•incur significant debt;
•incur or assume contingent liabilities, known or unknown, including potential lawsuits, infringement actions, or similar liabilities;
•incur impairment charges related to goodwill or other intangibles; and
•face antitrust or other regulatory inquiries or actions.
In addition, the market price of our common stock or our 6.00% Series A Mandatory Convertible Preferred Stock (“Mandatory Convertible Preferred Stock”) could be adversely affected if the effect of any acquisitions on our consolidated financial results is dilutive or is below the market’s or financial analysts’ expectations, or if there are unanticipated changes in the business or financial performance of the acquired or combined company. Any failure to successfully integrate acquired businesses may disrupt our business and adversely impact our business, results of operations, or financial condition.
Although II-VI continues to expect that its acquisition of Finisar will result in cost savings, synergies, and other benefits, the combined company may not realize those benefits, or be able to retain those benefits even if realized.
The success of II-VI’s acquisition of Finisar will continue to depend in large part on the success of the management of the combined company in integrating the operations, strategies, technologies, and personnel of the two companies. The combined company may fail to realize some or all of the anticipated benefits of the combination if the integration process takes longer than expected or is more costly than expected. The failure of the combined company to meet the challenges involved in successfully integrating the operations of the two companies or to otherwise realize any of the anticipated benefits of the combination, including additional cost savings and synergies, could impair the operations of the combined company. In addition, II-VI continues to believe that the overall integration of Finisar will be a time-consuming and expensive process that, without proper planning and effective and timely implementation, could significantly disrupt the combined company’s business.
Potential difficulties that the combined company may encounter in the integration process include:
•the integration of management teams, strategies, technologies and operations, products, and services;
•the disruption of ongoing businesses and distraction of their respective management teams from ongoing business concerns;
•the retention of, and possible decrease in business from, existing customers of both companies;
•the creation of uniform standards, controls, procedures, policies, and information systems;
•the reduction of the costs associated with each company’s operations;
•the integration of corporate cultures and maintenance of employee morale;
•the retention of key employees; and
•potential unknown liabilities associated with the merger.
The anticipated cost savings, synergies, and other benefits of the acquisition of Finisar assume a successful integration of the companies and are based on projections and other assumptions, which are inherently uncertain. Even if integration is successful, anticipated cost savings, synergies, and other benefits may not be achieved.
Our future success depends on continued international sales, and our global operations are complex and present multiple challenges to manage.
We anticipate that international sales will continue to account for a significant portion of our revenues for the foreseeable future. The failure to maintain our current volume of international sales could materially affect our business, results of operations, financial condition, and/or cash flows.
We manufacture products in the Australia, China, Germany, Malaysia, the Philippines, Singapore, South Korea, Sweden, Switzerland, the United Kingdom, the United States, and Vietnam, and through a contract manufacturer in Thailand. We also maintain direct sales offices in Belgium, Canada, China, Germany, Hong Kong, Italy, Japan, South Korea, Switzerland, Taiwan, and the United Kingdom. Our operations vary by location and are influenced on a location-by-location basis by local customs, languages, and work practices, as well as different local weather conditions, management styles, and education systems. In addition, multiple complex issues may arise concurrently in different countries, potentially hampering our management’s ability to respond in an effective and timely manner. Any inability to respond in an effective and timely manner
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to issues in our global operations could have a material adverse effect on our business, results of operations, or financial condition.
We are subject to complex and rapidly changing import and export regulations which could limit our sales and decrease our profitability.
We are subject to the passage of and changes in the interpretation of regulation by U.S. government entities at the federal, state, and local levels and by non-U.S. agencies, including, but not limited to, the following:
•We are required to comply with import laws and export control and economic sanctions laws, which may affect our ability to enter into or complete transactions with certain customers, business partners, and other persons. In certain circumstances, export control and economic sanctions regulations may prohibit the export of certain products, services, and technologies. We may be required to obtain an export license before exporting a controlled item, and granting of a required license cannot be assured. Compliance with the import laws that apply to our businesses may restrict our access to, and may increase the cost of obtaining, certain products and could interrupt our supply of imported inventory.
•Exported technologies necessary to develop and manufacture certain products are subject to U.S. export control laws and similar laws of other jurisdictions. We may be subject to adverse regulatory consequences, including government oversight of facilities and export transactions, monetary penalties, and other sanctions for violations of these laws. In certain instances, these regulations may prohibit us from developing or manufacturing certain of our products for specific applications outside the United States. Failure to comply with any of these laws and regulations could result in civil and criminal, monetary, and nonmonetary penalties; disruptions to our business; limitations on our ability to import and export products and services; and damage to our reputation.
Changes in trade policies, such as increased import duties, could increase the costs of goods imported into the United States or China.
In March 2018, President Trump announced new steel and aluminum tariffs. Then, in July 2018 the United States imposed increased tariffs on products of Chinese origin, and China responded by increasing tariffs on U.S.-origin goods. On the export side, denial orders and placing companies on the U.S entity list could decrease our access to customers and markets and materially impact our revenues in the aggregate. In April 2018, for example, the U.S. Department of Commerce issued a denial order against two companies in the telecommunications market. In 2019 and 2020, the U.S. Department of Commerce placed a number of entities, including Huawei, on the U.S. Entity List. If we cannot obtain relief from, or take other action to mitigate the impact of, these additional duties and restrictions and duties, our business and profits may be materially and adversely affected. Further changes in the trade policy of the United States or of other countries with which we do cross-border business, or additional sanctions, could result in retaliatory actions by other countries that could materially and negatively impact the volume of economic activity in the United States or globally, which, in turn, may decrease our access to customers and markets, reduce our revenues, and increase our operating costs.
Our association with customers that are or become subject to U.S. regulatory scrutiny or export restrictions could negatively impact our business, and create instability in our operations. Governmental actions such as these could subject us to actual or perceived reputational harm among current or prospective investors, suppliers or customers, customers of our customers, other parties doing business with us, or the general public. Any such reputational harm could result in the loss of investors, suppliers, or customers, which could harm our business, financial condition, operating results, or prospects.
Exports of certain of our products are subject to export controls imposed by the U.S. government and administered by the U.S. Departments of State and Commerce. In certain instances, these regulations may require pre-shipment authorization from the administering department. For products subject to the Export Administration Regulations, or EAR, administered by the Department of Commerce’s Bureau of Industry and Security, the requirement for a license is dependent on the type and end use of the product, the final destination, the identity of the end user, and whether a license exception might apply. Virtually all exports of products subject to the International Traffic in Arms Regulations, or ITAR, administered by the Department of State’s Directorate of Defense Trade Controls, require a license. Certain of our products are subject to EAR controls. Additionally, certain other products that we sell, including certain products developed with government funding, are subject to ITAR. Products developed and manufactured in our foreign locations are subject to export controls of the applicable foreign nation. Given the current global political climate, obtaining export licenses can be difficult and time-consuming. Failure to obtain export licenses for these shipments, or having one or more of our customers be restricted from receiving exports from us, could significantly reduce our revenue and materially adversely affect our business, financial condition, and results of operations. Compliance with regulations of the United States and other governments also subjects us to additional fees and costs. The absence of comparable restrictions on competitors in other countries may adversely affect our competitive position.
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Any inability to access financial markets from time to time to raise required capital, finance our working capital requirements or our acquisition strategies, or otherwise support our liquidity needs could negatively impact our ability to finance our operations, meet certain obligations, or implement our growth strategy.
We borrow under our existing credit facility or to issue our equity to fund operations, including working capital investments, and to finance our acquisition strategies. In the past, market disruptions experienced in the United States and abroad have materially impacted liquidity in the credit and debt markets, making financing terms for borrowers less attractive and, in certain cases, have resulted in the unavailability of certain types of financing. Uncertainty in the financial markets may negatively impact our ability to access additional financing or to refinance our existing credit facility or existing debt arrangements on favorable terms or at all, which could negatively affect our ability to fund current and future expansion as well as future acquisitions and development. These disruptions may include turmoil in the financial services industry, volatility in the markets where our outstanding securities trade, and changes in general economic conditions in the areas where we do business. If we are unable to access funds at competitive rates, or if our short-term or long-term borrowing costs increase, our ability to finance our operations, meet our short-term obligations, and implement our operating strategies could be adversely affected.
In the future we may be required to raise additional capital through public or private financing or other arrangements. Such financing may not be available on acceptable terms or at all, and our failure to raise capital when needed could harm our business and prospects. Additional equity financing may be dilutive to the holders of our common stock, and debt financing, if available, may involve restrictive covenants that may limit our ability to undertake certain activities that we otherwise would find to be desirable. Further, debt service obligations associated with any debt financing could reduce our profitability. If we cannot raise funds on acceptable terms, we may not be able to grow our business or respond to competitive pressures.
We may not be able to settle conversions of our convertible senior notes in cash or repurchase the notes in accordance with their terms.
Holders of our outstanding 0.25% convertible senior notes due 2022 and Finisar’s 0.50% Convertible Senior Notes due 2036, which we refer to collectively as our convertible senior notes, have the right to require us to repurchase all or a portion of their notes upon the occurrence of a fundamental change (as defined in the indenture governing such notes) at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest. In addition, upon conversion of such notes, unless we elect to deliver solely shares of our common stock to settle such conversions (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of such notes being converted. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of surrendered notes, or pay cash with respect to notes being converted.
In addition, our ability to repurchase or to pay cash upon conversion of our notes may be limited by law, regulatory authority, or agreements governing our future indebtedness. Our failure to repurchase notes at a time when the repurchase is required by the governing indenture, or to pay any cash upon conversion of the notes as required, would constitute a default under the indenture. A default under the applicable indenture or the fundamental change itself also could lead to a default under agreements governing our credit facility and any of our future indebtedness. If the payment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the notes or to pay cash upon conversion of any such notes.
Our credit agreement restricts our operations, particularly our ability to respond to changes or to take certain actions regarding our business.
The documents governing our amended and restated credit agreement, dated as of September 24, 2019, by and among us, Bank of America, N.A., as Administrative Agent, Swing Line Lender and an L/C Issuer, and the other lenders party thereto (the “Credit Agreement”) contain a number of restrictive covenants that may impose operating and financial restrictions on us and limit our ability to engage in acts that may be in our long-term best interest, including restrictions on the ability to incur indebtedness, grant liens, undergo certain fundamental changes, dispose of assets, make certain investments, enter into certain transactions with affiliates, and make certain restricted payments, in each case subject to limitations and exceptions set forth in the Credit Agreement.
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The Credit Agreement also contains customary events of default that include, among other things, certain payment defaults, covenant defaults, cross-defaults to other indebtedness, change of control defaults, judgment defaults, and bankruptcy and insolvency defaults. Such events of default may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies, which could have a material adverse effect on our business, operations, and financial results. Furthermore, if we are unable to repay the amounts due and payable under the Credit Agreement, those lenders could proceed against the collateral granted to them to secure that indebtedness, which could force us into bankruptcy or liquidation. In the event that our lenders accelerated the repayment of the borrowings, we may not have sufficient assets to repay that indebtedness. Any acceleration of amounts due under the credit agreements would likely have a material adverse effect on us. As a result of these restrictions, we may be limited in how we conduct business, unable to raise additional debt or equity financing to operate during general economic or business downturns, or unable to compete effectively or to take advantage of new business opportunities.
We may fail to accurately estimate the size and growth of our markets and our customers’ demands.
We make significant decisions based on our estimates of customer requirements. We use our estimates to determine the levels of business we seek and accept, production schedules, personnel needs, and other resource requirements.
Customers may require rapid increases in production on short notice. We may not be able to purchase sufficient supplies or allocate sufficient manufacturing capacity to meet such increases in demand. Rapid customer ramp-up and significant increases in demand may strain our resources or negatively affect our margins. Inability to satisfy customer demand in a timely manner may harm our reputation, reduce our other opportunities, damage our relationships with customers, reduce revenue growth, and/or cause us to incur contractual penalties.
Alternatively, downturns in the industries in which we compete may cause our customers to significantly reduce their demand. With respect to orders we initiate with our suppliers to address anticipated demand from our customers, certain suppliers may have required noncancellable purchase commitments or advance payments from us, and those obligations and commitments could reduce our ability to adjust our inventory or expense levels to reflect declining market demands. Unexpected declines in customer demands can result in excess or obsolete inventory and additional charges. Because certain of our sales, research and development, and internal manufacturing overhead expenses are relatively fixed, a reduction in customer demand likely would decrease our gross margins and operating income.
We may encounter increased competition and we may fail to accurately estimate our competitors’ or our customers’ willingness and capability to backward integrate into our competencies and thereby displace us.
We may encounter substantial competition from other companies in the same market, including established companies with significant resources. Some of our competitors may have financial, technical, marketing, or other capabilities that are more extensive than ours. They may be able to respond more quickly than we can to new or emerging technologies and other competitive pressures. We may not be able to compete successfully against our present or future competitors. Our failure to compete effectively could have a material adverse effect on our business, results of operations, or financial condition.
There are limitations on the protection of our intellectual property and we may from time to time be involved in costly intellectual property litigation or indemnification.
We rely on a combination of trade secret, patent, copyright, and trademark laws, combined with employee confidentiality, noncompetition, and nondisclosure agreements to protect our intellectual property rights. There can be no assurance that the steps we take will be adequate to prevent misappropriation of our technology or intellectual property. Furthermore, there can be no assurance that third parties will not assert infringement claims against us in the future.
Asserting our intellectual property rights or defending against third-party claims could involve substantial expense. In the event that a third party were successful in a claim that one of our processes infringed its proprietary rights, we could be required to pay substantial damages or royalties, or spend substantial amounts in order to obtain a license or modify processes so that they no longer infringe such proprietary rights. Any such event could have a material adverse effect on our business, results of operations, or financial condition.
The design, processes, and specialized equipment utilized in our engineered materials, advanced components, and subsystems are innovative, complex, and difficult to duplicate. However, there can be no assurance that others will not develop or patent similar technology, or that all aspects of our proprietary technology will be protected. Others have obtained patents covering a variety of materials, devices, equipment, configurations, and processes, and others could obtain patents covering technology similar to ours. We may be required to obtain licenses under such patents, and there can be no assurance that we would be able to obtain such licenses, if required, on commercially reasonable terms, or that claims regarding rights to technology will not be asserted that may adversely affect our results of operations. In addition, our research and development contracts with agencies of the U.S. government present a risk that project-specific technology could be disclosed to competitors as contract reporting requirements are fulfilled. We also enter into development projects from time to time that might result in IP developed during a project that is assigned to the other party without us retaining rights to that IP or is jointly owned with the other party.
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A significant portion of our business is dependent on cyclical industries.
Our business is dependent on the demand for products produced by end-users of industrial lasers, optical communication products, components for semiconductor capital equipment, and components for 3D sensing. Many of these end-users are in industries that have historically experienced a highly cyclical demand for their products. As a result, demand for our products is subject to these cyclical fluctuations. Fluctuations in demand could have a material adverse effect on our business, results of operations or financial condition.
Our global operations are subject to complex legal and regulatory requirements.
We manufacture products in Australia, China, Germany, Malaysia, the Philippines, Singapore, South Korea, Sweden, Switzerland, the United Kingdom, the United States, and Vietnam, and through a contract manufacturer in Thailand. We also maintain direct sales offices in Belgium, Canada, China, Germany, Hong Kong, Italy, Japan, South Korea, Switzerland, Taiwan, and the United Kingdom. Operations inside and outside of the United States are subject to many legal and regulatory requirements, some of which are not aligned with others. These include tariffs, quotas, taxes and other market barriers, restrictions on the export or import of technology, potentially limited intellectual property protection, import and export requirements and restrictions, anti-corruption and anti-bribery laws, foreign exchange controls and cash repatriation restrictions, foreign investment rules and regulations, data privacy requirements, competition laws, employment and labor laws, pensions and social insurance, and environmental health and safety laws and regulations.
Compliance with these laws and regulations can be onerous and expensive, and requirements differ among jurisdictions. New laws, changes in existing laws, and abrogation of local regulations by national laws may result in significant uncertainties in how they will be interpreted and enforced. Failure to comply with any of these foreign laws and regulations could have a material adverse effect on our business, results of operations, or financial condition.
Changes in laws and regulations governing data privacy and data protection could have a material adverse impact on our business.
We are subject to many data privacy, data protection, and data breach notification laws, including the European Union General Data Protection Regulation (“GDPR”), which became effective in May 2018. While we have taken measures to assess the requirements of, and to comply with, the GDPR, as well as new and existing data-related laws and regulations of other jurisdictions, these measures may be challenged, including by authorities that regulate data-related compliance. We could incur significant expense in facilitating and responding to investigations, and if the measures we have taken prove to be inadequate, we could face fines, penalties, or damages, and incur reputational harm, which could have a material adverse impact on our business.
Data breach incidents and breakdown of information and communication technologies could disrupt our operations and impact our financial results.
In the course of our business, we collect and store sensitive data, including intellectual property (both our own and that of our customers), as well as proprietary business information. We could be subject to service outages or breaches of security systems which may result in disruption, unauthorized access, misappropriation, or corruption of this information. Security breaches of our network or data, including physical or electronic break-ins, vendor service outages, computer viruses, attacks by hackers or similar breaches can create system disruptions, shutdowns, and unauthorized disclosure of confidential information. If we are unable to prevent or contain such security or privacy breaches, our operations could be disrupted or we could suffer legal claims, loss of reputation, financial loss, property damage, or regulatory penalties.
We have entered into supply agreements that commit us to supply products on specified terms.
We have supply agreements with some customers that require us to supply products and allocate sufficient capacity to make these products. We have also agreed to pricing schedules and methodologies that could result in penalties if we fail to meet development, supply, capacity, and quality commitments. Failure to do so may cause us to be unable to generate the amount of revenue or the level of profitability we expect from these arrangements. Our ability to realize a profit under some of these agreements will be subject to the level of customer demand, the cost of maintaining facilities and manufacturing capacity, and supply chain capability.
If we fail to fulfill our commitments under these supply agreements, our business, after using all remedies available, financial conditions, and results of operations may suffer a material adverse effect.
We depend on highly complex manufacturing processes that require feeder materials, components, and products from limited sources of supply.
Our operations are dependent upon a supply chain of difficult-to-make or difficult-to-refine products and materials. Some of our product inflow is subject to yield reductions from growth or fabrication losses, and thus the quantities we may receive are not consistently predictable. Customers may also change a specification for a product that our suppliers cannot meet.
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We also make products for which the Company is one of the world’s largest suppliers. We use high-quality, optical-grade ZnSe in the production of many of our IR optical products. We are a leading producer of ZnSe for our internal use and for external sale. The production of ZnSe is a complex process requiring a highly controlled environment. A number of factors, including defective or contaminated materials, could adversely affect our ability to achieve acceptable manufacturing yields of high-quality ZnSe. Lack of adequate availability of high-quality ZnSe could have a material adverse effect upon our business. There can be no assurance that we will not experience manufacturing yield inefficiencies that could have a material adverse effect on our business, results of operations, or financial condition.
We produce hydrogen selenide gas, which is used in our production of ZnSe. There are risks inherent in the production and handling of such material. Our lack of proper handling of hydrogen selenide could require us to curtail our production of the gas. Our potential inability to internally produce hydrogen selenide could have a material adverse effect on our business, results of operations, or financial condition.
In addition, we produce and use other high-purity and relatively uncommon materials and compounds to manufacture our products, including, but not limited to, ZnS, GaAs, yttrium aluminum garnet, yttrium lithium fluoride, calcium fluoride, germanium, selenium, telluride, Bi2Te3, and SiC. A significant failure of our internal production processes or our suppliers to deliver sufficient quantities of these necessary materials on a timely basis could have a material adverse effect on our business, results of operations, or financial condition.
Increases in commodity prices may adversely affect our results of operations and financial condition.
We are exposed to a variety of market risks, including the effects of increases in commodity prices. Our businesses purchase, produce, and sell high-purity selenium and other raw materials based upon quoted market prices from minor metal exchanges. The negative impact from increases in commodity prices might not be recovered through our product sales, which could have a material adverse effect on our net earnings and financial condition.
We use and generate potentially hazardous substances that are subject to stringent environmental regulations.
Hazardous substances used or generated in some of our research and manufacturing facilities are subject to stringent environmental regulation. We believe that our handling of such substances is in material compliance with applicable environmental, safety, and health regulations at each operating location. We invest substantially in proper personal protective equipment and process controls, including monitoring and specialized training, to minimize risks to employees, surrounding communities, and the environment that could result from the presence and handling of such hazardous substances. When exposure problems or potential exposure problems have been uncovered, corrective actions have been implemented, and re-occurrence has been minimal or nonexistent.
We have in place an emergency response plans with respect to our generation and use of the hazardous substances hydrogen selenide, hydrogen sulfide, arsine, and phosphine. Special attention has been given to all procedures pertaining to these gaseous materials to minimize the chance of its accidental release into the atmosphere.
With respect to the manufacturing, use, storage, and disposal of the low-level radioactive material thorium fluoride, our facilities and procedures have been inspected and licensed by the Nuclear Regulatory Commission. Thorium-bearing by-products are collected and shipped as solid waste to a government-approved low-level radioactive waste disposal site in Clive, Utah.
The generation, use, collection, storage, and disposal of all other hazardous by-products, such as suspended solids containing heavy metals or airborne particulates, are believed by us to be in material compliance with regulations. We believe that we have obtained all of the permits and licenses required for operation of our business.
Although we do not know of any material environmental, safety, or health problems in our properties, processes, or products, there can be no assurance that problems will not develop in the future that could have a material adverse effect on our business, results of operations, or financial condition.

We have a substantial amount of debt, which could adversely affect our business, financial condition, or results of operations and prevent us from fulfilling our debt-related obligations.
As of June 30, 2020, we had approximately $2.3 billion of outstanding debt (including our outstanding debt securities and borrowings under our Credit Agreement). Our indebtedness could have important consequences for us, including:
•making it more difficult for us to satisfy our obligations with respect to our debt, or to our trade or other creditors;
•increasing our vulnerability to adverse economic or industry conditions;
•limiting our ability to obtain additional financing to fund capital expenditures and acquisitions, particularly when the availability of financing in the capital markets is limited;
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•requiring us to pay higher interest rates upon refinancing or on our variable-rate indebtedness if interest rates rise;
•requiring a substantial portion of our cash flows from operations and the proceeds of any capital markets offerings or loan borrowings for the payment of interest on our debt and reducing our ability to use our cash flows to fund working capital, capital expenditures, acquisitions, and general corporate requirements;
•limiting our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate; and
•placing us at a competitive disadvantage to less leveraged competitors.
We may not generate sufficient cash flow from operations, together with any future borrowings, to enable us to pay our indebtedness or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness, on or before its maturity. We may not be able to refinance any of our indebtedness on commercially reasonable terms or at all. In addition, we may incur additional indebtedness in order to finance our operations, fund acquisitions, or repay existing indebtedness. If we cannot service our indebtedness, we may have to take actions such as selling assets; seeking additional debt or equity; or reducing or delaying capital expenditures, strategic acquisitions, investments, and alliances. Any such actions, if necessary, may not be able to be effected on commercially reasonable terms or at all, or on terms that would be advantageous to our stockholders, or on terms that would not require us to breach the terms and conditions of our existing or future debt agreements.
Unfavorable changes in tax rates, tax liabilities, or tax accounting rules could negatively affect future results.
As a global company, we are subject to taxation in the United States and various other countries and jurisdictions. As such, we must exercise a level of judgment in determining our worldwide tax liabilities. Our future tax rates could be affected by changes in the composition of earnings in countries with differing tax rates or changes in tax laws. Changes in tax laws or tax rulings may have a significantly adverse impact on our effective tax rate.
The enactment of the Tax Cuts and Jobs Act (the “Tax Act”) in December 2017 significantly affected U.S. tax law by changing how the United States imposes tax on multinational corporations. The U.S. Department of Treasury has broad authority under the Tax Act to issue regulations and interpretive guidance. We have applied available guidance to estimate our tax obligations, but new guidance issued by the U.S. Treasury Department may cause us to make adjustments to our tax estimates in future periods.
In addition, we are subject to regular examination of our income tax returns by the U.S. Internal Revenue Service and other tax authorities. We regularly assess the likelihood of favorable or unfavorable outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. Although we believe our tax estimates are reasonable, there can be no assurance that any final determination will not be materially different from the treatment reflected in our historical income tax provision and accruals, which could materially and adversely affect our business, results of operation, or financial condition.
Natural disasters or other global or regional catastrophic events could disrupt our operations, give rise to substantial environmental hazards, and adversely affect our results.
We may be exposed to business interruptions due to extreme weather caused by climate change and deforestation, force majeure catastrophes, natural disaster, pandemic, terrorism, or acts of war that are beyond our control. Disruptions to our facilities or systems, or to those of our key suppliers, could also interrupt operational processes and adversely impact our ability to manufacture our products and provide services and support to our customers. As a result, our business, results of operations, or financial condition could be materially adversely affected.
Our success depends on our ability to attract, retain, and develop key personnel and requires continued good relations with our employees.
We are highly dependent upon the experience and continuing services of certain scientists, engineers, production, and management personnel. Competition for the services of these personnel is intense. There can be no assurance that we will be able to retain or attract the personnel necessary for our success. The loss of the services of our key personnel could have a material adverse effect on our business, results of operations, or financial condition.
We contract with a number of large end-user service providers and product companies that have considerable bargaining power, which may require us to agree to terms and conditions that could have an adverse effect on our business or ability to recognize revenues.
Large end-user service providers and product companies comprise a significant portion of our customer base. These customers generally have greater purchasing power than smaller entities and, accordingly, often request and receive more favorable terms from suppliers, including us. As we seek to expand our sales to existing customers and acquire new customers, we may be required to agree to terms and conditions that are favorable to our customers and that may affect the timing of our ability to recognize revenue, increase our costs, and have an adverse effect on our business, financial condition, and results of operations. Furthermore, large customers have increased buying power and ability to require onerous terms in our contracts with them,
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including pricing, warranties, and indemnification terms. If we are unable to satisfy the terms of these contracts, it could result in liabilities of a material nature, including litigation, damages, additional costs, loss of market share, and loss of reputation. Additionally, the terms these large customers require, such as most-favored customer or exclusivity provisions, may impact our ability to do business with other customers and generate revenues from such customers.
We may be adversely affected by climate change regulations.
In many of the countries in which we operate, government bodies are increasingly enacting legislation and regulations in response to potential impacts of climate change. These laws and regulations may be mandatory. They have the potential to impact our operations directly or indirectly as a result of required compliance by our customers or our supply chain. Inconsistency of regulations may also affect the costs of compliance with such laws and regulations. Assessments of the potential impact of future climate change legislation, regulation, and international treaties and accords are uncertain, given the wide scope of potential regulatory change in countries in which we operate.
We may incur increased capital expenditures resulting from required compliance with revised or new legislation or regulations, added costs to purchase raw materials, lower profits from sales of our products, allowances or credits under a “cap and trade” system, increased insurance premiums and deductibles as new actuarial tables are developed to reshape coverage, changes in competitive position relative to industry peers, changes to profit or loss arising from increased or decreased demand for goods produced by us, or changes in costs of goods sold.
We depend on large purchases from a few significant customers, and any loss, cancellation, reduction, or delay in purchases by these customers could harm our business.
A small number of customers have consistently accounted for a significant portion of our revenues, although none individually represent greater than 10% of total revenues. Our success will depend on our continued ability to develop and manage relationships with our major customers. Although we are attempting to expand our customer base, we expect that significant customer concentration will continue for the foreseeable future. We may not be able to offset any decline in revenues from our existing major customers with revenues from new customers, and our quarterly results may be volatile because we are dependent on large orders from these customers that may be reduced, delayed, or cancelled. The markets in which we have historically sold our optical subsystems and components products are dominated by a relatively small number of systems manufacturers, thereby limiting the number of our potential customers.
Our dependence on large orders from a relatively small number of customers makes our relationship with each customer critically important to our business. We cannot ensure that we will be able to retain our major customers, attract additional customers, or that our customers will be successful in selling their products that incorporate our products. In addition, governmental trade action or economic sanctions may limit or preclude our ability to do business with certain customers. We have in the past experienced delays and reductions in orders from some of our major customers. In addition, our customers have in the past sought price concessions from us, and we expect that they will continue to do so in the future. Expense reduction measures that we have implemented over the past several years, and additional action we are taking to reduce costs, may adversely affect our ability to introduce new and improved products, which may, in turn, adversely affect our relationships with some of our key customers. Further, some of our customers may in the future shift their purchases of products from us to our competitors or to joint ventures between these customers and our competitors, or may in certain circumstances produce competitive products themselves. The loss of one or more of our major customers, any reduction or delay in sales to these customers, our inability to successfully develop relationships with additional customers, or future price concessions that we may make could significantly harm our business.
The manufacturing of our products may be adversely affected if we are unable to manufacture certain products in our manufacturing facilities.
We manufacture some of the components that we incorporate into our subsystem products; in other cases, we provide components to contract manufacturers to produce finished goods. For some of the components and finished goods, we are the sole manufacturer. Our manufacturing processes are highly complex, and issues are often difficult to detect and correct. From time to time we have experienced problems achieving acceptable yields in our manufacturing facilities, resulting in delays in the availability of our products. In addition, if we experience problems with our manufacturing facilities, it would be costly and require a long period of time to move the manufacture of these components and finished good products to a different facility or contract manufacturer, which could result in interruptions in supply and would likely materially impact our financial condition and results of operations. In addition, for a variety of reasons, including changes in circumstances at our contract manufacturers or our own business strategies, we may voluntarily, or be required to, transfer the manufacturing of certain products to other manufacturing sites.
Changes in manufacturing processes are often required due to changes in product specifications, changing customer needs, and the introduction of new products. These changes may reduce manufacturing yields at our contract manufacturers and at our own manufacturing facilities, resulting in reduced margins on those products. In addition, many of our products are sourced from
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suppliers based outside of the United States, primarily in Asia. Uncertainty with respect to tax and trade policies, tariffs, and government regulations affecting trade between the United States and other countries has recently increased. Major developments in tax policy or trade relations, such as the imposition of tariffs on imported products, could increase our product and product-related costs or require us to seek alternative suppliers, either of which could result in decreased sales or increased product and product-related costs.
Failure to accurately forecast our revenues could result in additional charges for obsolete or excess inventories or noncancellable purchase commitments.
We base many of our operating decisions, and enter into purchase commitments, on the basis of anticipated revenue trends that are highly unpredictable. Some of our purchase commitments are not cancellable, and in some cases we are required to recognize a charge representing an amount of material or capital equipment purchased or ordered that exceeds our actual requirements. Should revenues in future periods fall substantially below our expectations, or should we fail to accurately forecast changes in demand mix, we could be required to record substantial charges for obsolete or excess inventories or noncancellable purchase commitments.
If we fail to maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable regulations could be impaired.
As a public company, we are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (“the Exchange Act”), the Sarbanes-Oxley Act of 2002, as amended ("the Sarbanes-Oxley Act”), and Nasdaq listing requirements. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and improve the effectiveness of our disclosure controls and procedures and internal control over financial reporting, we have expended, and anticipate that we will continue to expend, significant resources, including accounting-related costs and significant management oversight.
Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could delay the reporting of our financial results or cause us to be subject to investigations, enforcement actions by regulatory agencies, stockholder lawsuits, or other adverse actions requiring us to incur defense costs or pay fines, settlements, or judgments. Any such failures or difficulties could also cause investors to lose confidence in our reported financial and other information, which would likely have a negative effect on the trading price of our common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on the Nasdaq Stock Market.
Risks Relating to Our Capital Stock
Our stock price has been volatile in the past and may be volatile in the future.
The market price for our common stock on the Nasdaq Global Select Market Composite varied between a high of $51.90 and a low of $19.00 in the fiscal year ended June 30, 2020. The market price of our common stock could fluctuate significantly for many reasons, including the following:
•future announcements concerning us or our competitors;
•the overall performance of equity markets;
•the trading volume of our common stock;
•additions or changes to our board of directors, management, or key personnel;
•regulatory actions (including, but not limited to, developments in international trade policy) and enforcement actions bearing on manufacturing, development, marketing, or sales;
•the commencement or outcome of litigation;
•reports and recommendations of analysts and whether or not we meet the milestones, metrics, and other expectations set forth in such reports;
•gaining or losing large customers;
•the introduction of new products or services and market acceptance of such products or services;
•the impact of the COVID-19 pandemic on our business, financial condition, results of operations, or prospects or those of our customers and suppliers;
•the acquisition or loss of significant manufacturers, distributors, or suppliers or an inability to obtain sufficient quantities of materials needed to provide our services;
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•the issuance of common stock or other securities (including, without limitation, the shares of common stock issued upon conversion of any shares of Mandatory Convertible Preferred Stock and the shares issued upon conversion of outstanding convertible notes);
•incurrence of indebtedness;
•quarterly variations in operating results;
•our ability to accurately forecast future performance;
•business acquisitions or divestitures;
•fluctuations in the economy, political events, or general market conditions; and
•changes in our operating industry generally.
In addition, stock markets have experienced extreme price and volume fluctuations in recent years and are experiencing exceptional volatility as a result of the effects of the COVID-19 pandemic. Moreover, these fluctuations frequently have been unrelated to the operating performance or underlying fundamentals of the affected companies. These broad market fluctuations may adversely affect the market price of our common stock. These fluctuations may be unrelated to our performance or out of our control, and could lead to securities class action litigation that could result in substantial expenses and diversion of management’s attention and corporate resources, any or all of which could adversely affect our business, financial condition, and results of operations.
In addition, we expect that the market price of the Mandatory Convertible Preferred Stock will be influenced by yield and interest rates in the capital markets, the time remaining to the Mandatory Conversion Date, our creditworthiness, and the occurrence of certain events affecting us that do not require an adjustment to the fixed conversion rates of the Mandatory Convertible Preferred Stock. Fluctuations in yield rates in particular may give rise to arbitrage opportunities based upon changes in the relative values of the Mandatory Convertible Preferred Stock and our common stock. Any such arbitrage could, in turn, affect the market prices of our common stock and the Mandatory Convertible Preferred Stock. The market price of our common stock could also be affected by possible sales of our common stock by investors who view the Mandatory Convertible Preferred Stock as a more attractive means of equity participation in us and by hedging or arbitrage trading activity that we expect to develop involving our common stock. This trading activity could, in turn, affect the market price of the Mandatory Convertible Preferred Stock.
Provisions in our Amended and Restated Articles of Incorporation (the “Articles of Incorporation”) and Amended and Restated By-Laws (the “By-Laws”) and the Pennsylvania Business Corporation Law (the “BCL”) may delay or prevent our acquisition by a third party, which could also reduce the market price of our capital stock.
Our Articles of Incorporation and By-Laws contain provisions that could make us a less attractive target for a hostile takeover and could make more difficult or discourage a merger proposal, a tender offer, or a proxy contest. Such provisions include:
•a requirement that shareholder-nominated director nominees be nominated in advance of the meeting at which directors are elected and that specific information be provided in connection with such nomination;
•the ability of our board of directors to issue additional shares of common stock or preferred stock without shareholder approval; and
•certain provisions requiring supermajority approval (at least two-thirds of the votes cast by all shareholders entitled to vote thereon, voting together as a single class).
In addition, the BCL contains provisions that may have the effect of delaying or preventing a change in our control or changes in our management. Many of these provisions are triggered if any person or group acquires, or discloses the intent to acquire, 20% or more of a corporation’s voting power, subject to certain exceptions. These provisions:
•provide the other shareholders of the corporation with certain rights against the acquiring group or person;
•prohibit the corporation from engaging in a broad range of business combinations with the acquiring group or person;
•restrict the voting and other rights of the acquiring group or person; and
•provide that certain profits realized by the acquiring group or person from the sale of our equity securities belong to and are recoverable by us.
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Regardless of the amount of a person’s holdings, if a shareholder or shareholder group (including affiliated persons) would be a party to certain proposed transactions with us or would be treated differently from other shareholders of ours in certain proposed transactions, the BCL requires approval by a majority of votes entitled to be cast by all shareholders other than the interested shareholder or affiliate group, unless the transaction is approved by independent directors or other criteria are satisfied. Furthermore, under the BCL, a “short-form” merger of II-VI cannot be implemented without the consent of our board of directors.
In addition, as permitted by Pennsylvania law, an amendment to our Articles of Incorporation or other corporate action that is approved by shareholders may provide mandatory special treatment for specified groups of nonconsenting shareholders of the same class. For example, an amendment to our Articles of Incorporation or other corporate action may provide that shares of common stock held by designated shareholders of record must be cashed out at a price determined by the Company, subject to applicable dissenters’ rights.

Furthermore, the BCL provides that directors, in discharging their duties, may consider, to the extent they deem appropriate, the effects of any action upon shareholders, employees, suppliers, customers, and the communities in which the corporation’s offices are located. Directors are not required to consider the interests of shareholders to a greater degree than other constituencies’ interests. The BCL expressly provides that directors do not violate their fiduciary duties solely by relying on “poison pills” or the anti-takeover provisions of the BCL. We do not currently have a “poison pill.”
All of these provisions may limit the price that investors may be willing to pay for shares of our capital stock.
In addition, certain rights of the holders of the Mandatory Convertible Preferred Stock could make it more difficult or more expensive for a third party to acquire us. For example, if a fundamental change were to occur on or prior to July 1, 2023, holders of the Mandatory Convertible Preferred Stock may have the right to convert their Mandatory Convertible Preferred Stock, in whole or in part, at an increased conversion rate and will also be entitled to receive a make-whole amount equal to the present value of all remaining dividend payments on their Mandatory Convertible Preferred Stock, as described in the applicable Statement with Respect to Shares governing the Mandatory Convertible Preferred Stock. These features of the Mandatory Convertible Preferred Stock could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management.
Because we do not currently intend to pay dividends, holders will benefit from an investment in our common stock only if it appreciates in value and by the intended anti-dilution actions of our share-buyback program.
We have never declared nor paid dividends on our common stock and do not expect to pay cash dividends in the foreseeable future. We currently anticipate that we will retain any future earnings to support operations and to finance the development of our business. As a result, the success of an investment in our capital stock will depend entirely upon future appreciation in its value. There is no guarantee that our common stock will maintain its value or appreciate in value.
Our ability to declare and pay dividends on our capital stock may be limited, including by the terms of our existing Credit Agreement.
Our declaration and payment of dividends on our capital stock in the future will be determined by our board of directors (or an authorized committee thereof) in its sole discretion and will depend on our financial condition, earnings, growth prospects, other uses of cash, funding requirements, applicable Pennsylvania law, and other factors our board of directors deems relevant.
The terms of the Credit Agreement contain a restriction on our ability to pay cash dividends on our capital stock. If the terms of the Credit Agreement restrict our ability to pay cash dividends on the Mandatory Convertible Preferred Stock, we will pay any dividends declared by our board of directors (or an authorized committee thereof) on the Mandatory Convertible Preferred Stock in the form of shares of common stock. In addition, credit facilities, indentures, or other financing agreements that we enter into in the future may contain provisions that restrict or prohibit our ability to pay cash dividends on our capital stock.
In addition, under Pennsylvania law, our board of directors may not pay dividends if after giving effect to the relevant dividend payment we (i) would not be able to pay our debts as they become due in the usual course of our business or (ii) our total assets would not be greater than or equal to the sum of our total liabilities plus the amount that would be needed if we were to be dissolved at the time as of which the dividend is measured, in order to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the dividend. Even if we are permitted under our contractual obligations and Pennsylvania law to pay cash dividends on the Mandatory Convertible Preferred Stock, we may not have sufficient cash to pay cash dividends on the Mandatory Convertible Preferred Stock.
The Mandatory Convertible Preferred Stock may adversely affect the market price of our common stock.
The market price of our common stock is likely to be influenced by the Mandatory Convertible Preferred Stock. For example, the market price of our common stock could become more volatile and could depress possible sales of our common stock to
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shareholders who view the Mandatory Convertible Preferred Stock as a more attractive means of equity participation in us than owning shares of our common stock.
Our common stock is subordinate to our existing and future indebtedness; the Mandatory Convertible Preferred Stock, when issued; and any other preferred stock we may issue in the future. Our Mandatory Convertible Preferred Stock ranks junior to all of our and our subsidiaries’ consolidated liabilities.
Shares of our common stock are equity interests that rank junior to all indebtedness and other non-equity claims on us with respect to assets available to satisfy our claims, including in a liquidation of the Company. Additionally, holders of our common stock may be subject to prior dividend and liquidation rights of any holders of our preferred stock or depositary shares representing such preferred stock then outstanding.
Our common stock ranks junior to our Mandatory Convertible Preferred Stock with respect to the payment of dividends and amounts payable in the event of our liquidation, dissolution, or winding-up of our affairs. This means that, unless accumulated dividends have been paid on all the Mandatory Convertible Preferred Stock then outstanding through the most recently completed dividend period, no dividends may be declared or paid on our common stock and we will not be permitted to repurchase any of our common stock, subject to limited exceptions. Likewise, in the event of our voluntary or involuntary liquidation, dissolution, or winding-up of our affairs, no distribution of our assets may be made to holders of our common stock until we have paid to holders of the Mandatory Convertible Preferred Stock then outstanding a liquidation preference equal to $200.00 per share plus accumulated and unpaid dividends.
In the event of a bankruptcy, liquidation, dissolution, or winding-up of our affairs, our assets will be available to pay obligations on the Mandatory Convertible Preferred Stock only after all of our consolidated liabilities have been paid. In addition, the Mandatory Convertible Preferred Stock ranks structurally junior to all existing and future liabilities of our subsidiaries. In the event of a bankruptcy, liquidation, dissolution, or winding-up of our affairs, there may not be sufficient assets remaining, after paying our and our subsidiaries’ liabilities, to pay amounts due on any or all of the Mandatory Convertible Preferred Stock then outstanding.
As of June 30, 2020, our total consolidated indebtedness was approximately $2.3 billion, of which an aggregate of approximately $1.9 billion was secured indebtedness of ours, to which the Mandatory Convertible Preferred Stock would have been subordinated. In addition, we have the ability to, and may, incur additional indebtedness in the future.
Our board of directors can issue, without approval of the holders of our common stock, preferred stock with voting and conversion rights that could adversely affect the voting power of the holders of our common stock, the rights of holders of shares of our capital stock, or the market price of our capital stock.
Our Articles of Incorporation authorize our board of directors to issue one or more additional series of preferred stock and set the terms of the preferred stock without seeking any further approval from our shareholders. Any preferred stock that is issued will rank ahead of our common stock in terms of dividends and liquidation rights. If we issue additional preferred stock, it may adversely affect the market price of our common stock. Our board of directors also has the power, without shareholder approval, subject to applicable law, to set the terms of any such series of preferred stock that may be issued, including voting rights, dividend rights, preferences over our common stock with respect to dividends, and other terms, or upon our liquidation, dissolution, or winding-up of our affairs. If we issue additional preferred stock in the future that has a preference over our common stock with respect to the payment of dividends or upon our liquidation, dissolution, or winding-up of our affairs, or if we issue additional preferred stock with voting rights that dilute the voting power of our common stock, the rights of holders of our capital stock or the market price of our capital stock could be adversely affected. The issuance of preferred stock or even the ability to issue preferred stock could also have the effect of delaying, deterring, or preventing a change of control or other corporate action.
Reports published by securities or industry analysts, freelance bloggers and credit rating agencies, including projections in those reports that exceed our actual results, could adversely affect our share price and trading volume.
Research analysts and freelance bloggers publish their own quarterly projections regarding our operating results. These projections may vary widely from one another and may not accurately predict the results we actually achieve. Our share price may decline if we fail to meet securities research analysts’ projections. Similarly, if one or more of the analysts who cover us change their recommendations regarding our common stock or publish inaccurate or unfavorable research about our business, our share price could decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, our share price or trading volume could decline.
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Regulatory actions may adversely affect the trading price and liquidity of the Mandatory Convertible Preferred Stock.
Holders of Mandatory Convertible Preferred Stock who employ, or seek to employ, a convertible arbitrage strategy with respect to the Mandatory Convertible Preferred Stock may be adversely impacted by regulatory developments that may limit or restrict such a strategy. The SEC and other regulatory and self-regulatory authorities have implemented various rules and may adopt additional rules in the future that restrict and otherwise regulate short selling, over-the-counter swaps, and security-based swaps, which restrictions and regulations may adversely affect the ability of investors in, or potential purchasers of, the Mandatory Convertible Preferred Stock to conduct a convertible arbitrage strategy with respect to the Mandatory Convertible Preferred Stock. This could, in turn, adversely affect the trading price and liquidity of the Mandatory Convertible Preferred Stock.
Holders of Mandatory Convertible Preferred Stock have no voting rights with respect to the Mandatory Convertible Preferred Stock, except under limited circumstances.
Holders of Mandatory Convertible Preferred Stock have no voting rights with respect to the Mandatory Convertible Preferred Stock, except with respect to certain amendments to the terms of the Mandatory Convertible Preferred Stock, in the case of certain dividend arrearages, in certain other limited circumstances, and except as specifically required by applicable Pennsylvania law or by our amended and restated Articles of Incorporation. Holders of Mandatory Convertible Preferred Stock have no right to vote for any members of our board of directors, except in the case of certain dividend arrearages.
If dividends on any Mandatory Convertible Preferred Stock have not been declared and paid for the equivalent of six or more dividend periods (including, for the avoidance of doubt, the dividend period beginning on, and including, the initial issue date of the Mandatory Convertible Preferred Stock and ending on, but excluding, October 1, 2020), whether or not for consecutive dividend periods, the holders of such Mandatory Convertible Preferred Stock, voting together as a single class with holders of all other series of preferred stock ranking equally with the Mandatory Convertible Preferred Stock and having similar voting rights, will be entitled at our next special or annual meeting of shareholders to vote for the election of a total of two additional members of our board of directors, subject to certain limitations.
We depend on our subsidiaries for cash to fund our operations and expenses, including future dividend payments with respect to the Mandatory Convertible Preferred Stock.
A significant portion of our operations is conducted through our subsidiaries, and our ability to generate cash to meet our debt service obligations or to make future dividend payments with respect to the Mandatory Convertible Preferred Stock is highly dependent on the earnings and the receipt of funds from our subsidiaries. Our subsidiaries are separate legal entities that have no obligation to make any funds available to us, whether by dividends, loans, or other payments.

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Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2.  PROPERTIES
Information regarding our principal U.S. properties at June 30, 2020, is set forth below:
Location Primary Use(s) Primary Business Segment(s) Approximate Square Footage Ownership
Sherman, TX Manufacturing Compound Semiconductors 700,000  Owned
Easton, PA* Manufacturing and Research and Development Compound Semiconductors 281,000  Leased
Saxonburg, PA Manufacturing and Research and Development Compound Semiconductors 235,000  Owned and Leased
Warren, NJ Manufacturing and Research and Development Compound Semiconductors 159,000  Leased
Newark, DE Manufacturing and Research and Development Compound Semiconductors 135,000  Leased
Sunnyvale, CA Manufacturing, Research and Development, and Corporate Administrative Offices Photonic Solutions 112,000  Leased
Murrieta, CA Manufacturing and Research and Development Compound Semiconductors 108,000  Leased
Fremont, CA Manufacturing and Research and Development Compound Semiconductors 107,000  Leased
*Approximately 48,000 square feet are currently used in connection with the Company’s manufacturing operations. The remainder is subleased to a third party.

Information regarding our principal foreign properties at June 30, 2020, is set forth below:

Location Primary Use(s) Primary Business Segment(s) Approximate Square Footage Ownership
China Manufacturing, Research and Development, and Distribution Compound Semiconductors and Photonic Solutions 3,232,363  Owned and Leased
Malaysia Manufacturing Photonic Solutions 640,000  Owned
United Kingdom Manufacturing, Research and Development Compound Semiconductors and Photonic Solutions 319,000  Owned and Leased
Philippines Manufacturing Compound Semiconductors 318,000  Leased
Vietnam Manufacturing Compound Semiconductors and Photonic Solutions 189,000  Owned and Leased
Switzerland Manufacturing, Research and Development, and Distribution Compound Semiconductors 118,000  Leased
The square footage listed for each of the above properties represents facility square footage, except in the case of the Philippines location, which includes land.

Item 3.  LEGAL PROCEEDINGS
The Company and its subsidiaries are involved in various claims and lawsuits incidental to its business. The resolution of each of these matters is subject to various uncertainties, and it is possible that these matters may be resolved unfavorably to the Company. Management believes, after consulting with legal counsel, that the ultimate liabilities, if any, resulting from such legal proceedings will not materially affect the Company’s financial condition, liquidity, or results of operations.

Item 4.  MINE SAFETY DISCLOSURES
Not applicable.
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PART II

Item 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common stock is traded on the Nasdaq Global Select Market under the symbol “IIVI.” As of August 20, 2020, there were approximately 839 holders of record of our common stock. The Company historically has not paid cash dividends on its common stock and does not presently anticipate paying cash dividends on its common stock in the future. Dividends on the Company’s Mandatory Convertible Preferred Stock will be payable on a cumulative basis when, as and if declared by our board of directors, or an authorized committee of our board of directors, at an annual rate of 6.00% of the liquidation preference of $200.00 per share. The Company may pay declared dividends on the Mandatory Convertible Preferred Stock in cash or, subject to certain limitations, in shares of our common stock or in any combination of cash and shares of our common stock on January 1, April 1, July 1 and October 1 of each year, commencing on October 1, 2020 and ending on, and including, July 1, 2023.
ISSUER PURCHASES OF EQUITY SECURITIES
In August 2017, in conjunction with the Company’s offering and sale of our 0.25% outstanding convertible senior notes, the Company’s Board of Directors authorized the Company to purchase up to $50 million of its common stock with a portion of the net proceeds received from the offering and sale of those convertible notes. The shares that were purchased by the Company pursuant to this authorization were retained as treasury stock and are available for general corporate purposes. The Company purchased 1,414,900 shares of its common stock for approximately $49.9 million pursuant to this authorization.
In August 2014, the Company’s Board of Directors authorized the Company to purchase up to $50 million of its common stock through a share repurchase program (the “Program”) that calls for shares to be purchased in the open market or in private transactions from time to time. The Program has no expiration and may be suspended or discontinued at any time. Shares purchased by the Company are retained as treasury stock and available for general corporate purposes. During each of the fiscal years ended June 30, 2020 and June 30, 2019, the Company purchased 50,000 shares of its common stock for $1.6 million under this program. As of June 30, 2020, the Company has cumulatively purchased 1,416,587 shares of its common stock pursuant to the Program for approximately $22.3 million. The dollar value of shares as of June 30, 2020 that may yet be purchased under the Program is approximately $27.7 million.
















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PERFORMANCE GRAPH
The following graph compares cumulative total shareholder return on the Company’s common stock with the cumulative total shareholder return of the Nasdaq Composite Index and with a peer group of companies constructed by the Company for the period from June 30, 2015, through June 30, 2020. The Company’s current fiscal year peer group includes Cabot Microelectronics Corporation, Franklin Electric Co. Inc., MKS Instruments, Inc., Silicon Laboratories Inc., Lumentum Holdings Inc., Coherent, Inc. and Corning Incorporated.
In our Annual Report on Form 10-K for our fiscal year ended June 30, 2019, our fiscal year peer group included Finisar. Finisar has been excluded from the current fiscal year peer group as a result of our acquisition of Finisar in September 2019.
IIVI-20200630_G2.JPG

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Item 6.  SELECTED FINANCIAL DATA
Five-Year Financial Summary
The following selected financial data for the five fiscal years presented are derived from the Company’s audited Consolidated Financial Statements. The data should be read in conjunction with the Consolidated Financial Statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K.

Year Ended June 30, 2020 2019 2018 2017 2016
($000 except per share data)
Statement of Earnings
Net revenues $ 2,380,071  $ 1,362,496  $ 1,158,794  $ 972,046  $ 827,216 
Net earnings (loss) (67,029) 107,517  88,002  95,274  65,486 
Basic earnings (loss) per share (0.79) 1.69  1.41  1.52  1.07 
Diluted earnings (loss) per share (0.79) 1.63  1.35  1.48  1.04 
Diluted weighted average shares outstanding 84,828  65,804  65,133  64,507  62,909 
June 30, 2020 2019 2018 2017 2016
($000)
Balance Sheet
Working capital $ 1,116,076  $ 542,348  $ 525,370  $ 517,344  $ 411,721 
Total assets 5,234,714  1,953,773  1,761,661  1,477,297  1,211,981 
Long-term debt 2,186,092  443,163  419,013  322,022  215,307 
Total debt 2,255,342  466,997  439,013  342,022  235,307 
Retained earnings 876,552  943,581  836,064  748,062  652,788 
Shareholders' equity 2,076,803  1,133,209  1,024,311  900,563  782,338 

Item 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements
Certain statements contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations ("Management Discussion and Analysis") are forward-looking statements as defined by Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding projected growth rates, markets, product development, financial position, capital expenditures and foreign currency exposure. Forward-looking statements are also identified by words such as “expects,” “anticipates,” “believes,” “intends,” “plans,” “projects” or similar expressions.
Although our management considers these expectations and assumptions to have a reasonable basis, there can be no assurance that management’s expectations, beliefs or projections as expressed in the forward-looking statements will actually occur or prove to be correct. In addition to general industry and global economic conditions, factors that could cause actual results to differ materially from those discussed in the forward-looking statements in this Annual Report on Form 10-K include, but are not limited to: (i) the failure of any one or more of the assumptions stated above to prove to be correct; and (ii) the risks relating to forward-looking statements and other “Risk Factors” discussed herein at Item 1A. The Company disclaims any obligation to update information contained in these forward-looking statements whether as a result of new information, future events or developments, or otherwise.

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In addition, we operate in a highly competitive and rapidly changing environment; new risk factors can arise, and it is not possible for management to anticipate all such risk factors, or to assess the impact of all such risk factors on our business or the extent to which any individual risk factor, or combination of risk factors, may cause results to differ materially from those contained in any forward-looking statement. The forward-looking statements included in this Annual Report on Form 10-K are based only on information currently available to us and speak only as of the date of this Report. We do not assume any obligation, and do not intend to, update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by the securities laws. Investors should, however, consult any further disclosures of a forward-looking nature that the Company may make in its subsequent Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, or other disclosures filed with or furnished to the SEC.

Investors should also be aware that, while the Company does communicate with securities analysts from time to time, such communications are conducted in accordance with applicable securities laws. Investors should not assume that the Company agrees with any statement or report issued by any analyst irrespective of the content of the statement or report.
Overview
II-VI Incorporated (“II-VI,” the “Company,” “we,” “us” or “our”), a worldwide leader in engineered materials and opto-electronic components, is a vertically integrated manufacturing company that develops innovative products for industrial materials processing, communications, aerospace and defense, consumer electronics, semiconductor capital equipment, life sciences and automotive end markets. The Company produces a wide variety of application-specific photonic and electronic materials and components, and deploys them in various forms, including integration with advanced software.
The Company generates revenues, earnings and cash flows from developing, manufacturing and marketing a broad portfolio of products for our end markets. We also generate revenue, earnings and cash flows from government-funded research and development contracts relating to the development and manufacture of new technologies, materials and products.
Our customer base includes original equipment manufacturers, laser end users, system integrators of high-power lasers, manufacturers of equipment and devices for industrial, optical communications, consumer electronics, security and monitoring applications, U.S. government prime contractors, and various U.S. government agencies.
In September 2019, the Company completed its acquisition Finisar Corporation (“Finisar”), See Note 3. Acquisitions, to our Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K. The operating results of this acquisition have been reflected in the selected financial information of the Company’s Photonic Solutions segment and Compound Semiconductors Segment beginning on October 1, 2019, with the results from September 24, 2019 to September 30, 2019 reflected in Unallocated and Other.
Finisar is a global technology leader in optical communications, providing components and subsystems to networking equipment manufacturers, data center operators, telecom service providers, consumer electronics and automotive companies. Finisar, headquartered in Sunnyvale, California, designs products that meet the increasing demands for network bandwidth, data storage and 3D sensing subsystems. As part of the Finisar acquisition, the Company entered into a new Amended and Restated Credit Agreement, dated as of September 24 2019. This agreement secured $2.425 billion in aggregate principle amount of senior secured credit facilities. See Note 9. Debt, to our Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K.
On June 30, 2020, the Company announced its intention to offer, in concurrent underwritten public offerings, newly issued shares of its common stock and newly issued shares of its Series A Mandatory Convertible Preferred Stock, "Mandatory Convertible Preferred Stock"). In addition, the underwriters were granted a 30-day option to purchase additional shares of its common stock at the applicable public offering price, less underwriting discounts and commissions, and shares of Series A Mandatory Convertible Preferred Stock at the applicable public offering price, less underwriting discounts and commissions and solely to cover over-allotments with respect to the preferred stock offering. See Note 21. Subsequent Event, to our Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K for further details.
As we grow, we are focused on scaling our Company and deriving the continued benefits of vertical integration as we strive to be a best in class competitor in all of our highly competitive markets. The Company may elect to change the way in which the Company operates or is organized in the future to enable the most efficient implementation of our strategy.
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Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires the Company’s management to make judgments, assumptions and estimates that affect the amounts reported in its Consolidated Financial Statements and accompanying notes. Note 1. Nature of Business and Summary of Significant Accounting Policies, of the Notes to our Consolidated Financial Statements contained in Item 8 of this Annual Report on Form 10-K describes the significant accounting policies and accounting methods used in the preparation of the Company’s Consolidated Financial Statements. Management bases its estimates on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates.

Management has discussed the development and selection of the critical accounting policies and estimates described below with the Audit Committee of the Board of Directors and the Audit Committee has reviewed the related disclosure. In addition, there are other items within our Consolidated Financial Statements that require estimation but are not deemed critical. Changes in estimates used in these and other items could impact the Consolidated Financial Statements.

Business Combinations

The Company accounts for business acquisitions under the acquisition method of accounting whereby the total purchase price is allocated to tangible and intangible assets acquired and liabilities assumed based on the respective fair values. In determining the fair value of intangible assets acquired, the Company must make assumptions about the future performance of the acquired business, including among other things, the forecasted revenue growth attributable to the asset group and projected operating expenses inclusive of expected synergies, including future cost savings, and other benefits expected to be achieved by combining the Company and Finisar. The Company’s intangible assets are comprised of customer relationships, trade names and developed technology. The estimated fair value of the customer relationships, trade names and developed technology are determined using the multi-period excess earnings method and relief from royalty methods. Both methods require forward looking estimates that are discounted to determine the fair value of the intangible asset using a risk-adjusted discount rate that is reflective of the level of risk associated with future estimates associated with the asset group that could be affected by future economic and market conditions. The estimated fair value of the developed technology is also dependent on the selection of the royalty rate used in the valuation method. Different assumptions for certain intangible assets may result in materially different values for these assets, which would impact the Company’s financial position and future results of operations.

Goodwill

The Company tests goodwill for impairment annually, and when events or changes in circumstances indicate that goodwill might be impaired. The determination of whether goodwill is impaired requires us to make judgments based on long-term projections of future performance. Estimates of fair value are based on our projection of revenues, operating costs and cash flows of each reporting unit, considering historical and anticipated results and general economic and market conditions and their projections. For fiscal year 2020, the fair values of the reporting units were determined using a discounted cash flow analysis with projected financial information based on our most recently completed long-term strategic planning processes and also considers the current financial performance compared to our prior projections of the reporting unit. As of June 30, 2020, no reporting units are at risk for impairment. Due to the cyclical nature of our business, and the other factors described in the section on Risk Factors set forth in Item 1A of this Annual Report on Form 10-K, the profitability of our individual reporting units may periodically be affected by downturns in customer demand, operational challenges and other factors. If material adverse conditions occur that impact one or both of our reporting units, our determination of future fair value might not support the carrying amount of one or both of our reporting units, and the related goodwill would need to be impaired.
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Income Taxes

The Company prepares and files tax returns based on its interpretation of tax laws and regulations and records estimates based on these judgments and interpretations. In the normal course of business, the Company’s tax returns are subject to examination by various taxing authorities, which may result in future tax, interest and penalty assessments by these authorities. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The amount of unrecognized tax benefits is adjusted for changes in facts and circumstances. For example, adjustments could result from significant amendments to existing tax law and the issuance of regulations or interpretations by the taxing authorities, new information obtained during a tax examination, or resolution of an examination. The Company believes that its estimates for uncertain tax positions are appropriate and sufficient to pay assessments that may result from examinations of its tax returns. The Company recognizes both accrued interest and penalties related to unrecognized tax benefits in income tax expense.

Management evaluates the realizability of deferred tax assets for each jurisdiction in which it operates. If the Company experiences cumulative pretax income in a particular jurisdiction in a three-year period including the current and prior two years, management normally concludes that the income tax assets will more likely than not be realizable and no valuation allowance is recognized, unless known or planned operating developments, or changes in tax laws, would lead management to conclude otherwise. However, if the Company experiences cumulative pretax losses in a particular jurisdiction in a three-year period, management then considers a series of factors in the determination of whether the deferred tax assets can be realized. The Company has recorded valuation allowances against certain of its deferred tax assets, primarily those that have been generated from net operating losses in certain foreign taxing jurisdictions and acquired U.S. carryforwards. In evaluating whether the Company would more likely than not recover these deferred tax assets, it has not assumed any future taxable income or tax planning strategies in the jurisdictions associated with these carryforwards where history does not support such an assumption. Implementation of tax planning strategies to recover these deferred tax assets or future income generation in these jurisdictions could lead to the reversal of these valuation allowances and a reduction of income tax expense.


COVID-19 Update

On March 11, 2020, the World Health Organization designated the novel coronavirus known as COVID-19 as a global pandemic. In response to the global spread of COVID-19, governments at various levels have implemented unprecedented response measures. Overall, the COVID-19 pandemic has significantly curtailed global economic activity and caused significant volatility and disruption in global financial markets. Certain of the measures taken in response to the COVID-19 pandemic have adversely affected, and could in the future materially adversely impact, our business, results of operations, financial condition and stock price.

In particular, the COVID-19 pandemic is having a significant impact on global markets due to resulting supply chain and production disruptions, workforce and travel restrictions, quarantines and shelter-in-place orders, reduced spending and other similar measures implemented by many companies and other factors. Following the initial outbreak of COVID-19, we experienced temporary disruptions to our operations in China. While these operations have returned to active service, approximately 45% of our global facilities are subject to a government order, including approximately 10% that are currently closed, most of which are administrative facilities where employees are working remotely. Certain of our customers and suppliers currently are impacted by similar operational restrictions.

Our focus has been on the protection of the health and safety of our employees and business partners. In our facilities, we have deployed new safety measures, including guidance to employees on matters such as effective hygiene and disinfection, social distancing, limited and remote access working where feasible and use of protective equipment. We also are prioritizing efforts to understand and support the changing business needs of our customers and suppliers in light of restrictions that are applicable to them.

At this time, we believe that our existing balances of cash and cash equivalents, along with our existing committed borrowing availability and other short-term liquidity arrangements, will be sufficient to satisfy our working capital needs, make necessary capital asset purchases and debt repayments and meet other liquidity requirements associated with our existing operations. Likewise, our current estimates indicate that we will remain in compliance with financial covenants applicable under our debt arrangements.

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The full extent of the impact of the COVID-19 pandemic and the related responses on our operational and financial performance is currently uncertain and will depend on many factors outside our control, including, without limitation, the duration and severity of the pandemic, the imposition of protective public safety measures, and the impact of the pandemic on the global economy as a whole and, in particular, demand for our products. Due to these uncertainties, we cannot reasonably estimate the related impact on us at this time.

For additional information regarding the risks that we face as a result of the COVID-19 pandemic, please see Item 1A, Risk Factors, in Part I of this Form 10-K. Further, to the extent the COVID-19 pandemic adversely affects our business and financial results, it also may have the effect of heightening many of the other risks described in the risk factors in Item 1A of this Form 10-K.
Fiscal Year 2020 Compared to Fiscal Year 2019
The Company aligns its organizational structure into the following two reporting segments for the purpose of making operational decisions and assessing financial performance: (i) Compound Semiconductors and (ii) Photonic Solutions. The Company is reporting financial information (revenue and operating income) for these reporting segments in this Annual Report on Form 10-K.
The following table sets forth select items from our Consolidated Statements of Earnings (Loss) for the years ended June 30, 2020 and 2019 ($ in millions except per share information):

Year Ended June 30, 2020 Year Ended June 30, 2019
% of
Revenues 		% of
Revenues
Total revenues $ 2,380.1  100.0  % $ 1,362.4  100.0  %
Cost of goods sold 1,560.5  65.6  % 841.1  61.7  %
Gross margin 819.6  34.4  521.3  38.3 
Operating expenses:        
Internal research and development 339.1  14.2  139.2  10.2 
Selling, general and administrative 441.0  18.5  233.5  17.1 
Interest and other, net 103.4  4.3  19.8  1.5 
Earnings (Loss) before income tax (63.9) (2.7) 128.8  9.5 
Income taxes 3.1  0.1  21.3  1.6 
Net earnings (loss) $ (67.0) (2.8) % $ 107.5  7.9  %
Diluted earnings (loss) per share $ (0.79) $ 1.63 

Consolidated
Revenues. Revenues for the year ended June 30, 2020 increased 75% to $2,380.1 million, compared to $1,362.4 million for the prior fiscal year. The increase in revenues is primarily attributed to the acquisition of Finisar, which contributed $938.4 million of revenues for the fiscal year ended June 30, 2020. In addition to the acquisition of Finisar, the increase in revenues within Photonic Solutions was driven by increased demand from customers in the optical communication market, ROADM and other optical communication products addressing the growing deployment of 5G optical networks. Compound Semiconductors recorded a 13% revenue increase during the current fiscal year, which in addition to revenues from Finisar, was driven by strengthening demand for SiC substrate products addressing RF electronics and high-power switching systems. This segment also realized increased revenues from its aerospace and defense products addressing strengthening demand from customers in the intelligence, surveillance and reconnaissance markets.
Gross margin. Gross margin for the year ended June 30, 2020 was $819.6 million, or 34.4%, of total revenues, compared to $521.3 million, or 38.3% of total revenues, for the same period last fiscal year. Gross margin as a percentage of revenues decreased 380 basis points compared to the prior fiscal year despite the 75% increase in revenues during this same period. Gross margin was negatively impacted by additional cost of goods sold of $87.7 million related to the fair value adjustment of the acquired Finisar inventory, and as the result of product mix relating to Finisar's Transceiver product line which has a lower gross margin profile than the Company's historical margins.
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Internal research and development. Company-funded internal research and development (“IR&D”) expenses for the fiscal year ended June 30, 2020 were $339.1 million, or 14.2% of revenues, compared to $139.2 million, or 10.2%. of revenues, last fiscal year. The increase in IR&D expenses is primarily due to the Company continuing to invest in new products and processes across all its businesses including investments in 5G technology, 3D Sensing, indium phosphide, LIDAR and other emerging market trends. 
Selling, general and administrative. Selling, general and administrative (“SG&A”) expenses for the year ended June 30, 2020 were $441.0 million, or 18.5% of revenues, compared to $233.5 million, or 17.1% of revenues, last fiscal year. The increase in SG&A was primarily the result of transaction costs incurred relating to the acquisition of Finisar as well as the SG&A from the Finisar acquisition.
Interest and other, net. Interest and other, net for the year ended June 30, 2020 was expense of $103.4 million compared to expense of $19.8 million last fiscal year.  Interest and other, net primarily includes $89.4 million for interest expense on borrowings, $14.4 million of foreign currency losses, and $2.8 million of equity earnings from unconsolidated investments. Interest expense increased due to the higher levels of outstanding debt incurred in conjunction with the acquisition of Finisar. In addition, the Company expensed $4.0 million of debt extinguishment costs during the current fiscal year and recorded a $5.0 million impairment charge for an unconsolidated investment as its carrying value was determined to be unrecoverable.
Income taxes. The Company’s year-to-date effective income tax rate at June 30, 2020 was a (4.9)% benefit, compared to an effective tax rate of 16.6% last fiscal year. The current fiscal year’s effective tax rate was negatively impacted by the U.S. enacted tax legislation related to global intangible low tax income (“GILTI”) partially offset by research and development incentives in certain jurisdictions.
Segment Reporting
Revenues and operating income for the Company’s reportable segments are discussed below. Operating income differs from income from operations in that operating income excludes certain operational expenses included in other expense (income), net, as reported. Management believes operating income to be a useful measure for investors, as it reflects the results of segment performance over which management has direct control and is used by management in its evaluation of segment performance. See Note 14. Segment and Geographic Reporting to the Company’s Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for further information on the Company’s reportable segments and for the reconciliation of operating income to net earnings, which is incorporated herein by reference.
Effective July 1, 2019, the Company realigned its composition of its operating segments. The Company combined II-VI Laser Solutions and II-VI Performance Products, and renamed the combined segment Compound Semiconductors.  All applicable segment information has been restated to reflect this change. Additionally, the Company changed the name of II-VI Photonics to Photonic Solutions.
Photonic Solutions ($ in millions)
Year Ended
June 30, 		%
Increase/(Decrease)
2020 2019
Revenues $ 1,536.8  $ 638.9  141  %
Operating income $ 49.9  $ 81.9  (39) %

The above operating results for the year ended June 30, 2020 include the Company’s acquisition of Finisar in September 2019.
Revenues for the year ended June 30, 2020 for Photonic Solutions increased 141% to $1,536.8 million, compared to $638.9 million for last fiscal year. Included in the current year’s revenues were $903.5 million of revenues from the Finisar acquisition.  Exclusive of the acquisition, the increase in revenues was attributed to increased demand of our 5G optical networks driven by the China broadband initiative.
Operating income for the year ended June 30, 2020 for Photonic Solutions decreased 39% to $49.9 million, compared to an operating income of $81.9 million last fiscal year. The decrease in operating income was primarily due to acquisition related expenses related to amortization expense on acquired intangible assets and the expensing of acquired inventory fair value step-up partially offset by incremental margin realized on increased revenues during the year.
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Compound Semiconductors ($ in millions)

Year Ended
June 30, 		%
Increase/(Decrease)
2020 2019
Revenues $ 821.2  $ 723.6  13  %
Operating income $ 62.3  $ 82.4  (24  %)

The above operating results for the year ended June 30, 2020 include the Company’s acquisition of Finisar in September 2019.

Revenues for the fiscal year ended June 30, 2020 for Compound Semiconductors increased 13% to $821.2 million, compared to revenues of $723.6 million last fiscal year. The increase in revenues during the current fiscal year was primarily driven by increased VCSEL product shipments addressing the 3D sensing commercial market, and increased revenues to customers in the aerospace and defense market.
Operating income for the fiscal year ended June 30, 2020 for Compound Semiconductors decreased 24% to $62.3 million, compared to operating income of $82.4 million last fiscal year. The decrease in operating income during the current fiscal year was primarily driven by the acquisition of Finisar, which includes unabsorbed operating costs incurred at the segment's Sherman, Texas water fabrication facility, during the qualification phase. In addition, the segment incurred acquisition related expenses associated with expensing of the fair value inventory write-up and other related acquisition expenses.
Fiscal Year 2019 Compared to Fiscal Year 2018
The Company aligned its organizational structure into the following two reporting segments for the purpose of making operational decisions and assessing financial performance: (i) Compound Semiconductors and (ii) Photonic Solutions. The Company is reporting financial information (revenue and operating income) for these reporting segments in this Annual Report on Form 10-K.
The following table sets forth select items from our Consolidated Statements of Earnings for the years ended June 30, 2019 and 2018 ($ in millions except per share information):

Year Ended
June 30, 2019 		Year Ended
June 30, 2018
% of
Revenues 		% of
Revenues
Total revenues $ 1,362.4  100.0  % $ 1,158.8  100.0  %
Cost of goods sold 841.1  61.7  696.6  60.1 
Gross margin 521.3  38.3  462.2  39.9 
Operating expenses:        
Internal research and development 139.2  10.2  116.9  10.1 
Selling, general and administrative 233.5  17.1  208.6  18.0 
Interest and other, net 19.8  1.5  14.6  1.3 
Earnings before income tax 128.8  9.5  122.2  10.5 
Income taxes 21.3  1.6  34.2  3.0 
Net earnings $ 107.5  7.9  % $ 88.0  7.5  %
Diluted earnings per share $ 1.63  $ 1.35 

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Consolidated
Revenues. Revenues for the year ended June 30, 2019 increased 18% to $1,362.4 million, compared to $1,158.8 million for fiscal year 2018. The increase in revenues during fiscal year 2019 was driven by strong demand from customers across the majority of the Company’s business units. In particular, Photonic Solutions experienced a 31% revenue growth from the prior fiscal year 2018, primarily driven by increased demand from customers in the optical communication market. Specifically, the segment saw increased demand for ROADM and other optical communication products addressing the growing deployment of 5G optical networks. Compound Semiconductors recorded an 8% revenue increase during the current fiscal year, driven by strengthening demand for SiC substrate products addressing RF electronics and high-power switching and power conversion systems for automotive and communication end markets. In addition, this segment also realized increased revenues from its aerospace and defense products addressing strengthening demand from customers in the intelligence, surveillance and reconnaissance markets.
Gross margin. Gross margin for the year ended June 30, 2019 was $521.3 million, or 38.3%, of total revenues, compared to $462.2 million, or 39.9% of total revenues, for fiscal year 2018. Gross margin as a percentage of revenues decreased 160 basis points compared to the prior fiscal year despite the 18% increase in revenues during this same period. The Company’s Photonic Solutions’ gross margin was negatively impacted by a shift in product mix to lower margin products while Compound Semiconductors experienced under-absorption of manufacturing costs for its 3D Sensing product line due to continued delays in the program and underutilization of capacity.
Internal research and development. Company-funded IR&D expenses for the fiscal year ended June 30, 2019 were $139.2 million, or 10.2% of revenues, compared to $116.9 million, or 10.1% of revenues, for fiscal year 2018. The increase in IR&D expenses is primarily due to the Company continuing to invest in new products and processes across all its businesses including investments in 5G technology, 3D Sensing and other engineered material applications.  IR&D expenses as a percentage of revenues were consistent between both fiscal years, and the Company anticipates this percentage to continue to range between 10% and 15% of revenues as the Company continues investing in new product and process development.
Selling, general and administrative. SG&A expenses for the year ended June 30, 2019 were $233.5 million, or 17.1% of revenues, compared to $208.6 million, or 18.0% of revenues, for fiscal year 2018. During fiscal year 2019, the Company announced its intention to acquire Finisar, and incurred approximately $15.6 million of related transaction expenses. In addition to the transaction expenses, the Company incurred higher SG&A expenses to support its growing revenue base.  The Company has been successful in capitalizing on synergies from its recent acquisitions to improve its operating leverage.
Interest and other, net. Interest and other, net for the year ended June 30, 2019 was expense of $19.8 million compared to expense of $14.6 million for fiscal year 2018. Included in interest and other, net were interest expense on long-term borrowings, earnings from equity investments, interest income on excess cash reserves, unrealized gains and losses on the Company’s deferred compensation plan, and foreign currency gains and losses. The increase in interest and other, net was primarily due to increased interest expense during the current fiscal year of approximately $4.1 million due to the higher levels of outstanding debt.
Income taxes. The Company’s year-to-date effective income tax rate at June 30, 2019 was 16.6%, compared to an effective tax rate of 28.0% for fiscal year 2018. Fiscal year 2018’s effective tax rate was negatively impacted by the U.S. enacted tax legislation and the recording the provision for the transition tax under the new tax law.
Photonic Solutions ($ in millions)

Year Ended
June 30, 		%
Increase
2019 2018
Revenues 638.8  486.5  31  %
Operating income 81.9  63.2  30  %

The above operating results for the year ended June 30, 2019 include the Company’s acquisitions of CoAdna Holdings, Inc. in September 2018 and the product line which was acquired in November 2018.
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Revenues for the year ended June 30, 2019 for Photonic Solutions increased 31% to $638.8 million, compared to $486.5 million for fiscal year 2018. Included in the fiscal year’s 2019 revenues were $12.4 million of revenues, excluding sales to customers through our sales offices, from the above acquisitions.  Exclusive of these acquisitions, the increase in revenues was primarily attributed to increased demand for optical communication products driven by the China broadband initiative as China continues to build out its broadband networks.  Specifically, the segment saw increased demand for its ROADM and EDFA product lines to address this and other market demands, including the accelerating demand for 5G technology.
Operating income for the year ended June 30, 2019 for Photonic Solutions increased 30% to $81.9 million, compared to an operating income of $63.2 million for fiscal year 2018. The increase in operating income was primarily due to incremental margin realized on increased revenues.
Compound Semiconductors ($ in millions)

Year Ended
June 30, 		%
Increase
2019 2018
Revenues $ 723.6  $ 672.3  8  %
Operating income $ 82.4  $ 73.6  12  %

Revenues for the fiscal year ended June 30, 2019 for Compound Semiconductors increased 8% to $723.6 million, compared to revenues of $672.3 million for fiscal year 2018. The increase in revenues during fiscal year 2019 was primarily driven by increased demand for SiC products addressing RF electronics and high-power switching and power conversion systems for automotive and communication markets. In addition, the segment has seen increased demand for products and components for its thermoelectric and aerospace and defense markets.
Operating income for the fiscal year ended June 30, 2019 for Compound Semiconductors increased 12% to $82.4 million, compared to operating income of $73.6 million for fiscal year 2018. The increase in operating income during fiscal year 2019 was primarily driven by incremental margin realized by increased sales volume, as well as favorable product mix toward higher margin products.
LIQUIDITY AND CAPITAL RESOURCES
Historically, our primary sources of cash have been provided from operations, long-term borrowing, and advance funding from customers. Other sources of cash include proceeds received from the exercises of stock options and sale of equity investments and businesses. Our historic uses of cash have been for capital expenditures, investments in research and development, business acquisitions, payments of principal and interest on outstanding debt obligations, payments of debt issuance costs to obtain financing, payments in satisfaction of employees’ minimum tax obligations and purchases of treasury stock. Supplemental information pertaining to our sources and uses of cash for the periods indicated is presented as follows:
Sources (uses) of Cash (millions):
Year Ended June 30, 2020 2019
2018
Net cash provided by operating activities $ 297.3  $ 178.5  $ 161.0 
Proceeds on new long-term borrowings 2,121.0  —  — 
Proceeds from exercises of stock options 13.5  8.7  10.5 
Proceeds from prior credit facility and other borrowings 10.0  150.0  445.0 
Purchases of businesses, net of cash acquired (1,036.6) (83.1) (80.5)
Payments of Finisar Notes (560.1) —  — 
Payments under prior term loan and credit facility (176.6) (135.0) (292.0)
Payments under new long-term borrowings and credit facility (137.9) —  — 
Additions to property, plant & equipment (136.9) (137.1) (153.4)
Debt issuance costs (63.5) (5.6) (10.1)
Payments in satisfaction of employees' minimum tax obligations (28.7) (7.1) (6.6)
Common stock repurchases (1.6) (1.6) (49.9)
Effect of exchange rate changes on cash and cash equivalents and other items (11.7) (9.9) (48.9)
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Net cash provided by operating activities:
Net cash provided by operating activities was $297.3 million and $178.5 million for the fiscal years ended June 30, 2020 and 2019, respectively. The increase in cash flows provided by operating activities during the current fiscal year ended compared to the same period last fiscal year was primarily driven by increased non-cash charges for depreciation and amortization as well as overall favorable changes in working capital offset by lower earnings as a result of acquisition-related expenses incurred for the acquisition of Finisar. Acquisition-related expenses include transaction expenses, expensing of the fair value write-up of acquired inventory and increased depreciation and amortization charges for acquired property, plant and equipment and intangible assets.
Net cash provided by operating activities was $178.5 million and $161.0 million for the fiscal years ended June 30, 2019 and 2018, respectively. The increase in cash provided by operations was due to a combination of higher net earnings as well as non-cash items such as depreciation, amortization, and share-based compensation expense and improved working capital management of accounts payable.
Net cash used in investing activities:
Net cash used in investing activities was $1,179.3 million and $224.0 million for the fiscal years ended June 30, 2020 and 2019, respectively. Net cash used in investing activities during the current period primarily included $1,036.6 million for net cash paid for the acquisition of Finisar, and $136.9 million of cash paid for property, plant and equipment to increase capacity to meet the growing demand for the Company’s product portfolio.
Net cash used in investing activities was $224.0 million and $285.0 million for the fiscal years ended June 30, 2019 and 2018, respectively. The decrease in cash used in investing activities was the result of lower level of investments in property, plant & equipment as the Company continues to strategically allocate resources.
Net cash provided by financing activities:
Net cash provided by financing activities was $1,173.6 million for the year ended June 30, 2020 compared to net cash provided by financing activities of $4.9 million for the year ended June 30, 2019. Net cash provided by financing activities during the current fiscal year included net borrowings on long-term debt of $1,256.4 million primarily to fund the acquisition of Finisar, and $13.5 million of cash received from exercises of stock options.  Net cash provided by financing activities was offset by $63.5 million of debt issuance costs associated with the increased borrowings, $28.7 million of cash payments in satisfaction of employees’ minimum tax obligations from the vesting of equity awards and a $1.6 million payment to repurchase common stock through the Company's share repurchase program.
Net cash provided by financing activities was $4.9 million for the year ended June 30, 2019 compared to net cash provided by financing activities of $97.0 million for the year ended June 30, 2018. During the year ended June 30, 2019, the Company had net borrowings of $15.0 million. The Company realized $8.7 million of proceeds received from the exercise of stock options offset, by $7.1 million of cash payments in satisfaction of employees’ minimum tax obligations on the vesting of the Company’s restricted and performance shares during the current fiscal year.  In addition, the Company incurred approximately $1.6 million of purchases of treasury stock and $5.6 million of debt issuance costs associated with its pending financing of the cash consideration payable in connection with its Finisar acquisition.
Senior Credit Facilities
On September 24, 2019, in connection with the Finisar acquisition, the Company entered into a Credit Agreement (the "Credit Agreement") with Bank of America, N.A., as Administrative Agent, Swing Line Lender and an L/C Issuer, and the other lenders party thereto.
The Credit Agreement provides for senior secured financing of $2.425 billion in the aggregate, consisting of
(i)Aggregate principal amount of $1,255 million for a five-year senior secured first-lien term A loan facility (the “Term A Facility”),
(ii)Aggregate principal amount of $720 million for a seven-year senior secured term B loan facility (the “Term B Facility” and together with the Term A Facility, the “Term Loan Facilities”) and
(iii)Aggregate principal amount of $450 million for a five-year senior secured first-lien revolving credit facility (the “Revolving Credit Facility” and together with the Term Loan Facilities, the “Senior Credit Facilities”).
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The Credit Agreement also provides for a letter of credit sub-facility not to exceed $25.0 million and a swing loan sub-facility initially not to exceed $20.0 million.
The Company is obligated to repay the outstanding principal amount of the Term A Facility in quarterly installments equal to 1.25% of the initial aggregate principal amount of the Term A Facility, with the remaining outstanding balance due and payable on the fifth anniversary of the Closing Date. Similarly, the Company is obligated to repay the outstanding principal amount of the Term B Facility in quarterly installments equal to 0.25% of the initial aggregate principal amount of the Term B Facility, with the remaining outstanding balance due and payable on the seventh anniversary of the Closing Date. The Company is obligated to repay the aggregate principal amount of all outstanding revolving loans made under the Revolving Credit Facility on the fifth anniversary of the Closing Date.
The Company’s obligations under the Senior Credit Facilities are guaranteed by each of the Company’s existing or future direct and indirect domestic subsidiaries, including Finisar and its domestic subsidiaries (collectively, the “Guarantors”). Borrowings under the Senior Credit Facilities are collateralized by a first priority lien in substantially all of the assets of the Company and the Guarantors, except that no real property is collateral under the Senior Credit Facilities.
All amounts outstanding under the Senior Credit Facilities will become due and payable 120 days prior to the maturity of the Company’s currently outstanding 0.25% Convertible Senior Notes due 2022 (the “II-VI Notes”) if (i) the II-VI Notes remain outstanding, and (ii) the Company has insufficient cash and borrowing availability to repay the principal amount of the II-VI Notes.
The Company voluntarily may prepay, at any time or from time to time, any amounts outstanding under the Senior Credit Facilities in whole or in part without premium or penalty; except for the Term B Facility, pursuant to which in the event of (a) a repayment made before September 24, 2020, (b) the occurrence of a repricing event, or (c) a change to the lenders, the Company will be subject to a prepayment premium in an amount equal to one percent of: (i) the principal amount of the Term B Facility that is prepaid under an optional or mandatory prepayment due to a repricing event, (ii) the aggregate outstanding principal amount of the Term B Facility resulting from an amendment to the Credit Agreement, and (iii) the principal amount of the Term B Facility that is mandatorily assigned. The Company may be subject to mandatory prepayment of amounts outstanding under the Senior Credit Facilities under certain circumstances, including in connection with certain asset sales or other dispositions of property and debt issuances.
The Company also may be required to prepay amounts under the Term B Facility based on the Company’s excess cash flow (as calculated in accordance with the terms of the Credit Agreement) for the Company’s prior fiscal year beginning with its fiscal year ending June 30, 2020 and the Company’s consolidated secured net leverage ratio (as calculated in accordance with the terms of the Credit Agreement) as of the end of such fiscal year.
Amounts outstanding under the Senior Credit Facilities will bear interest at a rate per annum equal to an applicable margin over a eurocurrency rate or an applicable margin over a base rate determined by reference to the highest of (a) the federal funds rate plus 0.50%, (b) Bank of America, N.A.’s prime rate and (c) a eurocurrency rate plus 1.00%, in each case as calculated in accordance with the terms of the Credit Agreement. The applicable interest rate would increase under certain circumstances relating to events of default.  The Company has entered into an interest rate swap contract to hedge its exposure to interest rate risk on its variable rate borrowings under the Senior Credit Facilities.  Refer to Note 15 for further information regarding this interest rate swap.
The Credit Agreement contains customary affirmative and negative covenants with respect to the Senior Credit Facilities, including limitations with respect to liens, investments, indebtedness, dividends, mergers and acquisitions, dispositions of assets and transactions with affiliates. The Company will be obligated to maintain a consolidated interest coverage ratio (as calculated in accordance with the terms of the Credit Agreement) as of the end of each fiscal quarter of not less than 3.00:1.00. The Company will be obligated to maintain a consolidated total net leverage ratio (as calculated in accordance with the terms of the Credit Agreement) of not greater than (i) 5.00 to 1.00 for the first four fiscal quarters after the Closing Date, commencing with the first full fiscal quarter after the Closing Date, (ii) 4.50 to 1.00 for the fifth fiscal quarter through and including the eighth fiscal quarter after the Closing Date, and (iii) 4.00 to 1.00 for each subsequent fiscal quarter. As of June 30, 2020, the Company was in compliance with all financial covenants under the Credit Agreement.
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The Company incurred $69.8 million of debt issuance costs in connection with the Senior Credit Facilities. The Company evaluated these costs to determine appropriate recognition of expense under Accounting Standards Codification 470, Debt to account for debt modification and extinguishment. As a result of the Company’s assessment, $65.8 million have been capitalized in the Consolidated Balance Sheet.  Debt extinguishment costs of $4.0 million were expensed in other expense (income), net in the Consolidated Statement of Earnings (Loss) during the twelve months ended June 30, 2020.  The Company expensed $2.9 million and $8.8 million of capitalized debt issuance costs during the three and twelve months ended June 30, 2020, respectively, in interest expense in the Consolidated Statement of Earnings (Loss). The capitalized costs are being amortized to interest expense using the effective interest rate method from the issuance date of September 24, 2019, through the end of each facility. The unamortized debt issuance costs of $56.9 million as of June 30, 2020 are being amortized over five and seven years, for the Term A Facility and Revolving Credit Facility, and the Term B Facility, respectively.
On June 30, 2020, the Company announced its intention to offer, in concurrent underwritten public offerings, newly issued shares of its common stock and newly issued shares of its Series A Mandatory Convertible Preferred Stock. On July 7, 2020, the Company used the proceeds from the public offerings to pay off the remaining balance of $715.2 million of the Term B Loan Facility. See Note 21 for further details.
0.50% Finisar Convertible Notes
Finisar’s outstanding 0.50% Convertible Senior Notes due 2036 (the “Finisar Notes”) may be redeemed at any time on or after December 22, 2021 in whole or in part at the option of the Company at a redemption price equal to one hundred percent (100%) of the principal amount of such Finisar Notes plus accrued and unpaid interest. Each holder of Finisar Notes also may require Finisar to repurchase all or any portion of such holder’s outstanding Finisar Notes for cash on December 15, 2021, December 15, 2026 and December 15, 2031 at a repurchase price equal to one hundred percent (100%) of the principal amount of such Finisar Notes plus accrued and unpaid interest. The Finisar Notes will mature on December 15, 2036. Interest on the Finisar Notes accrues at 0.50% per annum, paid semi-annually, in arrears, on June 15 and December 15 of each year.
In connection with the acquisition of Finisar, the Company, Finisar and Wells Fargo Bank, National Association, as trustee, entered into a First Supplemental Indenture, dated as of September 24, 2019 (the “First Supplemental Indenture”). The First Supplemental Indenture supplements the base indenture (as supplemented, the “Finisar Indenture”), which governs the Finisar Notes. Pursuant to the terms of the First Supplemental Indenture, the Company has fully and unconditionally guaranteed, on a senior unsecured basis, the due and punctual payment and performance of all obligations of Finisar to the holders of the Finisar Notes. The First Supplemental Indenture also provides that the right of holders of Finisar Notes to convert Finisar Notes into cash and/or shares of Finisar’s common stock, is changed to a right to convert Finisar Notes into cash and/or shares of the Company’s common stock, subject to the terms of the Finisar Indenture.
Under the terms of the Finisar Indenture, the consummation and effectiveness of the Merger on the Closing Date constituted a Fundamental Change (as defined in the Finisar Indenture) and a Make-Whole Fundamental Change (as defined in the Finisar Indenture). Accordingly, in accordance with the terms of the Finisar Indenture, each holder of Finisar Notes had the right to (i) convert its Finisar Notes into cash and/or shares of Company Common Stock, at Finisar’s option, or (ii) require that Finisar repurchase such holder’s Finisar Notes for an amount in cash equal to one hundred percent (100%) of the principal amount of such Finisar Notes plus accrued and unpaid interest.
Holders of approximately $560.1 million in aggregate principal amount of Finisar Notes exercised the repurchase right. The Company repurchased those Finisar Notes on October 23, 2019 for an aggregate consideration of approximately $561.1 million in cash, including accrued interest. No holders of Finisar Notes exercised the related conversion right. The Company borrowed $561.0 million under a delayed draw on its Term Loan A to fund the payment to the holders of Finisar Notes that exercised the repurchase right. As of June 30, 2020, approximately $14.9 million in aggregate principal amount of Finisar Notes remain outstanding.
Aggregate Availability
The Company had aggregate availability of $374.6 million under its Revolving Credit Facility as of June 30, 2020.
Weighted Average Interest Rate
The weighted average interest rate of total borrowings was 3.4% and 1.6% for the year ended June 30, 2020 and 2019, respectively.
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Share Repurchase Programs
In August 2017, in conjunction with the Company’s offering and sale of our 0.25% outstanding convertible senior notes, the Company’s Board of Directors authorized the Company to purchase up to $50 million of its common stock with a portion of the net proceeds received from the offering and sale of those convertible notes. The shares that were purchased by the Company pursuant to this authorization were retained as treasury stock and are available for general corporate purposes. The Company purchased 1,414,900 shares of its common stock for approximately $49.9 million pursuant to this authorization.
In August 2014, the Company’s Board of Directors authorized the Company to purchase up to $50 million of its common stock through a share repurchase program (the “Program”) that calls for shares to be purchased in the open market or in private transactions from time to time. The Program has no expiration and may be suspended or discontinued at any time. Shares purchased by the Company are retained as treasury stock and available for general corporate purposes. During each of the fiscal years ended June 30, 2020 and June 30, 2019, the Company purchased 50,000 shares of its common stock for $1.6 million under this program. As of June 30, 2020, the Company has cumulatively purchased 1,416,587 shares of its common stock pursuant to the Program for approximately $22.3 million. The dollar value of shares as of June 30, 2020 that may yet be purchased under the Program is approximately $27.7 million.
Our cash position, borrowing capacity and debt obligations are as follows (in millions):

June 30, 2020 June 30, 2019
Cash and cash equivalents $ 493.0  $ 204.9 
Available borrowing capacity 374.6  211.9 
Total debt obligations 2,255.3  467.0 

The Company believes cash flow from operations, existing cash reserves and available borrowing capacity from its credit facilities and its recent equity raise will be sufficient to fund its needs for working capital, capital expenditures, repayment of scheduled long-term borrowings and lease obligations, investments in internal research and development, share repurchases, and internal and external growth objectives at least through fiscal year 2021. Refer to Note 21 of the Company’s Consolidated Financial Statements for subsequent event information regarding use of proceeds from the underwritten public offerings in July 2020 and the impact to existing debt obligations.
The Company’s cash and cash equivalent balances are generated and held in numerous locations throughout the world, including amounts held outside the United States. As of June 30, 2020, the Company held approximately $350.8 million of cash and cash equivalents outside of the United States. Cash balances held outside the United States could be repatriated to the United States.
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Off-Balance Sheet Arrangements
The Company’s off-balance sheet arrangements include the purchase obligations disclosed in the contractual obligations table below. The Company enters into these off-balance sheet arrangements to acquire goods and services used in its business.
Tabular Disclosure of Contractual Obligations
Payments Due By Period
Less Than 1 1-3 3-5 More Than 5
Contractual Obligations Total Year Years Years Years
($000)
Long-term debt obligations (4)
$ 2,342,951  $ 69,250  $ 498,388  $ 1,096,713  $ 678,600 
Interest payments (1) (4)
$ 262,554  $ 53,549  $ 101,431  $ 77,574  $ 30,000 
Operating lease obligations, including imputed interest $ 161,288  $ 31,100  $ 44,585  $ 33,287  $ 52,316 
Finance lease obligations, including imputed interest $ 32,199  $ 2,419  $ 5,040  $ 5,321  $ 19,419 
Purchase and sponsorship obligations (2) (3)
$ 199,660  $ 196,937  $ 2,723  $ —  $ — 
Total $ 2,998,651  $ 353,255  $ 652,167  $ 1,212,895  $ 780,335 
(1)Interest payments represent both variable and fixed rate interest obligations based on the interest rates in effect at June 30, 2020 relating to the Senior Credit Facilities, the currently outstanding 0.50% convertible senior notes assumed in the Finisar Acquisition, and the currently outstanding 0.25% Convertible Senior Notes due 2022.  These interest payments do not reflect the impact of the interest rate swap that hedges our variable interest payments to fixed interest payments.
(2)A purchase obligation is defined as an agreement to purchase goods or services that is enforceable and legally binding on the Company and that specifies all significant terms, including fixed or minimum quantities to be purchased, minimum or variable price provisions, and the approximate timing of the transaction. These amounts are primarily composed of open purchase order commitments to vendors for the purchase of supplies and materials.
(3)Includes cash earn out opportunities based on certain acquisitions’ achieving agreed-upon financial, operational and technology targets, and the value of the net purchase option for the Company’s equity investment in a privately held company.
(4)Refer to Note 21. Subsequent Event for additional information regarding use of proceeds from the underwritten public offerings in July 2020.
Pension obligations are not included in the table above. Estimated funding obligations are determined by asset performance, workforce and retiree demographics, tax and employment laws and other actuarial assumptions which may change the annual funding obligations. The funded status of our defined benefit plans is disclosed in Note 16 to the Company’s Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.
The Company’s gross unrecognized income tax benefit at June 30, 2020 has been excluded from the table above because the Company is not currently able to reasonably estimate the amount by which the liability will increase or decrease over time.

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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISKS
The Company is exposed to market risks arising from adverse changes in foreign currency exchange rates and interest rates. In the normal course of business, the Company uses a variety of techniques and derivative financial instruments as part of its overall risk management strategy, which is primarily focused on its exposure in relation to the Japanese Yen, Chinese Renminbi, Swiss Franc, Euro. and the Malaysian Ringgit. No significant changes have occurred in the techniques and instruments used.
Interest Rate Risk
As of June 30, 2020, the Company’s total borrowings include variable rate borrowings, which exposes the Company to changes in interest rates. In November 2019, the Company entered into an interest rate swap contract to limit the exposure of its variable interest rate debt by effectively converting a portion of interest payments to fixed interest rate debt. If the Company had not hedged its variable rate debt, a change in the interest rate of 100 basis points on these variable rate borrowings would have resulted in additional interest expense of $15.8 million for the year ended June 30, 2020.

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Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management’s Responsibility for Preparation of the Financial Statements
Management is responsible for the preparation of the Consolidated Financial Statements included in this Annual Report on Form 10-K. The consolidated financial statements were prepared in accordance with the accounting principles generally accepted in the United States of America and include amounts that are based on the best estimates and judgments of management. The other financial information contained in this Annual Report on Form 10-K is consistent with the Consolidated Financial Statements.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control system is designed to provide reasonable assurance concerning the reliability of the financial data used in the preparation of the Company’s Consolidated Financial Statements, as well as reasonable assurance with respect to safeguarding the Company’s assets from unauthorized use or disposition.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement presentation and other results of such systems.
Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of June 30, 2020. In making this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013). Management’s evaluation included reviewing the documentation of its controls, evaluating the design effectiveness of controls and testing their operating effectiveness. Management excluded from the scope of its assessment of internal control over financial reporting the internal controls of Finisar Corporation, which was acquired in September 2019. The recent acquisition excluded from management’s assessment of internal controls over financial reporting represented approximately $3.1 billion and $2.8 billion of total assets and net assets, respectively, as of June 30, 2020, and approximately $938.4 million and $94.6 million of total revenues and net loss, respectively, for the fiscal year then ended. Based on the evaluation, management concluded that as of June 30, 2020, the Company’s internal controls over financial reporting were effective.
Ernst & Young LLP, an independent registered public accounting firm, has issued its report on the effectiveness of our internal control over financial reporting as of June 30, 2020. Its report is included herein.

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of II-VI Incorporated

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of II-VI Incorporated and Subsidiaries (the Company) as of June 30, 2020 and 2019, the related consolidated statements of earnings (loss), comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended June 30, 2020, and the related notes and the financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of June 30, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated August 26, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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Valuation of customer relationship and technology intangible assets in the acquisition of Finisar Corporation
Description of the Matter
As discussed in Note 3 to the consolidated financial statements, during the year ended June 30, 2020, the Company completed the acquisition of Finisar Corporation ("Finisar") for a total purchase price of approximately $2,908.5 million. The acquisition was accounted for as a business combination. The consideration paid in the acquisition must be allocated to the acquired assets and liabilities assumed generally based on their fair value with the excess of the purchase price over those fair values allocated to goodwill.

Auditing the Company’s accounting for its acquisition of Finisar was complex due to the significant estimation uncertainty involved in estimating the fair value of certain customer relationship and technology intangible assets. The total fair value ascribed to customer relationship and technology intangible assets amounted to $323.8 million and $334.7 million, respectively. The Company used the multi-period excess earnings method and the relief from royalty method to value the customer relationship and technology intangible assets, respectively. The significant assumptions used to estimate the fair value of customer relationships included the forecasted revenue growth and projected operating expenses inclusive of expected synergies, including future cost savings, and other benefits expected to be achieved by combining the Company and Finisar. The significant assumptions used to estimate the fair value of technology included the forecasted revenue growth and an estimated royalty rate. These significant assumptions are forward-looking and could be affected by future economic and market conditions.
How We Addressed the Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over its accounting for the acquisition of Finisar. For example, we tested controls that address the risks of material misstatement relating to the valuation of the customer relationship and technology intangible assets, including management’s review of the methods and significant assumptions used to develop such estimates.

To test the estimated fair value of the acquired customer relationship and technology intangible assets, our audit procedures included, among others, assessing the appropriateness of the valuation methodologies used, evaluating the significant assumptions discussed above, and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. For the forecasted revenue growth and projected operating expenses inclusive of expected synergies, including future cost savings, and other benefits expected to be achieved by combining the Company and Finisar, we compared the financial projections to current industry and economic trends, the historic financial performance of the acquired business, the Company’s history with other acquisitions, and forecasted performance of guideline public companies. We also performed sensitivity analyses to evaluate the changes in the fair value of the intangible assets that would result from changes in the significant assumptions. We involved our valuation specialist to assist in evaluating the methodologies used to estimate the fair value of the customer relationship and technology intangible assets and to test certain significant assumptions, including the royalty rate, which included a comparison of the selected royalty rate to a range of royalty rates we identified by performing an independent search of comparable licensing agreements.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2008.

Pittsburgh, Pennsylvania
August 26, 2020
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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of II-VI Incorporated

Opinion on Internal Control over Financial Reporting

We have audited II-VI Incorporated and Subsidiaries’ internal control over financial reporting as of June 30, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, II-VI Incorporated and Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of June 30, 2020, based on the COSO criteria.

As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Finisar Corporation (“Finisar”), which is included in the June 30, 2020 consolidated financial statements of the Company and constituted $3.1 billion and $2.8 billion of total and net assets, respectively, as of June 30, 2020 and $938.4 million and $94.6 million of revenues and net loss, respectively, for the fiscal year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Finisar.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of June 30, 2020 and 2019, the related consolidated statements of earnings (loss), comprehensive income (loss), shareholders’ equity and cash flows for each of the three years in the period ended June 30, 2020, and the related notes and the financial statement schedule listed in the Index at Item 15(a)(2) and our report dated August 26, 2020 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Pittsburgh, Pennsylvania
August 26, 2020
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II-VI Incorporated and Subsidiaries
Consolidated Balance Sheets
($000)

June 30, 2020 2019
Assets
Current Assets
Cash and cash equivalents $ 493,046  $ 204,872 
Accounts receivable - less allowance for doubtful accounts of $1,698 at June 30, 2020 and $1,292 at June 30, 2019
598,124  269,642 
Inventories 619,810  296,282 
Prepaid and refundable income taxes 12,279  11,778 
Prepaid and other current assets 65,710  30,337 
Total Current Assets 1,788,969  812,911 
Property, plant & equipment, net 1,214,772  582,790 
Goodwill 1,239,009  319,778 
Other intangible assets, net 758,368  139,324 
Investments 73,767  76,208 
Deferred income taxes 22,938  8,524 
Other assets 136,891  14,238 
Total Assets $ 5,234,714  $ 1,953,773 
Liabilities and Shareholders' Equity
Current Liabilities
Current portion of long-term debt $ 69,250  $ 23,834 
Accounts payable 268,773  104,462 
Accrued compensation and benefits 157,557  71,847 
Operating lease current liabilities 24,634  — 
Accrued income taxes payable 33,341  20,476 
Other accrued liabilities 119,338  49,944 
Total Current Liabilities 672,893  270,563 
Long-term debt 2,186,092  443,163 
Deferred income taxes 45,551  23,913 
Operating lease liabilities 94,701  — 
Other liabilities 158,674  82,925 
Total Liabilities 3,157,911  820,564 
Shareholders' Equity
Preferred stock, no par value; authorized - 5,000,000 shares; none issued
—  — 
Common stock, no par value; authorized - 300,000,000 shares; issued - 105,916,068 shares at June 30, 2020; 76,315,337 shares at June 30, 2019
1,486,947  382,423 
Accumulated other comprehensive loss (87,383) (24,221)
Retained earnings 876,552  943,581 
2,276,116  1,301,783 
Treasury stock, at cost - 13,356,447 shares at June 30, 2020 and 12,603,781 shares at June 30, 2019
(199,313) (168,574)
Total Shareholders' Equity 2,076,803  1,133,209 
Total Liabilities and Shareholders' Equity $ 5,234,714  $ 1,953,773 
See Notes to Consolidated Financial Statements.

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II-VI Incorporated and Subsidiaries
Consolidated Statements of Earnings (Loss)

Year Ended June 30, 2020 2019 2018
($000, except per share data)
Revenues $ 2,380,071  $ 1,362,496  $ 1,158,794 
Costs, Expenses and Other Expense (Income)
Cost of goods sold 1,560,521  841,147  696,591 
Internal research and development 339,073  139,163  116,875 
Selling, general and administrative 440,998  233,518  208,565 
Interest expense 89,409  22,417  18,352 
Other expense (income), net 13,998  (2,562) (3,783)
Total Costs, Expenses and Other Expense (Income) 2,443,999  1,233,683  1,036,600 
Earnings (Loss) Before Income Taxes (63,928) 128,813  122,194 
Income Tax Expense 3,101  21,296  34,192 
Net Earnings (Loss) $ (67,029) $ 107,517  $ 88,002 
Basic Earnings (Loss) Per Share $ (0.79) $ 1.69  $ 1.41 
Diluted Earnings (Loss) Per Share $ (0.79) $ 1.63  $ 1.35 
See Notes to Consolidated Financial Statements.


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II-VI Incorporated and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)

Year Ended June 30, 2020 2019 2018
($000)
Net earnings (loss) $ (67,029) $ 107,517  $ 88,002 
Other comprehensive income (loss):
Foreign currency translation adjustments (15,969) (14,319) 7,152 
Change in fair value of interest rate swap (44,085) —  — 
Pension adjustment, net of taxes of ($851), ($1,642) and $763 for the years ended June 30, 2020, 2019, and 2018, respectively
(3,108) (6,122) 2,846 
Other comprehensive income (loss) (63,162) (20,441) 9,998 
Comprehensive income (loss) $ (130,191) $ 87,076  $ 98,000 

See Notes to Consolidated Financial Statements.

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II-VI Incorporated and Subsidiaries
Consolidated Statements of Shareholders’ Equity

Accumulated
Other
Common Stock Comprehensive Retained Treasury Stock
Shares Amount Income (Loss) Earnings Shares Amount Total
($000, including share amounts)
Balance - June 30, 2017 74,081  $ 269,638  $ (13,778) $ 748,062  (10,940) $ (103,359) $ 900,563 
Share-based and deferred compensation activities 1,612  25,717  —  —  (41) (6,500) 19,217 
Net earnings —  —  —  88,002  —  —  88,002 
Purchases of treasury stock —  —  —  —  (1,415) (49,875) (49,875)
Foreign currency translation adjustments —  —  7,152  —  —  —  7,152 
Equity portion of convertible debt, net of issuance costs of $1,694
—  56,406  —  —  —  —  56,406 
Pension adjustment, net of taxes of $763
—  —  2,846  —  —  —  2,846 
Balance - June 30, 2018 75,693  $ 351,761  $ (3,780) $ 836,064  (12,396) $ (159,734) $ 1,024,311 
Share-based and deferred compensation activities 622  30,662  —  —  (158) (7,224) 23,438 
Net earnings —  —  —  107,517  —  —  107,517 
Purchases of treasury stock —  —  —  —  (50) (1,616) (1,616)
Foreign currency translation adjustments —  —  (14,319) —  —  —  (14,319)
Pension adjustment, net of taxes of ($1,642)
—  —  (6,122) —  —  —  (6,122)
Balance - June 30, 2019 76,315  $ 382,423  $ (24,221) $ 943,581  (12,604) $ (168,574) $ 1,133,209 
Share-based and deferred compensation activities 2,888  116,817  —  —  (702) (29,114) 87,703 
Purchases of treasury stock —  —  —  —  (50) (1,625) (1,625)
Shares issued related to Finisar acquisition 26,713  987,707  —  —  —  —  987,707 
Net loss —  —  —  (67,029) —  —  (67,029)
Foreign currency translation adjustments —  —  (15,969) —  —  —  (15,969)
Change in fair value of interest rate swap —  —  (44,085) —  —  —  (44,085)
Pension adjustment, net of taxes of ($851)
—  —  (3,108) —  —  —  (3,108)
Balance - June 30, 2020 105,916  $ 1,486,947  $ (87,383) $ 876,552  (13,356) $ (199,313) $ 2,076,803 

See Notes to Consolidated Financial Statements.

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II-VI Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
Year Ended June 30, 2020 2019 2018
($000)
Cash Flows from Operating Activities
Net earnings (loss) $ (67,029) $ 107,517  $ 88,002 
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation 156,690  75,745  66,202 
Amortization 64,192  16,620  14,568 
Share-based compensation expense 68,480  21,946  15,312 
Amortization of discount on convertible debt and debt issuance costs 22,150  12,550  10,057 
Debt extinguishment expense 3,960  —  — 
Gains on disposals of property, plant and equipment (1,461) —  — 
Losses on foreign currency remeasurements and transactions 14,442  3,155  850 
Earnings from equity investments (2,775) (3,214) (3,594)
Deferred income taxes (42,454) (10,462) 945 
Impairment of investment 4,980  —  — 
Increase (decrease) in cash from changes in (net of effects of acquisitions):
Accounts receivable (91,981) (50,764) (21,044)
Inventories 112,572  (36,392) (38,732)
Accounts payable 45,026  15,999  17,436 
Income taxes 40,061  366  7,380 
Other operating net assets (29,561) 25,409  3,632 
Net cash provided by operating activities 297,292  178,475  161,014 
Cash Flows from Investing Activities
Additions to property, plant & equipment (136,877) (137,122) (153,438)
Purchases of businesses, net of cash acquired (1,036,609) (83,067) (80,503)
Purchases of technology intangible assets (3,750) —  — 
Purchase of equity investments and other investing activities (2,054) (3,787) (51,009)
Net cash used in investing activities (1,179,290) (223,976) (284,950)
Cash Flows from Financing Activities
Proceeds from borrowings of Term A Facility 1,241,000  —  — 
Proceeds from borrowings of Term B Facility 720,000  —  — 
Proceeds from borrowings of Revolving Credit Facility 160,000  —  — 
Proceeds from borrowings under prior Credit Facility 10,000  150,000  100,000 
Proceeds from issuance of 0.25% convertible senior notes due 2022
—  —  345,000 
Payment of Finisar Notes (560,112) —  — 
Payments on borrowings under prior Term Loan, Credit Facility, and other loans (176,618) (135,000) (292,000)
Payments on borrowings under Term A Facility (46,538) —  — 
Payments on borrowings under Term B Facility (5,400) —  — 
Payments on borrowings under Revolving Credit Facility (86,000) —  — 
Debt issuance costs (63,510) (5,589) (10,061)
Proceeds from exercises of stock options 13,467  8,698  10,469 
Common stock repurchases (1,625) (1,616) (49,875)
Payments in satisfaction of employees' minimum tax obligations (28,700) (7,092) (6,564)
Other financing activities (2,339) (4,524) — 
Net cash provided by financing activities 1,173,625  4,877  96,969 
Effect of exchange rate changes on cash and cash equivalents (3,453) (1,542) 2,117 
Net increase (decrease) in cash and cash equivalents 288,174  (42,166) (24,850)
Cash and Cash Equivalents at Beginning of Period 204,872  247,038  271,888 
Cash and Cash Equivalents at End of Period $ 493,046  $ 204,872  $ 247,038 
Cash paid for interest $ 62,190  $ 8,680  $ 6,555 
Non cash transactions:
Purchases of business - earnout consideration recorded in accrued liabilities $ 900  $ 4,397  $ — 
Additions to property, plant & equipment included in accounts payable $ 21,801  $ 10,986  $ 12,313 
See Notes to Consolidated Financial Statements.


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II-VI Incorporated and Subsidiaries
Notes to the Consolidated Financial Statements

Note 1.  Nature of Business and Summary of Significant Accounting Policies
Nature of Business. II-VI Incorporated and its subsidiaries (the “Company,” “we,” “us,” or “our”), a global leader in engineered materials and optoelectronic components and devices, is a vertically-integrated manufacturing company that develops, manufactures and markets engineered materials and optoelectronic components and devices for precision use in industrial materials processing, optical communications, aerospace and defense, consumer electronics, semiconductor capital equipment, life sciences and automotive applications. The Company markets its products through its direct sales force and through distributors and agents.
The Company uses certain uncommon materials and compounds to manufacture its products. Some of these materials are available from only one proven outside source. The continued high quality of these materials is critical to the stability of the Company’s manufacturing yields. The Company has not experienced significant production delays due to a shortage of materials. However, the Company does occasionally experience problems associated with vendor-supplied materials not meeting specifications for quality or purity. A significant failure of the Company’s suppliers to deliver sufficient quantities of necessary high-quality materials on a timely basis could have a material adverse effect on the Company’s results of operations.
In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, which continues to spread
throughout the United States and world. We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our
business including the impact to our suppliers and customers as well as the impact to the countries and markets in which we
operate. At the onset of the COVID-19 outbreak, we began focusing intensely on mitigating the adverse impacts of COVID-19
on our foreign and domestic operations starting by protecting our employees, suppliers and customers.
Principles of Consolidation. The Consolidated Financial Statements include the accounts of the Company. All intercompany transactions and balances have been eliminated.
Business Segments. Effective July 1, 2019, the Company realigned its organizational structure into two reporting segments for the purpose of making operational decisions and assessing financial performance: (i) Compound Semiconductors and (ii) Photonic Solutions. Refer to Note 14 for further information on reporting segments.
Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Foreign Currency Translation. For all foreign subsidiaries whose functional currency is not the U.S. dollar, the functional currency is the local currency. Assets and liabilities of those operations are translated into U.S. dollars using period-end exchange rates while income and expenses are translated using the average exchange rates for the reporting period. Translation adjustments are recorded as accumulated other comprehensive income (loss) within shareholders’ equity in the accompanying Consolidated Balance Sheets.
Cash and Cash Equivalents. The Company considers highly liquid investment instruments with an original maturity of three months or less to be cash equivalents. We place our cash and cash equivalents with high credit quality financial institutions and to date have not experienced credit losses in these instruments.
Accounts Receivable. The Company makes estimates evaluating its allowance for doubtful accounts. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon its historical experience, current market conditions and any specific customer collection issues that it has identified.
Inventories. Inventories are valued at the lower of cost or net realizable value, with cost determined on the first-in, first-out basis. Inventory costs include material, labor and manufacturing overhead. In evaluating the net realizable value of inventory, management also considers, if applicable, other factors, including known trends, market conditions, currency exchange rates and other such issues. The Company generally records a reduction to the carrying value of inventory as a charge against earnings for all products on hand more than 12 to 24 months, depending on the nature of the products that have not been sold to customers or cannot be further manufactured for sale to alternative customers. An additional charge may be recorded for product on hand that is in excess of product sold to customers over the same periods noted above.
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Property, Plant and Equipment. Property, plant and equipment are carried at cost or fair value upon acquisition. Major improvements are capitalized, while maintenance and repairs are generally expensed as incurred. The Company reviews its property, plant and equipment and other long-lived assets for impairment whenever events or circumstances indicate that the carrying amounts may not be recoverable. Depreciation on property, plant and equipment and amortization on finance lease right-of-use assets for financial reporting purposes is computed primarily by the straight-line method over the estimated useful lives for building, building improvements and land improvements of 10 to 20 years and 3 to 20 years for machinery and equipment.
Leases. Leases are recognized under ASC 842, Leases. The Company determines whether a contract contains a lease at contract inception. A contract contains a lease if there is an identified asset and the Company has the right to control the asset. Operating lease right-of-use (“ROU”) assets represent the Company's right to use an underlying asset for the lease term, and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses the incremental borrowing rate in determining the present value of lease payments, unless the implicit rate is readily determinable. If lease terms include options to extend or terminate the lease, the ROU asset and lease liability are measured based on the reasonably certain decision. The Company has lease agreements with lease and non-lease components, which are accounted for as a single lease component for all classes of leased assets for which the Company is the lessee. Additionally, for certain equipment leases, the portfolio approach is applied to account for the operating lease ROU assets and lease liabilities. In the Consolidated Statements of Earnings (Loss), lease expense for operating lease payments is recognized on a straight-line basis over the lease term. For finance leases, interest expense is recognized on the lease liability and the ROU asset is amortized over the lease term. Some leasing arrangements require variable payments that are dependent upon usage or output, or may vary for other reasons, such as insurance or tax payments. Variable lease payments are recognized as incurred and are not presented as part of the ROU asset or lease liability. See Notes 2 and 12 for additional information.
Business Combinations. The Company accounts for business acquisitions by establishing the acquisition-date fair value as the measurement for all assets acquired and liabilities assumed. Certain provisions of U.S. GAAP prescribe, among other things, the determination of acquisition-date fair value of consideration paid in a business combination (including contingent consideration) and the exclusion of transaction and acquisition-related restructuring costs from acquisition accounting.
On September 24, 2019, the Company completed the acquisition of Finisar Corporation (“Finisar”). The Company’s Consolidated Financial Statements include the operating results of Finisar from the date of acquisition. Refer to Note 3 for further information regarding the Finisar acquisition.
Goodwill. The excess purchase price over the fair value allocated to identifiable tangible and intangible net assets of businesses acquired is reported as goodwill in the accompanying Consolidated Balance Sheets. The Company tests goodwill for impairment at least annually as of April 1, or when events or changes in circumstances indicate that goodwill might be impaired. The evaluation of impairment involves comparing the current fair value of the Company’s reporting units to the recorded value (including goodwill). The Company uses a discounted cash flow (“DCF”) model and/or a market analysis to determine the fair value of its reporting units. A number of assumptions and estimates are involved in estimating the forecasted cash flows used in the DCF model, including markets and market shares, sales volume and pricing, costs to produce, working capital changes and income tax rates. Management considers historical experience and all available information at the time the fair values of the reporting units are estimated. Goodwill impairment is measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
The Company has the option to perform a qualitative assessment of goodwill prior to completing the quantitative assessment described above to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill and other intangible assets. If the Company concludes that this is the case, it must perform the quantitative assessment. Otherwise, the Company will forego the quantitative assessment and does not need to perform any further testing. As of April 1 of fiscal years 2020 and 2019, the Company completed its annual impairment tests of its reporting units using the quantitative assessment. Based on the results of these analyses the Company’s goodwill was not impaired.
Intangibles. Intangible assets are initially recorded at their cost or fair value upon acquisition. Finite-lived intangible assets are amortized for financial reporting purposes using the straight-line method over the estimated useful lives of the assets ranging from 3 to 20 years. Indefinite-lived intangible assets are not amortized but tested annually for impairment at April 1, or when events or changes in circumstances indicate that indefinite-lived intangible assets might be impaired.
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Investments in Other Entities. In the normal course of business, the Company enters into various types of investment arrangements, each having unique terms and conditions. These investments may include equity interests held by the Company in business entities, including general or limited partnerships, contractual ventures, or other forms of equity participation. The Company determines whether such investments involve a variable interest entity (“VIE”) based on the characteristics of the subject entity. If the entity is determined to be a VIE, then management determines if the Company is the primary beneficiary of the entity and whether or not consolidation of the VIE is required. The primary beneficiary consolidating the VIE must normally have both (i) the power to direct the activities of a VIE that most significantly affect the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE, in either case that could potentially be significant to the VIE. When the Company is deemed to be the primary beneficiary, the VIE is consolidated and the other party’s equity interest in the VIE is accounted for as a noncontrolling interest.
The Company generally accounts for investments it makes in VIEs in which it has determined that it does not have a controlling financial interest but has significant influence over and holds at least a 20% ownership interest using the equity method. Any such investment not meeting the parameters to be accounted under the equity method would be accounted for under ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.
If an entity fails to meet the characteristics of a VIE, management then evaluates such entity under the voting model. Under the voting model, management consolidates the entity if they determine that the Company, directly or indirectly, has greater than 50% of the voting shares and determines that other equity holders do not have substantive participating rights.

Commitments and Contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. Such accruals are adjusted as further information develops or circumstances change. Our customers may discover defects in our products after the products have been fully deployed and operated under peak stress conditions. If we are unable to correct defects or other problems, we could experience, among other things, loss of customers, increased costs of product returns and warranty expenses, damage to our brand reputation, failure to attract new customers or achieve market acceptance, diversion of development and engineering resources, or legal action by our customers. The Company had no material loss contingency liabilities at June 30, 2020 related to commitments and contingencies.

Income Taxes. Deferred income tax assets and liabilities are determined based on the differences between the Consolidated Financial Statements and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount more likely than not to be realized. The Company’s accounting policy is to apply acquired deferred tax liabilities to pre-existing deferred tax assets before evaluating the need for a valuation allowance for acquired deferred tax assets.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The amount of unrecognized tax benefits is adjusted for changes in facts and circumstances. For example, adjustments could result from significant amendments to existing tax law and the issuance of regulations or interpretations by the taxing authorities, new information obtained during a tax examination, or resolution of an examination. The Company believes that its estimates for uncertain tax positions are appropriate and sufficient to pay assessments that may result from examinations of its tax returns. The Company recognizes both accrued interest and penalties related to unrecognized tax benefits in income tax expense.
Revenue Recognition. Revenue is recognized under Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606), when or as obligations under the terms of a contract with the Company’s customer have been satisfied and control has transferred to the customer. The Company has elected the practical expedient to exclude all taxes from the measurement of the transaction price.
For contracts with commercial customers, which comprise the majority of the Company’s performance obligations, ownership of the goods and associated revenue are transferred to customers at a point in time, generally upon shipment of a product (“Direct Ship Parts”) to the customer or receipt of the product by the customer and without significant judgments. The majority of contracts typically require payment within 30 to 90 days after transfer of ownership to the customer.
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Contracts with the U.S. government through its prime contractors are typically for products or services with no alternative future use to the Company with an enforceable right to payment for performance completed to date, whereas commercial contracts typically have alternative use. Customized products with no alternative future use to the Company with an enforceable right to payment for performance completed to date are recorded over time utilizing the output method of units delivered. The Company considers this to be a faithful depiction of the transfer to the customer of revenue over time due to short cycle time and immaterial work-in-process balances. The majority of contracts typically require payment within 30 to 90 days after transfer of ownership to the customer.
Service revenue includes repairs, non-recurring engineering, tolling arrangements and installation. Repairs, tolling and installation activities are usually completed in a short period of time (normally less than one month) and therefore recorded at a point in time when the services are completed. Non-recurring engineering arrangements are typically recognized over time under the time and material practical expedient, as the entity has a right to consideration from a customer, in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date. The majority of contracts typically require payment within 90 days.
The Company's revenue recognition policy is consistently applied across the Company's segments, product lines, and geographical locations. For the periods covered herein, the Company measures revenue based on the amount of consideration it expects to be entitled to in exchange for products, reduced by the amount of variable consideration related to products expected to be returned. The Company determines variable consideration, which primarily consists of product returns and distributor sales price reductions resulting from price protection agreements, by estimating the impact of such reductions based on historical analysis of such activity.
Under ASC 606, the Company expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general and administrative expenses. The Company has elected to recognize the costs for freight and shipping when control over products has transferred to the customer as an expense in cost of goods sold.
The Company monitors and tracks the amount of product returns and reduces revenue at the time of shipment for the estimated amount of future returns, based on historical experience.
The Company offers an assurance-type limited warranty that products will be free from defects in materials and workmanship. The Company establishes an accrual for estimated warranty expenses at the time revenue is recognized. The warranty is typically one year, although can be longer periods for certain products, and is limited to either (1) the replacement or repair of the product or (2) a credit against future purchases.
Research and Development. Internal research and development costs are expensed as incurred.
Share-Based Compensation.  Share-based compensation arrangements require the recognition in net earnings (loss) of the grant date fair value of stock compensation (for equity-classified awards). The Company recognizes the share-based compensation expense over the requisite service period of the individual grantees, which generally equals the vesting period.
Accumulated Other Comprehensive Loss. Accumulated other comprehensive loss is a measure of all changes in shareholders’ equity that result from transactions and other economic events in the period other than transactions with owners. Accumulated other comprehensive loss is a component of shareholders’ equity and consists of accumulated foreign currency translation adjustments, changes in the fair value of interest rate swap derivative instruments, and pension adjustments.
Fair Value Measurements. The Company applies fair value accounting for all financial assets and liabilities that are required to be recognized or disclosed at fair value in the Consolidated Financial Statements. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, the Company considers the principal or most advantageous market in which the Company would transact, and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.
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Note 2.  Recently Issued Financial Accounting Standards
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842). This ASU modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. The Company adopted this standard on July 1, 2019, and has elected to utilize the optional transition method. See Note 12.
Derivatives and Hedging

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), which more closely aligns an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The Company adopted this standard on July 1, 2019. The adoption of this standard did not have a material effect on the Consolidated Financial Statements.
Pronouncements Currently Under Evaluation
In July 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which among other things, requires the measurement of all expected credit losses of financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward looking information to better inform their credit loss estimates. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years. The Company has completed the evaluation of the impact of ASU 2016-13. This pronouncement is not expected to have a material impact to the Consolidated Financial Statements.

In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes (“ASU 2018-16”), which permits the use of the OIS rate based on SOFR as a U.S. benchmark interest rate eligible for hedge accounting purposes. For public business entities that already have adopted the amendments in ASU 2017-12, the amendments in ASU 2018-16 are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted in any interim period upon issuance of this update if an entity already has adopted ASU 2017-12. The Company is in the process of evaluating the impact of the update.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients to ease the potential burden of accounting for the effects of reference rate reform as it pertains to contract modifications of debt and lease contracts and derivative contracts identified in a hedging relationship. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is in the process of evaluating the impact of the pronouncement.

Note 3.  Acquisitions

Finisar Corporation
On September 24, 2019 (the “Closing Date”), the Company completed its acquisition of Finisar, a global technology leader for subsystems and components for fiber optic communications.
Pursuant to the terms of the Agreement and Plan of Merger, dated as of November 8, 2018 (the “Merger Agreement”), Mutation Merger Sub Inc., a wholly owned subsidiary of the Company (“Merger Sub”), merged with and into Finisar (the “Merger”), with Finisar surviving the Merger. Each issued and outstanding share of Finisar’s common stock was automatically
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cancelled and converted into the right to receive the following consideration (collectively, the “Merger Consideration”), at the election of the holder of the share of Finisar’s common stock:
•$26.00 in cash, without interest (the “Cash Consideration”),
•0.5546 of a share of the Company’s common stock (the “Stock Consideration”), or
•a combination of $15.60 in cash, without interest, and 0.2218 of a share of the Company’s common stock (the “Mixed Consideration”).

The per share Cash Consideration and Stock Consideration were subject to adjustment pursuant to the terms of the Merger Agreement such that the aggregate Merger Consideration consisted of approximately 60.0% cash and approximately 40.0% shares of the Company’s common stock (assuming a per share price of the Company’s common stock equal to the closing price as of November 8, 2018, which was $46.88 per share) across all shares of Finisar’s common stock (the “Proration Adjustment”).  Following the Proration Adjustment, the resulting consideration for Cash Consideration was adjusted to $15.94 in cash and 0.2146 shares of the Company’s Common Stock. No adjustment was made to the Stock Consideration and Mixed Consideration.
The total fair value of consideration paid in connection with the acquisition of Finisar consisted of the following (in $000):
Shares Per Share Total Consideration
Cash paid for outstanding shares of Finisar common stock $ 1,879,086 
II-VI common shares issued to Finisar stockholders 26,712,822  $ 36.98  987,707 
Replacement equity awards attributable to pre-combination service 41,710 
$ 2,908,503 

The Company recorded $44.4 million of acquisition related costs in the year ended June 30, 2020, representing professional and other direct acquisition costs. These costs are recorded within selling, general, and administrative expense in our Consolidated Statements of Earnings (Loss).
On the Closing Date, the Company entered into an Amended and Restated Credit Agreement, dated as of September 24, 2019 (the “Credit Agreement”), by and among the Company, Bank of America, N.A., as Administrative Agent, Swing Line Lender and an L/C Issuer, and the other lender parties thereto. Refer to Note 9 for additional information on the credit facility.
From the Closing Date, Finisar contributed $938.4 million of our consolidated revenue for the year ended June 30, 2020. Finisar’s contribution to our consolidated net loss for the year ended June 30, 2020 was a loss of $94.6 million. Finisar's contribution included amortization expense of $47.4 million for the year ended June 30, 2020. Finisar's contribution to our consolidated net loss includes $26.1 million of severance, restructuring, and related expense for the year ended June 30, 2020. Additionally, a $87.7 million fair value adjustment to inventory was expensed through cost of goods sold during the year ended June 30, 2020.
The Company allocated the fair value of the purchase price consideration to the tangible assets, liabilities, and intangible assets acquired, based on estimated fair values. The excess purchase price over those fair values is recorded as goodwill. Our valuation assumptions of acquired assets and assumed liabilities require significant estimates with respect to intangible assets. In determining the fair value of intangible assets acquired, the Company must make assumptions about the future performance of the acquired business, including among other things, the forecasted revenue growth attributable to the asset group and projected operating expenses inclusive of expected synergies, future cost savings, and other benefits expected to be achieved by combining the Company and Finisar. The Company’s intangible assets are comprised of customer relationships, trade names and developed technology. The estimated fair value of the customer relationships, trade names and developed technology are determined using the multi-period excess earnings method and relief from royalty methods. Both methods require forward looking estimates that are discounted to determine the fair value of the intangible asset using a risk-adjusted discount rate that is reflective of the level of risk associated with future estimates associated with the asset group that could be affected by future economic and market conditions. The estimated fair value of the developed technology is also dependent on the selection of the royalty rate used in the valuation method.
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Certain data necessary to complete the purchase price allocation remains preliminary, including, but not limited to, finalization of certain income tax computations and other assumed liabilities. The Company expects to complete the purchase price allocation within 12 months from the Closing Date, at which time the purchase price allocation set forth herein may be revised. Any such revisions or changes may be material. The Company utilized widely accepted income-based, market-based, and cost-based valuation approaches to perform the preliminary purchase price allocation. Income-based valuation approaches included the use of the multi-period excess earnings and relief-from-royalty methods for certain acquired intangible assets.
Our preliminary allocation of the purchase price of Finisar, based on the estimated fair value of the assets acquired and liabilities assumed as of the Closing Date, is as follows (in $000):
Preliminary Purchase Price Allocation
Previously Measurement
Reported Reclassification Period As Adjusted
September 30, 2019 Adjustments
Adjustments (a)
(preliminary)
Cash and cash equivalents $ 842,764  $ (287) $ —  $ 842,477 
Accounts receivable 260,864  —  (1,523) 259,341 
Inventories 437,867  —  1,841  439,708 
Property, plant & equipment (b)
748,858  —  (91,145) 657,713 
Intangible assets (c)
827,689  —  (162,489) 665,200 
Other assets (d) (h)
82,624  287  (6,443) 76,468 
Deferred tax assets (e)
—  —  16,267  16,267 
Accounts payable (123,707) —  —  (123,707)
Other accrued liabilities (d) (f) (h)
(148,425) (43,964) (9,727) (202,116)
Deferred tax liabilities (e)
(197,809) 43,964  86,805  (67,040)
Debt (575,000) —  —  (575,000)
Goodwill 759,239  —  159,953  919,192 
Total Purchase Price (g)
$ 2,914,964  $ —  $ (6,461) $ 2,908,503 
(a) The Company recorded measurement period adjustments to its preliminary acquisition date fair values due to the refinement of its valuation models, assumptions and inputs. The following measurement period adjustments were based upon information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the measurement of the amounts recognized at that date.

(b) The Company estimated the fair value of the property, plant, and equipment acquired as part of the Finisar acquisition to be $657.7 million. Upon finalization of the valuation, the fair value of the property, plant, and equipment was decreased by $91.1 million as of June 30, 2020 with a corresponding increase to goodwill.

(c) The Company estimated the fair value of the intangible assets acquired as part of the Finisar acquisition to be $665.2 million. Upon finalization of the valuation, the fair value of the intangible assets was decreased by $162.5 million as of June 30, 2020 with a corresponding increase to goodwill.

(d) The Company reassessed the lease term and discount rates on the right of use assets acquired as part of the Finisar acquisition. As a result, the preliminary fair value of the right of use assets acquired were decreased by $16.0 million during the measurement period with a corresponding decrease in the lease liability.

(e) The Company has adjusted its deferred tax asset and liability positions as of June 30, 2020, to $16.3 million and $67.0 million respectively, as a result of measurement period adjustments.

(f) In addition to the $16.0 million reduction of lease liabilities described in (d) above, the Company recorded approximately $11.5 million of uncertain tax positions, approximately $13.4 million of warranty reserve liabilities, and approximately $5.5 million of increases in other liabilities, as measurement period adjustments.

(g) Total purchase price decreased $6.5 million for the deferred tax impact of the purchase price component associated with replacement equity awards attributable to pre-combination service of Finisar employees.
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(h) Other assets and other accrued liabilities increased $6.8 million for a litigation matter and related insurance recovery.
As of June 30, 2020, the goodwill has been recorded within the Photonic Solutions reporting unit. As of June 30, 2020, the other intangible assets have been recorded within the Photonic Solutions and Compound Semiconductors segments. The preliminary goodwill of $919.2 million arising from the acquisition is attributed to the expected synergies, including future cost savings, and other benefits expected to be generated by combining II-VI and Finisar. Substantially all of the goodwill recognized is not expected to be deductible for tax purposes. See Note 8 for additional information on goodwill and intangibles.
Supplemental Pro Forma Information (Unaudited)
The supplemental pro forma financial information presented below is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the acquisition had been completed on the date indicated, does not reflect synergies that might have been achieved, and is not indicative of future operating results or financial position.  The pro forma adjustments are based upon currently available information and certain assumptions that we believe are reasonable under the circumstances.
The following unaudited supplemental pro forma information presents the combined results of operations for the years ended June 30, 2020 and 2019 as if Finisar had been acquired as of July 1, 2018.  The supplemental pro forma information includes adjustments to amortization and depreciation for acquired intangible assets, property, plant and equipment, adjustments to share-based compensation expense, fair value adjustments on the inventories acquired, transaction costs, and interest expense and amortization of debt issuance costs related to the Senior Credit Facilities as defined in Note 9.
The unaudited supplemental pro forma financial information for the period presented is as follows (in $000):
Year Ended June 30, 2020 Year Ended June 30, 2019
Revenue $ 2,638,278  $ 2,625,714 
Net Earnings (Loss) $ 12,902  $ (138,452)

Note 4.  Other Investments
Purchase of Equity Investment
The Company holds an equity investment in a privately-held company (“Equity Investment”), which it acquired for $51.5 million. The Company’s pro-rata share of earnings from this investment was $1.1 million and $1.3 million for the years ended June 30, 2020 and 2019, respectively, and was recorded in other expense (income), net in the Consolidated Statements of Earnings (Loss).
This investment is accounted for under the equity method of accounting. The following table summarizes the Company's equity in this nonconsolidated investment:
Location Interest Type Ownership % as of June 30, 2020 Equity as of June 30, 2020 ($000)
USA Equity Investment 93.8% $ 58,751 

The Equity Investment has been determined to be a variable interest entity because the Company has an overall 93.8% economic position in the investee, comprising a significant portion of its capitalization, but has only a 25% voting interest. The Company’s obligation to receive rewards and absorb expected losses is disproportionate to its voting interest. The Company is not the primary beneficiary because it does not have the power to direct the activities of the equity investment that most significantly impact its economic performance. Certain business decisions, including decisions with respect to operating budgets, material capital expenditures, indebtedness, significant acquisitions or dispositions, and strategic decisions, require the approval of owners holding a majority percentage in the Equity Investment. Beginning on the date it was acquired, the Company accounted for its interest as an equity method investment as the Company has the ability to exercise significant influence over operating and financial policies of the Equity Investment.
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As of June 30, 2020, the Company’s maximum financial statement exposure related to the Equity Investment was approximately $58.8 million, which is included in Investments on the Consolidated Balance Sheet as of June 30, 2020.
In August 2020, the Company agreed to purchase the remaining 6.2% ownership from the minority holders.

Note 5.  Revenue from Contracts with Customers
The following table summarizes disaggregated revenue by market and product for the year ended June 30, 2020 ($000):
Year Ended June 30, 2020
Photonic Solutions Compound Semiconductors Unallocated & Other Total
Commercial
Direct Ship Parts $ 1,524,799  $ 607,318  $ 22,051  $ 2,154,168 
Services 11,991  36,224  —  48,215 
U.S. Government
Direct Ship Parts —  158,790  —  158,790 
Services —  18,898  —  18,898 
Total Revenues $ 1,536,790  $ 821,230  $ 22,051  $ 2,380,071 

The following table summarizes disaggregated revenue by market and product for the year ended June 30, 2019 ($000):
Year Ended June 30, 2019
Photonic Solutions Compound Semiconductors Unallocated & Other Total
Commercial
Direct Ship Parts $ 631,407  $ 563,102  $ —  $ 1,194,509 
Services 7,482  14,164  —  21,646 
U.S. Government
Direct Ship Parts —  130,313  —  130,313 
Services —  16,028  —  16,028 
Total Revenues $ 638,889  $ 723,607  $ —  $ 1,362,496 
Contracts with the U.S. government disclosed above are through the U.S. Government's prime contractors.
Contract Liabilities

Payments received from customers are based on invoices or billing schedules as established in contracts with customers. Contract liabilities relate to billings in advance of performance under the contract. Contract liabilities are recognized as revenue when the performance obligation has been performed. During the year ended June 30, 2020, the Company recognized revenue of $9.4 million related to customer payments that were included in the consolidated balance sheet as of July 1, 2019. As of June 30, 2020, the Company had $38.7 million of contract liabilities recorded in the consolidated balance sheet.

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Note 6.  Inventories
The components of inventories were as follows:
June 30, 2020 2019
($000)
Raw materials $ 190,237  $ 119,917 
Work in progress 298,577  101,091 
Finished goods 130,996  75,274 
Total Inventories $ 619,810  $ 296,282 


Note 7.  Property, Plant & Equipment
Property, plant & equipment consists of the following:
June 30, 2020 2019
($000)
Land and land improvements $ 18,396  $ 9,001 
Buildings and improvements 345,736  249,238 
Machinery and equipment 1,352,835  739,330 
Construction in progress 111,394  71,425 
Finance lease right-of-use asset 25,000  — 
1,853,361  1,068,994 
Less accumulated depreciation (638,589) (486,204)
Property, plant, and equipment, net $ 1,214,772  $ 582,790 
Included in the table above is a building acquired under a finance lease. As of June 30, 2020 and June 30, 2019, the accumulated depreciation of the finance lease right-of-use asset was $5.8 million and $4.2 million, respectively.

Note 8.  Goodwill and Other Intangible Assets
Effective July 1, 2019, the Company realigned its organizational structure into two reporting segments for the purpose of
making operational decisions and assessing financial performance: (i) Compound Semiconductors and (ii) Photonic Solutions.
All applicable information has been restated to reflect this change. See Note 14 for further information regarding this segment realignment.
Goodwill represents the excess of the cost over the net tangible and identifiable intangible assets of acquired businesses. Identifiable intangible assets acquired in business combinations are recorded based upon fair value at the date of acquisition.
Changes in the carrying amount of goodwill were as follows ($000):
Year Ended June 30, 2020
Photonic Solutions Compound Semiconductors Total
Balance-beginning of period $ 134,057  $ 185,721  $ 319,778 
Goodwill acquired 919,192  —  919,192 
Foreign currency translation (755) 794  39 
Balance-end of period $ 1,052,494  $ 186,515  $ 1,239,009 

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Year Ended June 30, 2019
Photonic Solutions Compound Semiconductors Total
Balance-beginning of period $ 109,670  $ 161,008  $ 270,678 
Goodwill acquired 26,069  25,569  51,638 
Foreign currency translation (1,682) (856) (2,538)
Balance-end of period $ 134,057  $ 185,721  $ 319,778 

The gross carrying amount and accumulated amortization of the Company’s intangible assets other than goodwill as of June 30, 2020 and 2019 were as follows ($000):

June 30, 2020 June 30, 2019
Gross
Carrying
Amount 		Accumulated
Amortization 		Net
Book
Value 		Gross
Carrying
Amount 		Accumulated
Amortization 		Net
Book
Value
Technology $ 444,315  $ (68,048) $ 376,267  $ 91,637  $ (39,679) $ 51,958 
Trade Names 22,369  (3,669) 18,700  15,759  (1,601) 14,158 
Customer Lists 456,223  (92,822) 363,401  132,872  (59,664) 73,208 
Other 1,570  (1,570) —  1,572  (1,572) — 
Total $ 924,477  $ (166,109) $ 758,368  $ 241,840  $ (102,516) $ 139,324 

Amortization expense recorded on the intangible assets for the fiscal years ended June 30, 2020, 2019 and 2018 was $64.2 million, $16.6 million, and $14.6 million, respectively. The technology intangible assets are being amortized over a range of 60 to 240 months with a weighted-average remaining life of approximately 133 months. The customer lists are being amortized over 60 to 240 months with a weighted-average remaining life of approximately 134 months.

In conjunction with the acquisition of Finisar, the Company recorded the following intangible assets ($000):
Gross Carrying Amount Weighted Average Assigned Useful Life (Years)
Technology $ 334,700  12.5
Trade Names 6,700  3.0
Customer Lists 323,800  10.2
$ 665,200 
In connection with past acquisitions, the Company acquired trade names with indefinite lives. The carrying amount of these trade names of $14.3 million as of June 30, 2020 is not amortized but tested annually for impairment. The Company completed its impairment test of these trade names with indefinite lives in the fourth quarter of fiscal years 2020 and 2019. Based on the results of these tests, the trade names were not impaired.
The estimated amortization expense for existing intangible assets for each of the five succeeding years is as follows ($000):
Year Ending June 30,
2021 $ 77,011 
2022 74,252 
2023 73,380 
2024 64,394 
2025 62,334 

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Note 9.  Debt
The components of debt for the periods indicated were as follows ($000):

June 30, 2020 June 30, 2019
Term A Facility, interest at LIBOR, as defined, plus 2.00%
$ 1,194,463  $ — 
Revolving Credit Facility, interest at LIBOR, as defined, plus 2.00%
74,000  — 
Debt issuance costs, Term A Facility and Revolving Credit Facility (32,174) — 
Term B Facility, interest at LIBOR, as defined, plus 3.50%
714,600  — 
Debt issuance costs, Term B Facility (24,747) — 
0.50% convertible senior notes, assumed in the Finisar acquisition
14,888  — 
0.25% convertible senior notes
345,000  345,000 
0.25% convertible senior notes unamortized discount attributable to cash conversion option and debt issuance costs including initial purchaser discount
(30,688) (43,859)
Term loan, interest at LIBOR, as defined, plus 1.75%
—  45,000 
Line of credit, interest at LIBOR, as defined, plus 1.75%
—  115,000 
Credit facility unamortized debt issuance costs —  (761)
Yen denominated line of credit, interest at LIBOR, as defined, plus 1.75%
—  2,783 
Note payable assumed in IPI acquisition —  3,834 
Total debt 2,255,342  466,997 
Current portion of long-term debt (69,250) (23,834)
Long-term debt, less current portion $ 2,186,092  $ 443,163 
The scheduled maturities of principal amounts of debt obligations for the next five years and thereafter is as follows ($000):

Year Ending
June 30,
2021 $ 69,250 
2022 84,138 
2023 414,250 
2024 69,250 
2025 1,027,463 
Thereafter 678,600 
Total $ 2,342,951 

Senior Credit Facilities
On September 24, 2019, in connection with the Finisar acquisition, the Company entered into a Credit Agreement (the "Credit Agreement") with Bank of America, N.A., as Administrative Agent, Swing Line Lender and an L/C Issuer, and the other lenders party thereto.
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The Credit Agreement provides for senior secured financing of $2.425 billion in the aggregate, consisting of
(i)Aggregate principal amount of $1,255 million for a five-year senior secured first-lien term A loan facility (the “Term A Facility”),
(ii)Aggregate principal amount of $720 million for a seven-year senior secured term B loan facility (the “Term B Facility” and together with the Term A Facility, the “Term Loan Facilities”) and
(iii)Aggregate principal amount of $450 million for a five-year senior secured first-lien revolving credit facility (the “Revolving Credit Facility” and together with the Term Loan Facilities, the “Senior Credit Facilities”).
The Credit Agreement also provides for a letter of credit sub-facility not to exceed $25.0 million and a swing loan sub-facility initially not to exceed $20.0 million.
The Company is obligated to repay the outstanding principal amount of the Term A Facility in quarterly installments equal to 1.25% of the initial aggregate principal amount of the Term A Facility, with the remaining outstanding balance due and payable on the fifth anniversary of the Closing Date. Similarly, the Company is obligated to repay the outstanding principal amount of the Term B Facility in quarterly installments equal to 0.25% of the initial aggregate principal amount of the Term B Facility, with the remaining outstanding balance due and payable on the seventh anniversary of the Closing Date. The Company is obligated to repay the aggregate principal amount of all outstanding revolving loans made under the Revolving Credit Facility on the fifth anniversary of the Closing Date.
The Company’s obligations under the Senior Credit Facilities are guaranteed by each of the Company’s existing or future direct and indirect domestic subsidiaries, including Finisar and its domestic subsidiaries (collectively, the “Guarantors”). Borrowings under the Senior Credit Facilities are collateralized by a first priority lien in substantially all of the assets of the Company and the Guarantors, except that no real property is collateral under the Senior Credit Facilities.
All amounts outstanding under the Senior Credit Facilities will become due and payable 120 days prior to the maturity of the Company’s currently outstanding 0.25% Convertible Senior Notes due 2022 (the “II-VI Notes”) if (i) the II-VI Notes remain outstanding, and (ii) the Company has insufficient cash and borrowing availability to repay the principal amount of the II-VI Notes.
The Company voluntarily may prepay, at any time or from time to time, any amounts outstanding under the Senior Credit Facilities in whole or in part without premium or penalty; except for the Term B Facility, pursuant to which in the event of (a) a repayment made before September 24, 2020, (b) the occurrence of a repricing event, or (c) a change to the lenders, the Company will be subject to a prepayment premium in an amount equal to one percent of: (i) the principal amount of the Term B Facility that is prepaid under an optional or mandatory prepayment due to a repricing event, (ii) the aggregate outstanding principal amount of the Term B Facility resulting from an amendment to the Credit Agreement, and (iii) the principal amount of the Term B Facility that is mandatorily assigned. The Company may be subject to mandatory prepayment of amounts outstanding under the Senior Credit Facilities under certain circumstances, including in connection with certain asset sales or other dispositions of property and debt issuances.
The Company also may be required to prepay amounts under the Term B Facility based on the Company’s excess cash flow (as calculated in accordance with the terms of the Credit Agreement) for the Company’s prior fiscal year beginning with its fiscal year ending June 30, 2020 and the Company’s consolidated secured net leverage ratio (as calculated in accordance with the terms of the Credit Agreement) as of the end of such fiscal year.
Amounts outstanding under the Senior Credit Facilities will bear interest at a rate per annum equal to an applicable margin over a eurocurrency rate or an applicable margin over a base rate determined by reference to the highest of (a) the federal funds rate plus 0.50%, (b) Bank of America, N.A.’s prime rate and (c) a eurocurrency rate plus 1.00%, in each case as calculated in accordance with the terms of the Credit Agreement. The applicable interest rate would increase under certain circumstances relating to events of default.  The Company has entered into an interest rate swap contract to hedge its exposure to interest rate risk on its variable rate borrowings under the Senior Credit Facilities.  Refer to Note 15 for further information regarding this interest rate swap.
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The Credit Agreement contains customary affirmative and negative covenants with respect to the Senior Credit Facilities, including limitations with respect to liens, investments, indebtedness, dividends, mergers and acquisitions, dispositions of assets and transactions with affiliates. The Company will be obligated to maintain a consolidated interest coverage ratio (as calculated in accordance with the terms of the Credit Agreement) as of the end of each fiscal quarter of not less than 3.00:1.00. The Company will be obligated to maintain a consolidated total net leverage ratio (as calculated in accordance with the terms of the Credit Agreement) of not greater than (i) 5.00 to 1.00 for the first four fiscal quarters after the Closing Date, commencing with the first full fiscal quarter after the Closing Date, (ii) 4.50 to 1.00 for the fifth fiscal quarter through and including the eighth fiscal quarter after the Closing Date, and (iii) 4.00 to 1.00 for each subsequent fiscal quarter. As of June 30, 2020, the Company was in compliance with all financial covenants under the Credit Agreement.
The Company incurred $69.8 million of debt issuance costs in connection with the Senior Credit Facilities. The Company evaluated these costs to determine appropriate recognition of expense under Accounting Standards Codification 470, Debt, to account for debt modification and extinguishment. As a result of the Company’s assessment, $65.8 million have been capitalized in the Consolidated Balance Sheet. Debt extinguishment costs of $4.0 million were expensed in other expense (income), net in the Consolidated Statements of Earnings (Loss) during the year ended June 30, 2020.  The Company expensed $8.8 million of capitalized debt issuance costs during the year ended June 30, 2020, in interest expense in the Consolidated Statements of Earnings (Loss). The capitalized costs are being amortized to interest expense using the effective interest rate method from the issuance date of September 24, 2019, through the end of each facility. The unamortized discount amounted to $56.9 million as of June 30, 2020 and is being amortized over five and seven years, for the Term A Facility and Revolving Credit Facility, and the Term B Facility, respectively.
On June 30, 2020, the Company announced its intention to offer, in concurrent underwritten public offerings, newly issued shares of its common stock and newly issued shares of its Series A Mandatory Convertible Preferred Stock. On July 7, 2020, the Company used the proceeds from the public offerings to pay off the remaining balance of $715 million of the Term B Loan Facility. See Note 21 for further details.
0.50% Finisar Convertible Notes
Finisar’s outstanding 0.50% Convertible Senior Notes due 2036 (the “Finisar Notes”) may be redeemed at any time on or after December 22, 2021 in whole or in part at the option of the Company at a redemption price equal to one hundred percent (100%) of the principal amount of such Finisar Notes plus accrued and unpaid interest. Each holder of Finisar Notes also may require Finisar to repurchase all or any portion of such holder’s outstanding Finisar Notes for cash on December 15, 2021, December 15, 2026 and December 15, 2031 at a repurchase price equal to one hundred percent (100)% of the principal amount of such Finisar Notes plus accrued and unpaid interest. The Finisar Notes will mature on December 15, 2036. Interest on the Finisar Notes accrues at 0.50% per annum, paid semi-annually, in arrears, on June 15 and December 15 of each year.
In connection with the acquisition of Finisar, the Company, Finisar and the trustee entered into a First Supplemental Indenture, dated as of September 24, 2019 (the “First Supplemental Indenture”). The First Supplemental Indenture supplements the base indenture (as supplemented, the “Finisar Indenture”), which governs the Finisar Notes. Pursuant to the terms of the First Supplemental Indenture, the Company has fully and unconditionally guaranteed, on a senior unsecured basis, the due and punctual payment and performance of all obligations of Finisar to the holders of the Finisar Notes. The First Supplemental Indenture also provides that the right of holders of Finisar Notes to convert Finisar Notes into cash and/or shares of Finisar’s common stock, is changed to a right to convert Finisar Notes into cash and/or shares of the Company’s common stock, subject to the terms of the Finisar Indenture.
Under the terms of the Finisar Indenture, the consummation and effectiveness of the Merger on the Closing Date constituted a Fundamental Change (as defined in the Finisar Indenture) and a Make-Whole Fundamental Change (as defined in the Finisar Indenture). Accordingly, in accordance with the terms of the Finisar Indenture, each holder of Finisar Notes had the right to (i) convert its Finisar Notes into cash and/or shares of Company Common Stock, at Finisar’s option, or (ii) require that Finisar repurchase such holder’s Finisar Notes for an amount in cash equal to one hundred percent (100)% of the principal amount of such Finisar Notes plus accrued and unpaid interest.
Holders of approximately $560.1 million in aggregate principal amount of Finisar Notes exercised the repurchase right. The Company repurchased those Finisar Notes on October 23, 2019 for an aggregate consideration of approximately $561.1 million in cash, including accrued interest. No holders of Finisar Notes exercised the related conversion right. The Company borrowed $561.0 million under a delayed draw on its Term Loan A to fund the payment to the holders of Finisar Notes that exercised the repurchase right. As of June 30, 2020, approximately $14.9 million in aggregate principal amount of Finisar Notes remain outstanding.
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0.25% Convertible Senior Notes
In August 2017, the Company issued and sold $345 million aggregate principal amount of the II-VI Notes in a private placement to qualified institutional buyers within the meaning of Rule 144A under the Securities Act of 1933, as amended.
As a result of our cash conversion option, the Company separately accounted for the value of the embedded conversion option as a debt discount. The value of the embedded conversion option was determined based on the estimated fair value of the debt without the conversion feature, which was determined using an expected present value technique (income approach) to estimate the fair value of similar nonconvertible debt; the debt discount is being amortized as additional non-cash interest expense over the term of the II-VI Notes using the effective interest method.
The equity component is not remeasured as long as it continues to meet the conditions for equity classification. The initial conversion rate is 21.25 shares of common stock per $1,000 principal amount of II-VI Notes, which is equivalent to an initial conversion price of $47.06 per share of common stock. Throughout the term of the II-VI Notes, the conversion rate may be adjusted upon the occurrence of certain events. The if-converted value of the II-VI Notes amounted to $346.2 million as of June 30, 2020 and $268.0 million as of June 30, 2019 (based on the Company’s closing stock price on the last trading day of the fiscal periods then ended). The Notes mature on September 1, 2022, unless earlier repurchased by the Company or converted by holders in accordance with the terms of the Notes. As of June 30, 2020, the II-VI Notes are not yet convertible based upon the II-VI Notes’ conversion features.  Holders of the II-VI Notes will not receive any cash payment representing accrued and unpaid interest upon conversion of a II-VI Note. Accrued but unpaid interest will be deemed to be paid in full upon conversion rather than cancelled, extinguished or forfeited.
The following table sets forth total interest expense recognized related to the II-VI Notes for the years ended June 30, 2020, 2019 and 2018:
Year Ended
June 30, 2020 		Year Ended
June 30, 2019 		Year Ended
June 30, 2018
0.25% contractual coupon
$ 876  $ 874  $ 731 
Amortization of debt discount and debt issuance costs including initial purchaser discount 13,172  12,550  10,058 
Interest expense $ 14,048  $ 13,424  $ 10,789 

The effective interest rate on the liability component for the periods presented was 4.5%. The unamortized discount amounted to $26.8 million as of June 30, 2020, and is being amortized over 3 years.
Aggregate Availability
The Company had aggregate availability of $374.6 million under its line of credit as of June 30, 2020.
Weighted Average Interest Rate
The weighted average interest rate of total borrowings was 3.4% and 1.6% for the years ended June 30, 2020 and 2019, respectively.

Note 10.  Income Taxes

The components of earnings (loss) before income taxes were as follows:
Year Ended June 30, 2020 2019 2018
($000)
U.S. loss $ (302,027) $ (34,241) $ (15,207)
Non-U.S. income 238,099  163,054  137,401 
Earnings (loss) before income taxes $ (63,928) $ 128,813  $ 122,194 
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The components of income tax expense were as follows:
Year Ended June 30, 2020 2019 2018
($000)
Current:
Federal $ 7  $ 1,755  $ 699 
State 496  472  401 
Foreign 45,052  29,531  32,147 
Total Current $ 45,555  $ 31,758  $ 33,247 
Deferred:
Federal $ (43,955) $ (3,764) $ (3,064)
State 1,007  (2,010) 1,615 
Foreign 494  (4,688) 2,394 
Total Deferred $ (42,454) $ (10,462) $ 945 
Total Income Tax Expense $ 3,101  $ 21,296  $ 34,192 

Principal items comprising deferred income taxes were as follows:
June 30, 2020 2019
($000)
Deferred income tax assets
Inventory capitalization $ 19,372  $ 5,687 
Interest rate swap 9,847  — 
Non-deductible accruals 9,325  1,251 
Accrued employee benefits 11,095  9,797 
Net-operating loss and credit carryforwards 182,625  54,192 
Share-based compensation expense 8,110  7,192 
Other 9,736  5,488 
Right of use asset 31,573  — 
Valuation allowances (54,559) (16,558)
Total deferred income tax assets $ 227,124  $ 67,049 
Deferred income tax liabilities
Tax over book accumulated depreciation $ (25,926) $ (28,184)
Intangible assets (160,577) (28,202)
Tax on unremitted earnings (21,785) (11,662)
Convertible debt (6,006) (8,662)
Lease liability (29,768) — 
Other (5,676) (5,728)
Total deferred income tax liabilities $ (249,738) $ (82,438)
Net deferred income taxes $ (22,614) $ (15,389)

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The reconciliation of income tax expense at the statutory U.S. federal rate to the reported income tax expense is as follows:
Year Ended June 30, 2020 % 2019 % 2018 %
($000)          
Taxes at statutory rate $ (13,425) 21  $ 27,051  21  $ 34,284  28 
Increase (decrease) in taxes resulting from:
State income taxes-net of federal benefit 1,194  (2) (1,212) (1) 1,426  1 
Taxes on non U.S. earnings (915) 1  (5,857) (5) (16,058) (13)
Valuation allowance (9,365) 15  (6,703) (5) (6,008) (5)
Research and manufacturing incentive deductions and credits (15,836) 25  (11,756) (9) (7,024) (6)
Stock compensation 4,334  (7) (1,914) (1) (4,103) (3)
Repatriation tax —  —  14,108  11  36,777  30 
GILTI and FDII 36,067  (56) 6,437  5  —  — 
Impact of U.S. tax rate change on deferred balances —  —  —  —  (4,209) (3)
Other 1,047  (2) 1,142  1  (893) (1)
  $ 3,101  (5) $ 21,296  17  $ 34,192  28 
U.S. Tax Reform
On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act includes changes to the U.S. statutory federal tax rate and puts into effect the migration from a worldwide system of taxation to a territorial system, among other things.  As of December 31, 2018, the Company completed its analysis of the impact of the Tax Act in accordance with U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118 (“SAB 118”) and the amounts are no longer considered provisional.  The Company’s transition tax increased due to finalization of calculations and consideration of Notices and regulations issued by the US Department of Treasury and the Internal Revenue Service; however, the increase is offset by available net operating loss and credit carryforwards which currently have a valuation allowance.  Consequently, the tax expense reported is reduced by the release of the valuation allowance on the U.S. deferred tax assets, and as result, there was no material financial statement impact due to finalization.

The Company previously considered the earnings in non-U.S. subsidiaries to be indefinitely reinvested and, accordingly, recorded no deferred income taxes.  As a result of the Act, among other things, the Company determined it will repatriate earnings for all non-U.S. Subsidiaries with cash in excess of working capital needs.  Such distributions could potentially be subject to U.S. state tax in certain states and foreign withholding taxes.  Foreign currency gains/losses related to the translation of previously taxed earnings from functional currency to U.S. dollars could also be subject to U.S. tax when distributed.  The Company has estimated the associated withholding tax to be $21.8 million.
Furthermore, the Tax Act includes certain changes such as introducing a new category of income, referred to as global intangible low tax income (“GILTI”), related to earnings taxed at a low rate of foreign entities without a significant fixed asset base, and imposes additional limitations on the deductibility of interest and officer compensation. The Company made a final accounting policy election to treat taxes due from future inclusions in U.S. taxable income related to GILTI as a current period expense when incurred.  These changes are included in the Company’s 2020 fiscal year income tax expense.

During the fiscal years ended June 30, 2020, 2019, and 2018, net cash paid by the Company for income taxes was $39.5 million, $26.3 million, and $21.3 million, respectively.
Our foreign subsidiaries in various tax jurisdictions operate under tax holiday arrangements.  The impact of the tax holidays on our effective rate is a reduction in the rate of (8.91)%, 0.25% and 0.17% for the fiscal years ended June 30, 2020, 2019 and 2018, respectively, and the impact of the tax holidays on diluted earnings per share is immaterial.
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The Company has the following gross operating loss carryforwards and tax credit carryforwards as of June 30, 2020:

Type Amount Expiration Date
($000)
Tax credit carryforwards:
Federal research and development credits $ 71,694  June 2021-June 2040
Foreign tax credits 14,354  June 2022-June 2030
State tax credits 14,364  June 2021-June 2035
State tax credits (indefinite) 40,316  Indefinite
Operating loss carryforwards:
Loss carryforwards - federal $ 166,643  June 2021-June 2036
Loss carryforwards - state 110,587  June 2021-June 2039
Loss carryforwards - foreign 10,683  June 2021-June 2040
Loss carryforwards - foreign (indefinite) 36,806  Indefinite

The Company has recorded a valuation allowance against the majority of the loss and credit carryforwards. The Company’s U.S. federal loss carryforwards, federal research and development credit carryforwards, and certain state tax credits resulting from the Company’s acquisitions are subject to various annual limitations under Section 382 of the U.S. Internal Revenue Code.
Changes in the liability for unrecognized tax benefits for the fiscal years ended June 30, 2020, 2019 and 2018 were as follows:

2020 2019 2018
($000)
Beginning balance $ 11,520  $ 9,892  $ 7,577 
Increases in current year tax positions 1,506  191  2,536 
Increases in prior year tax positions —  376  224 
Decreases in prior year tax positions —  —  (9)
Acquired business 31,791  6,036  — 
Expiration of statute of limitations (2,014) (4,975) (436)
Ending balance $ 42,803  $ 11,520  $ 9,892 

The Company classifies all estimated and actual interest and penalties as income tax expense. During fiscal years 2020, 2019 and 2018, there was $0.6 million, $(0.1) million and $0.3 million of interest and penalties within income tax expense, respectively. The Company had $3.8 million, $1.2 million and $0.6 million of interest and penalties accrued at June 30, 2020, 2019 and 2018, respectively. The Company has classified the uncertain tax positions as non-current income tax liabilities, as the amounts are not expected to be paid within one year, except for $7.4 million which is expected to be paid within a year. Including tax positions for which the Company determined that the tax position would not meet the more likely than not recognition threshold upon examination by the tax authorities based upon the technical merits of the position, the total estimated unrecognized tax benefit that, if recognized, would affect our effective tax rate, was approximately $24.3 million, $6.2 million and $1.6 million at June 30, 2020, 2019 and 2018, respectively. The Company expects a decrease of $4.9 million of unrecognized tax benefits during the next 12 months due to the expiration of statutes of limitation.
Fiscal years 2017 to 2020 remain open to examination by the Internal Revenue Service, fiscal years 2015 to 2020 remain open to examination by certain state jurisdictions, and fiscal years 2009 to 2019 remain open to examination by certain foreign taxing jurisdictions. The Company is currently under examination for the certain subsidiary companies in Australia for the years ended April 30, 2010 through April 30, 2014; India for the year ended March 31, 2016; Philippines for the year ended June 30, 2018; Germany for the years ended June 30, 2012 through June 30, 2015; and Vietnam for the years June 30, 2015 through June 30, 2016. The Company believes its income tax reserves for these tax matters are adequate.

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Note 11.  Earnings Per Share
The following table sets forth the computation of earnings (loss) per share for the periods indicated. Basic earnings (loss) per share has been computed using the weighted average number of shares of common stock outstanding during the period. Diluted earnings (loss) per share has been computed using the weighted average number of common shares outstanding during the period plus dilutive potential shares of common stock from (1) stock options, performance and restricted shares (under the treasury stock method) and (2) convertible debt (under the If-Converted method) outstanding during the period.

Year Ended June 30, 2020 2019 2018
($000 except per share)
Net earnings (loss) $ (67,029) $ 107,517  $ 88,002 
Divided by:
Weighted average shares 84,828  63,584  62,499 
Basic earnings (loss) per common share $ (0.79) $ 1.69  $ 1.41 
Net earnings (loss) $ (67,029) $ 107,517  $ 88,002 
Divided by:
Weighted average shares 84,828  63,584  62,499 
Dilutive effect of common stock equivalents —  2,220  2,634 
Diluted weighted average common shares 84,828  65,804  65,133 
Diluted earnings (loss) per common share $ (0.79) $ 1.63  $ 1.35 
The following table presents potential shares of common stock excluded from the calculation of diluted net income per share, as their effect would have been antidilutive ($000):

Year Ended June 30, 2020 2019 2018
Stock options and restricted shares 2,345  115  135 
0.25% Convertible Senior Notes due 2022
7,331  7,331  7,331 
0.50% Finisar Convertible Notes
289  —  — 
Total anti-dilutive shares 9,965  7,446  7,466 

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Note 12.  Leases
On July 1, 2019, the Company adopted Topic 842 using the modified retrospective transition approach. The reported results for the year ended June 30, 2020 reflect the application of Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under Topic 840.
The Company elected the practical expedient package permitted under the transition approach. As such, the Company did not reassess whether any expired or existing contracts are or contain leases, did not reassess historical lease classification, and did not reassess initial direct costs for any leases that existed prior to July 1, 2019.
As of the date of adoption, the Company recognized operating lease assets and liabilities of approximately $80.1 million on the Consolidated Balance Sheet. In addition, we acquired approximately $29 million of operating lease assets and liabilities through the acquisition of Finisar.
All existing leases that were classified as capital leases under Topic 840 are classified as finance leases under Topic 842. As of the date of adoption, the Company recognized finance lease assets of $25 million in property, plant and equipment, net, with corresponding finance lease liabilities of $24 million on the Consolidated Balance Sheet.
We determine if an arrangement is a lease at inception and classify it as either finance or operating.
Finance leases are generally those that allow us to substantially utilize or pay for the entire asset over its estimated useful life. Finance leases are recorded in property, plant and equipment, net, and finance lease liabilities within other current and other non-current liabilities on our Consolidated Balance Sheet. Finance lease assets are amortized in operating expenses on a straight-line basis over the shorter of the estimated useful lives of the assets or the lease term, with the interest component for lease liabilities included in interest expense and recognized using the effective interest method over the lease term.
Operating leases are recorded in other assets and operating lease liabilities, current and non-current on the Company’s Consolidated Balance Sheet. Operating lease assets are amortized on a straight-line basis in operating expenses over the lease term.
The Company’s lease liabilities are recognized based on the present value of the remaining fixed lease payments, over the lease term, using a discount rate of similarly secured borrowings available to the Company. For the purpose of lease liability measurement, we consider only payments that are fixed and determinable at the time of commencement. Any variable payments that depend on an index or rate are expensed as incurred. We account for non-lease components, such as common area maintenance, as a component of the lease, and include it in the initial measurement of our lease assets and corresponding liabilities. The Company’s lease terms and conditions may include options to extend or terminate. An option is recognized when it is reasonably certain that we will exercise that option.
The Company’s lease assets also include any lease payments made and exclude any lease incentives received prior to commencement. Our lease assets are tested for impairment in the same manner as long-lived assets used in operations.









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The following table presents lease costs, which include short-term leases, lease term, and discount rates ($000):
Year Ended
June 30, 2020
Finance Lease Cost
Amortization of right-of-use assets $ 1,667 
Interest on lease liabilities 1,328 
Total finance lease cost 2,995 
Operating lease cost 32,466 
Sublease income 368 
Total lease cost $ 35,093 
Cash Paid for Amounts Included in the Measurement of Lease Liabilities
Operating cash flows from finance leases 1,328 
Operating cash flows from operating leases 30,816 
Financing cash flows from finance leases 1,026 
Assets Obtained in Exchange for Lease Liabilities
Right-of-use assets obtained in Finisar acquisition 29,247 
Right-of-use assets obtained in exchange for new operating lease liabilities 29,458 
Total assets obtained in exchange for new operating lease liabilities 58,705 
Weighted-Average Remaining Lease Term (in Years)
Finance leases 11.5
Operating leases 7.2
Weighted-Average Discount Rate
Finance leases 5.6  %
Operating leases 7.3  %
The following table presents future minimum lease payments, which include short-term leases ($000):
Future Years Operating Leases Finance Leases Total
Year 1 $ 31,100  $ 2,419  $ 33,519 
Year 2 23,964  2,486  26,450 
Year 3 20,621  2,554  23,175 
Year 4 17,906  2,624  20,530 
Year 5 15,381  2,697  18,078 
Thereafter 52,316  19,419  71,735 
Total minimum lease payments $ 161,288  $ 32,199  $ 193,487 
Less: amounts representing interest 41,953  8,752  50,705 
Present value of total lease liabilities $ 119,335  $ 23,447  $ 142,782 

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Note 13.  Share-Based Compensation
The Company’s Board of Directors adopted the II-VI Incorporated 2018 Omnibus Incentive Plan (the “II-VI Plan”), which was approved by the shareholders at the Annual Meeting in November 2018. The Plan provides for the grant of non-qualified stock options, stock appreciation rights, restricted shares, restricted share units, deferred shares, performance shares and performance share units to employees, officers and directors of the Company. The maximum number of shares of the Company’s common stock authorized for issuance under the Plan is limited to 3,550,000 shares of common stock, not including any remaining shares forfeited under the predecessor plans that may be rolled into the Plan. The Plan has vesting provisions predicated upon the death, retirement or disability of the grantee.

Upon consummation of the acquisition, the Company assumed approximately 6.6 million restricted stock units previously granted by Finisar under the Amended and Restated Finisar Corporation 2005 Stock Incentive Plan (each an “Assumed RSU”). Each Assumed RSU is subject to substantially the same terms and conditions as applied to the Assumed RSU immediately prior to the consummation of the acquisition, except that the number of shares of the Company’s common stock subject to each Assumed RSU has been adjusted in accordance with the terms of the Merger Agreement. Other than the Assumed RSUs, the Company did not assume any other awards outstanding under the Amended and Restated Finisar Corporation 2005 Stock Incentive Plan (the “Finisar Plan”). As of the Closing Date, the Company also assumed the unused capacity under the Finisar 2005 Plan.
As of June 30, 2020, there were approximately 3.1 million shares available to be issued under the II-VI Plan and the Finisar Plan collectively, including forfeited shares from predecessor plans.
The Company records share-based compensation expense for these awards, which requires the recognition of the grant-date fair value of share-based compensation in net earnings. The Company recognizes the share-based compensation expense over the requisite service period of the individual grantees, which generally equals the vesting period. The Company accounts for cash-based stock appreciation rights, cash-based restricted share unit awards and cash-based performance share unit awards as liability awards, in accordance with applicable accounting standards.
Share-based compensation expense for the fiscal years ended June 30, 2020, 2019 and 2018 is as follows $000:
Year Ended June 30, 2020 2019 2018
Stock Options and Cash-Based Stock
   Appreciation Rights 		$ 11,893  $ 6,801  $ 6,605 
Restricted Share Awards, Restricted Share
   Units, and Cash-Based Restricted Share Units 		49,957  9,242  7,850 
Performance Share Awards and Cash
   Based Performance Share Unit Awards 		11,977  8,920  5,221 
$ 73,827  $ 24,963  $ 19,676 

Share-based compensation expense associated with liability awards was $5.3 million, $3.0 million, and $4.4 million, in the fiscal years ended June 30, 2020, 2019 and 2018, respectively.
Stock Options and Cash-Based Stock Appreciation Rights:
The Company utilized the Black-Scholes valuation model for estimating the fair value of stock option expense. During the fiscal years ended June 30, 2020, 2019 and 2018, the weighted-average fair value of options granted under the stock option plan was $14.79, $20.66 and $14.23, respectively, per option using the following assumptions:
Year Ended June 30, 2020 2019 2018
Risk-free interest rate 1.50  % 2.80  % 2.00  %
Expected volatility 39  % 37  % 37  %
Expected life of options 6.91 years 6.96 years 6.43 years
Dividend yield None None None

The risk-free interest rate is derived from the average U.S. Treasury Note rate during the period, which approximates the rate in effect at the time of grant related to the expected life of the options. The risk-free interest rate shown above is the weighted average rate for all options granted during the fiscal year. Expected volatility is based on the historical volatility of the
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Company’s common stock over the period commensurate with the expected life of the options. The expected life calculation is based on the observed time to post-vesting exercise and/or forfeitures of options by our employees. The dividend yield of zero is based on the fact that the Company has never paid cash dividends and has no current intention to pay cash dividends in the future. The estimated annualized forfeitures are based on the Company’s historical experience of option pre-vesting cancellations. The Company will record additional expense in future periods if the actual forfeiture rate is lower than estimated, and will adjust expense in future periods if the actual forfeitures are higher than estimated.
Stock option and cash-based stock appreciation rights activity during the fiscal year ended June 30, 2020 was as follows:
Stock Options Cash-Based Stock Appreciation Rights
Number of
Shares 		Weighted Average
Exercise Price 		Number of
Rights 		Weighted Average
Exercise Price
Outstanding - July 1, 2019 3,761,283  $ 23.74  227,496  $ 28.09 
Granted 774,116  $ 34.75  76,651  $ 34.95 
Exercised (774,382) $ 17.39  (65,488) $ 21.25 
Forfeited and Expired (39,216) $ 32.99  (8,285) $ 33.76 
Outstanding - June 30, 2020 3,721,801  $ 26.99  230,374  $ 32.13 
Exercisable - June 30, 2020 2,192,315  $ 21.53  79,459  $ 31.75 

As of June 30, 2020, 2019 and 2018, the aggregate intrinsic value of stock options and cash-based stock appreciation rights outstanding and exercisable was $79.8 million, $56.4 million and $96.1 million, respectively. Aggregate intrinsic value represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the year ended June 30, 2020, and the option’s exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2020. This amount varies based on the fair market value of the Company’s stock. The total intrinsic value of stock options and cash-based stock appreciation rights exercised during the fiscal years ended June 30, 2020, 2019, and 2018 was $20.2 million, $14.7 million, and $14.7 million, respectively. As of June 30, 2020, total unrecognized compensation cost related to non-vested stock options and cash-based stock appreciation rights was $15.4 million. This cost is expected to be recognized over a weighted-average period of approximately three years.

Outstanding and exercisable stock options at June 30, 2020 were as follows:
Stock Options and Cash-Based Stock
Appreciation Rights Outstanding 		Stock Options and Cash-Based Stock
Appreciation Rights Exercisable
Number of Weighted
Average Remaining 		Weighted
Average 		Number of Weighted
Average Remaining 		Weighted
Average
Range of Shares or Contractual Term Exercise Shares or Contractual Term Exercise
Exercise Prices Rights (Years) Price Rights (Years) Price
$13.34 - $17.69
618,493  3.21 $ 15.25  611,301  3.19 $ 15.21 
$17.70 - $19.15
763,173  4.18 $ 18.62  635,346  3.88 $ 18.43 
$19.16 - $26.46
842,141  5.21 $ 21.38  658,659  4.91 $ 20.86 
$26.47 - $36.32
799,316  8.09 $ 33.77  226,693  6.88 $ 34.56 
$36.33 - $49.90
929,052  8.62 $ 42.20  139,775  7.86 $ 47.18 
3,952,175  6.08 $ 27.29  2,271,774  4.54 $ 21.65 
Restricted Share Awards, Restricted Share Units, and Cash-Based Restricted Share Unit Awards:
Restricted share awards, restricted share units, and cash-based restricted share unit awards compensation expense was calculated based on the number of shares or units expected to be earned by the grantee multiplied by the stock price at the date of grant (for restricted share awards) or the stock price at the period end date (for cash-based restricted share unit awards), and is being recognized over the vesting period. Generally, the restricted share awards, restricted share units, and cash-based restricted share unit awards have a three-year tranche vesting provision and an estimated forfeiture rate of 4.6%.
Restricted share, restricted share unit, and cash-based restricted share unit activity during the fiscal year ended June 30, 2020, was as follows:
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Restricted Share Awards Restricted Share Units Cash-Based Restricted Share Units
Number of
Shares 		Weighted Average
Grant Date 
Fair Value 		Number of
Shares 		Weighted Average
Grant Date Fair Value 		Number of
Units 		Weighted Average
Grant Date Fair Value
Nonvested - June 30, 2019 183,429  $ 30.30  175,737  $ 47.13  77,642  $ 37.19 
Assumed in Finisar Acquisition —  $ —  3,652,191  $ 36.98  —  $ — 
Granted —  $ —  250,736  $ 36.35  49,444  $ 34.84 
Vested (130,382) $ 28.03  (1,475,663) $ 37.49  (43,699) $ 32.31 
Forfeited (2,520) $ 35.34  (360,589) $ 36.97  (1,384) $ 40.99 
Nonvested - June 30, 2020 50,527  $ 35.92  2,242,412  $ 39.46  82,003  $ 38.31 

As of June 30, 2020, total unrecognized compensation cost related to non-vested restricted share, restricted share unit, and cash-based restricted share unit awards was $63.2 million. This cost is expected to be recognized over a weighted-average period of approximately two years. The restricted share and restricted share unit compensation expense was calculated based on the number of shares expected to be earned, multiplied by the stock price at the date of grant, and is being recognized over the vesting period. The cash-based restricted share unit compensation expense was calculated based on the number of shares expected to be earned, multiplied by the stock price at the period-end date, and is being recognized over the vesting period. The total fair value of the restricted share, restricted share unit, and cash-based restricted share unit awards granted during the years ended June 30, 2020, 2019 and 2018, was $10.9 million, $9.9 million and $7.5 million, respectively. The total fair value of restricted share, restricted share unit and cash-based restricted share unit awards vested was $75.2 million, $19.9 million and $17.0 million during fiscal years 2020, 2019 and 2018, respectively.
Performance Share Awards and Cash-Based Performance Share Unit Awards:
The Compensation Committee of the Board of Directors of the Company has granted certain executive officers and employees performance share awards and performance share unit awards under the Plan. As of June 30, 2020, the Company had outstanding grants covering performance periods ranging from 12 to 36 months. These awards are intended to provide continuing emphasis on specified financial performance goals that the Company considers important contributors to the creation of long-term shareholder value. These awards are payable only if the Company achieves specified levels of financial performance during the performance periods.
The performance share compensation expense was calculated based on the number of shares expected to be earned, multiplied by the stock price at the date of grant, and is being recognized over the vesting period. The cash-based performance share unit compensation expense was calculated based on the number of shares expected to be earned, multiplied by the stock price at the period-end date, and is being recognized over the vesting period. Performance share and cash-based performance share unit award activity relating to the Plan during the year ended June 30, 2020, was as follows:
  Performance Share Awards Cash-Based Performance Share Units
Number of
Shares 		Weighted Average
Grant Date Fair Value 		Number of
Units 		Weighted Average
Grant Date Fair Value
Nonvested - June 30, 2019 413,651  $ 36.80  24,224  $ 37.47 
Granted 414,464  $ 30.29  30,199  $ 31.79 
Vested (414,582) $ 26.21  (17,200) $ 21.67 
Forfeited (4,287) $ 35.07  (2,035) $ 29.50 
Nonvested - June 30, 2020 409,246  $ 40.96  35,188  $ 38.54 
As of June 30, 2020, total unrecognized compensation cost related to non-vested performance share and cash-based performance share unit awards was $13.0 million. This cost is expected to be recognized over a weighted-average period of approximately one year. The total fair value of the performance share and cash-based performance share unit awards granted
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during the fiscal years ended June 30, 2020, 2019 and 2018 was $15.4 million, $10.0 million and $3.8 million, respectively. The total fair value of performance shares vested during the fiscal years ended June 30, 2020, 2019 and 2018 was $6.2 million, $10.5 million and $3.6 million, respectively.
For our relative Total Shareholder Return (“TSR”) performance-based awards, which are based on market performance of our stock as compared to the Russel 2000 Index, the compensation cost is recognized over the performance period on a straight-line basis net of forfeitures, because the awards vest only at the end of the measurement period and the probability of actual shares expected to be earned is considered in the grant date valuation. As a result, the expense is not adjusted to reflect the actual shares earned. We estimate the fair value of the TSR performance-based awards using the Monte-Carlo simulation model.


Note 14.  Segment and Geographic Reporting
The Company reports its business segments using the “management approach” model for segment reporting. This means that the Company determines its reportable business segments based on the way the chief operating decision maker organizes business segments within the Company for making operating decisions and assessing performance.
Effective July 1, 2019, the Company realigned the composition of its operating segments. The Company combined II-VI Laser Solutions and II-VI Performance Products and renamed the combined segment Compound Semiconductors.  All applicable segment information has been restated to reflect this change. Additionally, the Company changed the name of II-VI Photonics to Photonic Solutions.
The Company reports its financial results in two segments, and the Company’s chief operating decision maker receives and reviews financial information based on these segments.  The Company evaluates business segment performance based upon segment operating income, which is defined as earnings before income taxes, interest and other income or expense.
The Compound Semiconductors segment has locations in the United States, Singapore, China, Germany, Switzerland, Japan, Belgium, the United Kingdom, Italy, South Korea, the Philippines, Vietnam, Sweden, and Taiwan. This segment designs, manufactures and markets: (i) optical and electro-optical components and materials sold under the II-VI Infrared brand name and used primarily in high-power CO2 lasers, fiber-delivered beam delivery systems and processing tools and direct diode lasers for industrial lasers sold under the II-VI HIGHYAG and II-VI Laser Enterprise brand names; (ii) infrared optical components and high-precision optical assemblies for aerospace and defense, medical and commercial laser imaging applications; (iii) semiconductor lasers and detectors for optical interconnects and sensing applications with InP; and (iv) unique engineered materials for thermoelectric and silicon carbide applications servicing the semiconductor, aerospace and defense and medical markets. Compound Semiconductors also manufactures compound semiconductor epitaxial wafers for applications in optical components, wireless devices, and high-speed communication systems and manufactures 6-inch GaAs wafers allowing for the production of high performance lasers and integrated circuits in high volume sold under the II-VI EpiWorks and II-VI OptoElectronic Devices Division brand names.
The Photonic Solutions segment has locations in the United States, China, Vietnam, Germany, Japan, the United Kingdom, Italy, Malaysia, Australia, and Hong Kong. This segment manufactures crystal materials, optics, microchip lasers and optoelectronic modules for use in optical communication networks and other diverse consumer and commercial applications.  In addition, the segment manufactures pump lasers, optical isolators, and optical amplifiers and micro-optics for optical amplifiers, for both terrestrial and submarine applications within the optical communications market.
In September 2019, the Company completed its acquisition of Finisar. See Note 3. The operating results of this acquisition have been reflected in the selected financial information of the Company’s Photonic Solutions segment and Compound Semiconductors Segment beginning on October 1, 2019, with the results from September 24, 2019 to September 30, 2019 reflected in Unallocated and Other.
The accounting policies are consistent across both of the segments. To the extent possible, the Company’s corporate expenses are allocated to the segments. The Company evaluates segment performance based upon reported segment operating income, which is defined as earnings from continuing operations before income taxes, interest and other income or expense. Unallocated and Other include eliminating inter-segment sales and transfers as well as transaction costs related to the pending Finisar acquisition.
The following tables summarize selected financial information of the Company’s operations by segment:
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Photonic Solutions Compound Semiconductors Unallocated
& Other 		Total
($000)
2020
Revenues $ 1,536,790  $ 821,230  $ 22,051  $ 2,380,071 
Inter-segment revenues 31,515  164,884  (196,399) — 
Operating income (loss) 49,930  62,279  (72,730) 39,479 
Interest expense —  —  —  (89,409)
Other income (expense), net —  —  —  (13,998)
Income taxes —  —  —  (3,101)
Net earnings (loss) —  —  —  (67,029)
Depreciation and amortization 112,203  104,936  3,743  220,882 
Expenditures for property, plant & equipment 45,795  88,318  2,764  136,877 
Segment assets 3,502,467  1,732,247  —  5,234,714 
Goodwill 1,052,494  186,515  —  1,239,009 

Photonic Solutions Compound Semiconductors Unallocated
& Other 		Total
($000)
2019
Revenues $ 638,889  $ 723,607  $ —  $ 1,362,496 
Inter-segment revenues 12,568  94,405  (106,973) — 
Operating income (loss) 81,898  82,414  (15,643) 148,668 
Interest expense —  —  —  (22,417)
Other income (expense), net —  —  —  2,562 
Income taxes —  —  —  (21,296)
Net earnings —  —  —  107,517 
Depreciation and amortization 26,273  66,092  —  92,365 
Expenditures for property, plant & equipment 44,851  83,899  —  128,750 
Segment assets 681,610  1,272,163  —  1,953,773 
Goodwill 134,057  185,721  —  319,778 

Photonic Solutions Compound Semiconductors Unallocated
& Other 		Total
($000)
2018
Revenues $ 486,485  $ 672,309  $ —  $ 1,158,794 
Inter-segment revenues 24,867  37,723  (62,591) — 
Operating income 63,152  73,611  —  136,763 
Interest expense —  —  —  (18,352)
Other income, net —  —  —  3,783 
Income taxes —  —  —  (34,192)
Net earnings —  —  —  88,002 
Depreciation and amortization 23,242  57,528  —  80,770 
Expenditures for property, plant & equipment 36,122  125,201  —  161,323 

93

Geographic information for revenues from the legal country of origin, and long-lived assets from the country of origin, which include property, plant and equipment, net of related depreciation, and certain other long-term assets, were as follows:
Revenues
Year Ended June 30, 2020 2019 2018
($000)
United States $ 1,432,492  $ 405,404  $ 373,735 
Non-United States
Hong Kong 299,359  319,601  186,978 
China 292,138  290,287  253,672 
Japan 146,325  109,670  89,153 
Germany 124,934  155,000  132,161 
Switzerland 35,895  32,770  49,557 
Vietnam 22,152  22,322  26,898 
Korea 8,537  11,674  9,757 
Singapore 5,791  6,868  5,941 
Philippines 4,479  4,179  3,909 
United Kingdom 4,226  2,712  9,359 
Taiwan 3,743  2,005  1,705 
Belgium —  4  4,511 
Italy —  —  11,458 
Total Non-United States 947,579  957,092  785,059 
$ 2,380,071  $ 1,362,496  $ 1,158,794 

Long-Lived Assets
June 30, 2020 2019
($000)
United States $ 754,815  $ 345,866 
Non-United States
China 369,544  108,688 
United Kingdom 55,028  60,369 
Malaysia 46,162  — 
Switzerland 37,129  35,592 
Sweden 24,270  — 
Germany 18,631  14,857 
Australia 12,321  — 
Vietnam 11,140  11,656 
Philippines 7,607  7,793 
Korea 3,438  — 
Hong Kong 2,870  5,032 
Other 1,965  1,190 
Total Non-United States 590,105  245,177 
$ 1,344,920  $ 591,043 

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Note 15.  Fair Value of Financial Instruments
The FASB defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous markets for the asset and liability in an orderly transaction between market participants at the measurement date. The Company estimates fair value of its financial instruments utilizing an established three-level hierarchy in accordance with U.S. GAAP. The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date as follows:
•Level 1 – Valuation is based upon unadjusted quoted prices for identical assets or liabilities in active markets.
•Level 2 – Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instruments.
•Level 3 – Valuation is based upon other unobservable inputs that are significant to the fair value measurements.
The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the measurement.
The Company entered into an interest rate swap with a notional amount of $1,075 million to limit the exposure to its variable interest rate debt by effectively converting it to a fixed interest rate. The Company receives payments based on the one-month LIBOR and makes payments based on a fixed rate of 1.52%. The Company receives payments with a floor of 0.00%. The interest rate swap agreement has an effective date of November 24, 2019, with an expiration date of September 24, 2024. The initial notional amount of the interest rate swap is scheduled to decrease to $825 million in June 2022 and will remain at that amount through the expiration date. The Company designated this instrument as a cash flow hedge and deemed the hedge relationship effective at inception of the contract. The fair value of the interest rate swap of $44.1 million is recognized in the Consolidated Balance Sheet within other liabilities. Changes in fair value are recorded within other comprehensive income (loss) on the Consolidated Balance Sheet and reclassified into the Consolidated Statements of Earnings (Loss) as interest expense in the period in which the underlying transaction affects earnings. Cash flows from hedging activities are reported in the Consolidated Statements of Cash Flows in the same classification as the hedged item, generally as a component of cash flows from operations. The fair value of the interest rate swap is determined using widely accepted valuation techniques and reflects the contractual terms of the interest rate swap including the period to maturity, and while there are no quoted prices in active markets, it uses observable market-based inputs, including interest rate curves. The fair value analysis also considers a credit valuation adjustment to reflect nonperformance risk of both the Company and the single counterparty. The interest rate swap is classified as a Level 2 item within the fair value hierarchy.
The Company estimated the fair value of the II-VI Notes and Finisar Notes based on quoted market prices as of the last trading day prior to June 30, 2020; however, the II-VI Notes and Finisar Notes have only a limited trading volume and as such this fair value estimate is not necessarily the value at which the II-VI Notes and Finisar Notes could be retired or transferred. The Company concluded that this fair value measurement should be categorized within Level 2. The carrying value of the II-VI Notes and Finisar Notes is net of unamortized discount and issuance costs. See Note 9. Debt for details on the Company’s debt facilities. The fair value and carrying value of the II-VI Notes and Finisar Notes were as follows at June 30, 2020 ($000):
Fair Value Carrying Value
II-VI Notes $ 413,379  $ 314,312 
Finisar Notes $ 14,404  $ 14,888 

The fair values of cash and cash equivalents are considered Level 1 among the fair value hierarchy and approximate fair value because of the short-term maturity of those instruments. The Company’s borrowings including its lease obligations, excluding the 0.25% Convertible Notes and the 0.50% Finisar convertible notes, are considered Level 2 among the fair value hierarchy and their principal amounts approximate fair value. Additionally, the Company remeasures certain assets to fair value, using Level 3 measurements, as a result of the occurrence of triggering events such as purchase accounting for acquisitions. See Note 3 for further information.
The Company, from time to time, purchases foreign currency forward exchange contracts, that permit it to sell specified amounts of these foreign currencies expected to be received from its export sales, for pre-established U.S. dollar amounts at specified dates. These contracts are entered into to limit transactional exposure to changes in currency exchange rates of export
95

sales transactions in which settlement will occur in future periods and which otherwise would expose the Company, on the basis of its aggregate net cash flows in respective currencies, to foreign currency risk.
Note 16.  Employee Benefit Plans
Eligible U.S. employees of the Company participate in a profit sharing retirement plan. Contributions accrued for the plan are made at the discretion of the Company’s board of directors and were $6.1 million, $4.6 million, and $5.0 million for the years ended June 30, 2020, 2019 and 2018, respectively.
On August 18, 2018, the Company adopted the 2018 Employee Stock Purchase Plan (“2018 Plan”) for full time U.S. employees who have completed two years of continuous employment with the Company, and the 2018 Plan was approved by the Company’s shareholders at the Company’s Annual Meeting of Shareholders in November 2018. The employee may purchase the Company’s common stock for the lesser of 90% of the fair market value of the shares (i) on the first trading day of the offering period, or (ii) on the purchase date. Offering periods will run from August through January and from February through July each year. The number of shares which may be bought by an employee during each fiscal year is limited to 15% of the employee’s base pay. The 2018 Plan limits the number of shares of common stock available for purchase to 2,000,000 shares. As of June 30, 2020, there have been 80,469 shares purchased on behalf of the employees under the 2018 Plan.
Switzerland Defined Benefit Plan
The Company maintains a pension plan covering employees of our Swiss subsidiary (the “Swiss Plan”). Employer and employee contributions are made to the Swiss Plan based on various percentages of salary and wages that vary according to employee age and other factors. Employer contributions to the Swiss Plan for years ended June 30, 2020 and 2019 were $3.4 million and $3.0 million, respectively. Net periodic pension cost is not material for any year presented.
The underfunded pension liability was $26.9 million and $20.8 million as of June 30, 2020 and 2019, respectively. The pension adjustment amount recognized in accumulated other comprehensive income was $3.1 million and $11.8 million for the fiscal years ended June 30, 2020 and 2019, respectively. The accumulated benefit obligation was $84.9 million as of June 30, 2020, compared to $69.7 million as of June 30, 2019.
Estimated future benefit payments under the Swiss Plan are estimated to be as follows:
Year Ending June 30,
($000)
2021 $ 4,100 
2022 3,400 
2023 3,700 
2024 4,300 
2025 5,300 
Next five years $ 28,400 

Note 17.  Other Accrued Liabilities
The components of other accrued liabilities were as follows:
June 30, 2020 2019
($000)
Contract liabilities $ 17,328  $ 10,390 
Warranty reserves 27,620  4,478 
Other accrued liabilities 74,390  35,076 
$ 119,338  $ 49,944 


96

Note 18.  Commitments and Contingencies
The Company has purchase commitments for materials and supplies as part of the ordinary conduct of business. A portion of the commitments are long-term and are based on minimum purchase requirements. Certain short-term raw material purchase commitments have a variable price component which is based on market pricing at the time of purchase. Due to the proprietary nature of some of the Company’s materials and processes, certain contracts may contain liquidated damage provisions for early termination. The Company does not believe that a significant amount of liquidated damages are reasonably likely to be incurred under these commitments based upon historical experience and current expectations. The Company also has commitments relating to earnout arrangements on its acquisitions of $2.5 million. Total future commitments held by II-VI as of June 30, 2020, were $196.9 million in fiscal 2021, and $2.7 million thereafter.

Note 19.  Share Repurchase Programs
In August 2014, the Company’s Board of Directors authorized the Company to purchase up to $50 million of its common stock through a share repurchase program (the “Program”) that calls for shares to be purchased in the open market or in private transactions from time to time. The Program has no expiration and may be suspended or discontinued at any time. Shares purchased by the Company are retained as treasury stock and available for general corporate purposes. During each of the fiscal years ended June 30, 2020 and June 30, 2019, the Company purchased 50,000 shares of its common stock for $1.6 million under this program. As of June 30, 2020, the Company has cumulatively purchased 1,416,587 shares of its common stock pursuant to the Program for approximately $22.3 million. The dollar value of shares as of June 30, 2020 that may yet be purchased under the Program is approximately $27.7 million.

Note 20.  Accumulated Other Comprehensive Income (Loss)
The changes in accumulated other comprehensive income (“AOCI”) by component, net of tax, for the years ended June 30, 2020, 2019, and 2018 were as follows ($000):

Foreign
Currency
Translation
Adjustment 		Interest
Rate
Swap 		Defined
Benefit
Pension Plan 		Total
Accumulated Other
Comprehensive
Income (Loss)
AOCI - June 30, 2017 $ (8,460) $ —  $ (5,318) $ (13,778)
Other comprehensive income (loss) before reclassifications 7,152  —  2,643  9,795 
Amounts reclassified from AOCI —  —  203  203 
Net current-period other comprehensive income 7,152  —  2,846  9,998 
AOCI - June 30, 2018 $ (1,308) $ —  $ (2,472) $ (3,780)
Other comprehensive income (loss) before reclassifications (14,319) —  (6,307) (20,626)
Amounts reclassified from AOCI —  —  185  185 
Net current-period other comprehensive income (14,319) —  (6,122) (20,441)
AOCI - June 30, 2019 $ (15,627) $ —  $ (8,594) $ (24,221)
Other comprehensive income (loss) before reclassifications (15,969) (46,067) (3,528) (65,564)
Amounts reclassified from AOCI —  1,982  420  2,402 
Net current-period other comprehensive income (15,969) (44,085) (3,108) (63,162)
AOCI - June 30, 2020 $ (31,596) $ (44,085) $ (11,702) $ (87,383)


97

Note 21.  Subsequent Event

On July 2, 2020, II-VI announced the pricing of concurrent underwritten public offerings of (a) 9,302,235 shares of its common stock at a public offering price of $43.00 per share for gross proceeds to II-VI from the offering of approximately $400 million, before deducting the underwriting discounts and commissions and offering expenses payable by II-VI (the “common stock offering”), and (b) 2,000,000 shares of its Series A Mandatory Convertible Preferred Stock at a public offering price of $200.00 per share for gross proceeds to II-VI from the offering of $400 million, before deducting the underwriting discounts and commissions and offering expenses payable by II-VI (the “preferred stock offering”). In addition, the underwriters had a 30-day option to purchase up to an additional (a) 1,395,335 shares of its common stock at the applicable public offering price, less underwriting discounts and commissions, and (b) 300,000 shares of Series A Mandatory Convertible Preferred Stock at the applicable public offering price, less underwriting discounts and commissions and solely to cover over-allotments with respect to the preferred stock offering. On July 2, 2020, the underwriters exercised both the common stock and preferred stock options in full, raising an additional approximately $120 million in gross proceeds.

On July 7, 2020, the public offerings closed, and the Company raised a total of approximately $920 million in gross proceeds. The Company used the net proceeds from the public offerings to repay the remaining balance of $715 million of the Term B Loan Facility, and will use the remainder of net proceeds, to develop, enhance, invest in or acquire related, emerging or complementary technologies, products, or businesses and for other general corporate purposes.

On August 12, 2020, the Company announced that it entered into a definitive agreement to acquire the outstanding shares of Ascatron AB ("Ascatron"), which will add essential elements to the Company's vertically integrated SiC technology platform. On August 20, 2020, the Company completed the acquisition of Ascatron.
98

Quarterly Financial Data (unaudited)
Fiscal Year 2020

Quarter Ended June 30,
2020 		March 31,
2020 		December 31,
2019 		September 30,
2019
($000, except per share)
2020
Net revenues $ 746,290  $ 627,041  $ 666,331  $ 340,409 
Cost of goods sold 444,153  381,108  517,991  217,269 
Internal research and development 100,489  94,764  107,700  36,120 
Selling, general and administrative 134,152  82,133  119,218  105,495 
Interest expense 25,521  28,530  28,390  6,968 
Other expense (income) - net 1,264  7,168  487  5,079 
Earnings (loss) before income taxes 40,711  33,338  (107,455) (30,522)
Income taxes (10,550) 27,417  (9,242) (4,524)
Net Earnings (Loss) $ 51,261  $ 5,921  $ (98,213) $ (25,998)
Basic earnings (loss) per share $ 0.56  $ 0.07  $ (1.08) $ (0.39)
Diluted earnings (loss) per share $ 0.53  $ 0.06  $ (1.08) $ (0.39)

Fiscal Year 2019

Quarter Ended June 30,
2019 		March 31,
2019 		December 31,
2018 		September 30,
2018
($000, except per share)
2019
Net revenues $ 362,728  $ 342,496  $ 342,839  $ 314,433 
Cost of goods sold 224,076  215,212  211,333  190,526 
Internal research and development 36,202  36,026  33,764  33,171 
Selling, general and administrative 61,731  60,128  58,136  53,523 
Interest expense 5,606  5,647  5,580  5,584 
Other expense (income) - net 384  (1,532) (701) (713)
Earnings before income taxes 34,729  27,015  34,727  32,342 
Income taxes 6,701  2,377  6,025  6,193 
Net Earnings $ 28,028  $ 24,638  $ 28,702  $ 26,149 
Basic earnings per share $ 0.44  $ 0.39  $ 0.45  $ 0.41 
Diluted earnings per share $ 0.43  $ 0.38  $ 0.44  $ 0.40 


99

SCHEDULE II
II-VI INCORPORATED AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 2020, 2019, AND 2018
(IN THOUSANDS OF DOLLARS)

Balance at
Beginning
of Year 		Charged
to
Expense 		Charged
to Other
Accounts 		Deduction
from
Reserves 		Balance
at End
of Year
YEAR ENDED JUNE 30, 2020:
Allowance for doubtful accounts $ 1,292  $ 956  $ —  $ (550)
(3)
$ 1,698 
Warranty reserves $ 4,478  $ 11,507  $ 37,453 
(1)
$ (25,818) $ 27,620 
Deferred tax asset valuation allowance $ 20,190  $ (2,186) $ 36,555 
(2)
$ —  $ 54,559 
YEAR ENDED JUNE 30, 2019:
Allowance for doubtful accounts $ 837  $ 548  $ —  $ (93)
(3)
$ 1,292 
Warranty reserves $ 4,679  $ 4,185  $ —  $ (4,386) $ 4,478 
Deferred tax asset valuation allowance $ 21,797  $ (1,607) $ —  $ —  $ 20,190 
YEAR ENDED JUNE 30, 2018:
Allowance for doubtful accounts $ 1,314  $ (129) $ —  $ (348)
(3)
$ 837 
Warranty reserves $ 4,546  $ 3,821  $ —  $ (3,688) $ 4,679 
Deferred tax asset valuation allowance $ 42,562  $ (4,602) $ (16,163)
(4)
$ —  $ 21,797 

(1) Related to amounts assumed from the Finisar Acquisition.
(2) Related to the amounts assumed from the Finisar Acquisition.
(3) Primarily relates to write-offs of accounts receivable.
(4) Primarily relates to the Company’s deferred taxes on the conversion feature of the convertible debt.
100

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management evaluated, with the participation of the Company’s Chief Executive Officer, and the Company’s Chief Financial Officer and Treasurer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. The Company’s disclosure controls were designed to provide reasonable assurance that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote. However, the controls have been designed to provide reasonable assurance of achieving the controls’ stated goals. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2020, the Company’s disclosure controls and procedures are effective.
Management’s Report on Internal Control Over Financial Reporting
Refer to Management’s Report on Internal Control Over Financial Reporting included in Item 8 of this Annual Report of Form 10-K.
Report of the Registered Public Accounting Firm
The report of Ernst & Young LLP, an independent registered public accounting firm, with respect to our internal control over financial reporting is included in Item 8 of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal controls over financial reporting that occurred during our most recent quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
Item 9B. OTHER INFORMATION
None.
101

PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information set forth above in Part I of this Annual Report on Form 10-K under the caption “Executive Officers of the Registrant” is incorporated herein by reference. The other information required by this item is incorporated herein by reference to the information set forth under the captions “Election of Directors and Delinquent Section 16(a) Reports" in the Company’s definitive proxy statement for the 2020 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A of the Exchange Act (the “Proxy Statement”).
Audit Committee Financial Expert
The information as to the Audit Committee and the Audit Committee Financial Expert is incorporated herein by reference to the information set forth in the Company’s Proxy Statement.
Code of Ethics
The Company has adopted its Code of Business Conduct and Ethics for all of its employees and its Code of Ethics for Senior Financial Officers including the principal executive officer and principal financial officer. The Code of Business Conduct and Ethics and Code of Ethics for Senior Financial Officers can be found on the Company’s Internet web site at www.ii-vi.com under “Investors Information – Corporate Governance Documents.” The Company will promptly disclose on its web site (i) any amendments or waivers with respect to a director’s or executive officer’s compliance with the Code of Business Conducts and Ethics and (ii) any amendments or waivers with respect to any provision of the Code of Ethics for Senior Financial Officers. Any person may also obtain a copy of the Code of Business Conduct and Ethics and/or the Code of Ethics for Senior Financial Officer without charge by submitting their request to the Chief Financial Officer and Treasurer of II-VI Incorporated, 375 Saxonburg Boulevard, Saxonburg, Pennsylvania 16056, or by calling (724) 352-4455.
We intend to satisfy any disclosure requirements under Item 5.05 of Form 8-K regarding an amendment to, or waiver from, a provision of the Code of Business Conduct and Ethics by posting such information on our web site.
The web site and information contained on it or incorporated in it are not intended to be incorporated in this Annual Report on Form 10-K or other filings with the SEC.

Item 11.  EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to the information set forth under the caption “Director Compensation in Fiscal Year 2020,” “Executive Compensation,” “Compensation Committee Report” and “Compensation and Risk” in the Company’s Proxy Statement.
Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this item is incorporated herein by reference to the information set forth under the captions “Equity Compensation Plan Information” and “Security Owners of Certain Beneficial Owners and Management” in the Company’s Proxy Statement.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated herein by reference to the information set forth under the caption “Director Independence and Corporate Governance Policies” in the Company’s Proxy Statement.

Item 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated herein by reference to the information set forth under the caption “Ratification of Selection of Independent Registered Public Accounting Firm” in the Company’s Proxy Statement.
102

PART IV

Item 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1) Financial Statements
The financial statements are set forth under Item 8 of this Annual Report on Form 10-K.
(2) Schedules
Schedule II – Valuation and Qualifying Accounts for each of the three fiscal years in the period ended June 30, 2020 is set forth under Item 8 of this Annual Report on Form 10-K.
Financial statements, financial statement schedules and exhibits not listed have been omitted where the required information is included in the Consolidated Financial Statements or notes thereto, or is not applicable or required.
103

Exhibit No. Description Location
2.01 Incorporated herein by reference to Exhibit 2.1 to II-VI’s Current Report on Form 8-K (File No. 000-16195) filed on November 9, 2018.
3.01
Incorporated herein by reference to Exhibit 3.1 to II-VI’s Current Report on Form 8-K (File No. 000-16195) filed on November 8, 2011.
3.02
Incorporated herein by reference to Exhibit 3.1 to II-VI’s Current Report on Form 8-K (File No. 000-16195) filed on August 19, 2014.
3.03 Filed herewith.
4.01
Incorporated herein by reference to Exhibit 4.1 to II-VI’s Current Report on Form 8-K (File No. 000-16195) filed on November 14, 2017.
4.02 Included in Exhibit 4.01.
4.03
Filed herewith
4.04
Incorporated herein by reference to Exhibit 4.1 to Finisar Corporation's Current Report on Form 8-K (File No. 000-27999) filed on December 21, 2016.
4.05
Incorporated herein by reference to Exhibit 4.2 to II-VI’s Current Report on Form 8-K (File No. 000-16195) filed on September 24, 2019.
4.06 Form of 0.50% Convertible Senior Notes due 2036 Included in Exhibit 4.04
4.07 Form of 6.00% Series A Mandatory Convertible Preferred Stock Certificate. Included in Exhibit 3.04.
10.01
Incorporated herein by reference to Exhibit 10.1 to Amendment No. 1 to II-VI’s Current Report on Form 8-K (File No. 000-16195) filed on September 24, 2019.
10.02
Incorporated herein by reference to Exhibit 10.1 to II-VI’s Current Report on Form 8-K (File No. 000-16195) filed on January 30, 2020.

104

10.03
Incorporated herein by reference to Exhibit 10.15 to II-VI’s Annual Report on Form 10-K (File No. 000-16195) filed on August 28, 2018.
10.04
II-VI Incorporated Amended and Restated Employees’ Profit-Sharing Plan and Trust Agreement, as amended (P)
Incorporated herein by reference to Exhibit 10.05 to II-VI’s Registration Statement on Form S-1 (File No. 33-16389).
10.05
Incorporated herein by reference to Exhibit 10.14 to II-VI’s Annual Report on Form 10-K (File No. 000-16195) for the fiscal year ended June 30, 1996.
10.06
Incorporated herein by reference to Exhibit 10.27 to II-VI’s Annual Report on Form 10-K (File No. 000-16195) for the fiscal year ended June 30, 2009.
10.07
Incorporated herein by reference to Exhibit 10.17 to II-VI’s Annual Report on Form 10-K (File No. 000-16195) for the fiscal year ended June 30, 2015.

10.08
Incorporated herein by reference to Exhibit 10.18 to II-VI’s Annual Report on Form 10-K (File No. 000-16195) for the fiscal year ended June 30, 2015.
10.09
Incorporated herein by reference is Exhibit 10.13 to II-VI’s Annual Report on Form 10-K (File No. 000-16195) for the fiscal year ended June 30, 1996.
10.10
Incorporated herein by reference to Exhibit A to II-VI’s Definitive Proxy Statement on Schedule 14A (File No. 000-16195) filed on September 25, 2009.
10.11
Incorporated herein by reference to Exhibit 10.27 to II-VI’s Current Report on Form 10-Q (File No. 000-16195) for the quarter ended December 31, 2011.
10.12
Incorporated herein by reference to Exhibit 10.01 to II-VI’s Current Report on Form 8-K (File No. 000-16195) filed on November 5, 2012.
10.13
Incorporated herein by reference is Exhibit 10.30 to II-VI’s Annual Report on Form 10-K (File No. 000-16195) for the fiscal year ended June 30, 2013.

10.14
Incorporated herein by reference to Exhibit 10.1 to II-VI’s Registration Statement on Form S-8 (File No. 333-199855) filed on November 4, 2014.
10.15
Incorporated herein by reference to Exhibit 10.30 to II-VI’s Annual Report on Form 10-K (File No. 000-16195) for the fiscal year ended June 30, 2013.

105

10.16
Incorporated herein by reference to Exhibit 10.01 to II-VI’s Current Report on Form 10-Q (File No. 000-16195) for the quarter ended December 31, 2015.
10.17
Incorporated herein by reference to Exhibit 10.03 to II-VI’s Quarterly Report on Form 10-Q (File No. 000-16195) for the quarter ended September 30, 2016.

10.18
Incorporated herein by reference to Exhibit 10.05 to II-VI’s Quarterly Report on Form 10-Q (File No. 000-16195) for the quarter ended September 30, 2016.
10.19
Incorporated herein by reference to Exhibit 10.07 to II-VI’s Quarterly Report on Form 10-Q (File No. 000-16195) for the quarter ended September 30, 2016.
10.20 Filed herewith.

10.21 Incorporated herein by reference to Exhibit 10.1 to II-VI’s Current Report on Form 8-K (File No. 000-16195) filed on November 13, 2018.
10.22 Incorporated herein by reference to Exhibit 10.2 to II-VI’s Current Report on Form 8-K (File No. 000-16195) filed on November 13, 2018.
10.23 Incorporated herein by reference to Exhibit 10.01 to II-VI’s Quarterly Report on Form 10-Q (File No. 000-16195) for the quarter ended December 31, 2018.
10.24 Incorporated herein by reference to Exhibit 10.02 to II-VI’s Quarterly Report on Form 10-Q (File No. 000-16195) for the quarter ended December 31, 2018.
10.25
 
Incorporated herein by reference to Exhibit 10.03 to II-VI’s Quarterly Report on Form 10-Q (File No. 000-16195) for the quarter ended December 31, 2018.

10.26 Incorporated herein by reference to Exhibit 10.04 to II-VI’s Quarterly Report on Form 10-Q (File No. 000-16195) for the quarter ended December 31, 2018.
10.27 Incorporated herein by reference to Exhibit 10.05 to II-VI’s Quarterly Report on Form 10-Q (File No. 000-16195) for the quarter ended December 31, 2018.
10.28 Filed herewith.

106

10.29 Incorporated herein by reference to Exhibit 10.1 to II-VI's Current Report on Form 8-K (File No. 000-16195) filed on August 22, 2019.
10.30 Incorporated herein by reference to Exhibit 10.2 to II-VI''s Current Report on Form 8-K (File No. 000-016195) filed on August 22, 2019.
21.01
 Filed herewith.
23.01
 Filed herewith.
31.01
 Filed herewith.
31.02
 Filed herewith.
32.01
 Furnished herewith.
32.02
 Furnished herewith.
 101
Interactive Data File
(101.INS)
Inline XBRL Instance Document
 Filed herewith.
(101.SCH)
Inline XBRL Taxonomy Extension Schema Document
 Filed herewith.
(101.CAL)
Inline XBRL Taxonomy Extension Calculation Linkbase Document
 Filed herewith.
(101.DEF)
Inline XBRL Taxonomy Definition Linkbase
 Filed herewith.
(101.LAB)
Inline XBRL Taxonomy Extension Label Linkbase Document
 Filed herewith.
(101.PRE)
Inline XBRL Taxonomy Extension Presentation Linkbase Document
 Filed herewith.

*Denotes management contract or compensatory plan, contract or arrangement.
(P)Denotes filed via paper copy.
The Registrant will furnish to the Commission upon request copies of any instruments not filed herewith which authorize the issuance of long-term obligations of the Registrant not in excess of 10% of the Registrant’s total assets on a consolidated basis.
107


Item 16.  FORM 10-K SUMMARY
None.
108

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

II-VI INCORPORATED
Date: August 26, 2020 By: /s/ Vincent D. Mattera Jr.
Vincent D. Mattera Jr.
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Principal Executive Officer:
Date: August 26, 2020 By: /s/ Vincent D. Mattera Jr.
Vincent D. Mattera Jr.
Chief Executive Officer and Director
 
Principal Financial and Accounting Officer:
Date: August 26, 2020 By: /s/ Mary Jane Raymond
Mary Jane Raymond
Chief Financial Officer and Treasurer
Date: August 26, 2020 By: /s/ Francis J. Kramer
Francis J. Kramer
Chairman of the Board
Date: August 26, 2020 By: /s/ Joseph J. Corasanti 
Joseph J. Corasanti
Director
Date: August 26, 2020 By: /s/ RADM Marc Y. E. Pelaez (retired) 
RADM Marc Y. E. Pelaez (retired)
Director
Date: August 26, 2020 By: /s/ Howard H. Xia 
Howard H. Xia
Director
Date: August 26, 2020 By: /s/ Shaker Sadasivam
Shaker Sadasivam
Director
Date: August 26, 2020 By: /s/ Enrico Digirolamo
Enrico Digirolamo
Director
Date: August 26, 2020 By: /s/ Michael L. Dreyer
Michael L. Dreyer
Director
Date: August 26, 2020 By: /s/ Patricia Hatter
Patricia Hatter
Director

109
Exhibit 3.03
PENNSYLVANIA DEPARTMENT OF STATE
BUREAU OF CORPORATIONS AND CHARITABLE ORGANIZATIONS
☐Return document by mail to:
Statement with Respect to Shares
Domestic Business Corporation
DSCB:15-1522 (rev. 7/2015)
IMAGE011.JPG
1522
Name
Address
City State Zip Code
☑ Return document by email to: pados@klgates.com
Read all instructions prior to completing. This form may be submitted online at https://www.corporations.pa.gov/.
Fee: $70
In compliance with the requirements of 15 Pa.C.S. § 1522(b) (relating to statement with respect to shares), the undersigned corporation, desiring to state the designation and voting rights, preferences, limitations, and special rights, if any, of a class or series of its shares, hereby states that:
1. The name of the corporation is:
II-VIIncorporated
2. Check and complete one of the following:
☐ Theresolution amending the Articles under 15 Pa.C.S. § 1522(b) (relating to divisions and determinations by the board), set forth
in full, is as follows:
☑ Theresolution amending the Articles under 15 Pa.C.S. § 1522(b) is set forth in full in Exhibit A attached hereto and made a part
hereof.
3. The aggregate number of shares of such class or series established and designated by (a) such resolution, (b) all prior statements, if
any, filed under 15 Pa.C.S. § 1522 or corresponding provisions of prior law with respect thereto, and (c) any other provision of the
Articles is 2,300,000 shares




Exhibit 3.03
DSCB:15-1522-2
4. The resolution was adopted by the Board of Directors or an authorized committee thereon on:
  07/01/2020
Date (MM/DD/YYYY)
5. Check, and if appropriate complete, one of the following:
☑ The resolution shall be effective upon the filing of this statement with respect to shares in the Department of State.
☐ Theresolution shall be effective on: at .
Date (MM/DD/YYYY) Hour (if any)
IN TESTIMONY WHEREOF, the undersigned
corporation has caused this statement to be signed
by a duly authorized officer thereof this
6th day of July , 2020 .
II-VI Incorporated
Name of Corporation
/s/ Mary Jane Raymond
Signature
Chief Financial Officer
Title


Exhibit 3.03
EXHIBIT A TO
STATEMENT WITH RESPECT TO SHARES
AMENDING THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
II-VI INCORPORATED
6.00% SERIES A MANDATORY CONVERTIBLE PREFERRED STOCK
NOW THEREFORE BE IT RESOLVED, that pursuant to Section 1522(b) of the Pennsylvania Business Corporation Law of 1988, as amended, and Section 5(C) of the Company’s Amended and Restated Articles of Incorporation (the “Articles”), there is hereby designated and established a series of preferred stock of the Company denominated as the “6.00% Series A Mandatory Convertible Preferred Stock” (the “Convertible Preferred Stock”), and this Pricing Committee hereby fixes and determines the number of such shares and, subject to the provisions of such Section 5(C) of the Articles, the relative rights and preferences of such shares as set forth in Annex A hereto.



Exhibit 3.03
ANNEX A
(to Pricing Committee Resolutions - July 1, 2020)



Exhibit 3.03
ANNEX A
 
STATEMENT WITH RESPECT TO SHARES

STANDARD PROVISIONS
 
Section 1. General Matters; Ranking. Each share of Mandatory Convertible Preferred Stock shall be identical in all respects to every other share of Mandatory Convertible Preferred Stock. The Mandatory Convertible Preferred Stock, with respect to dividend rights and/or distribution rights upon the liquidation, winding-up or dissolution, as applicable, of the Corporation, shall rank (i) senior to each class or series of Junior Stock, (ii) on parity with each class or series of Parity Stock, (iii) junior to each class or series of Senior Stock and (iv) junior to the Corporation’s existing and future indebtedness and other liabilities (including trade payables).
 
Section 2. Standard Definitions. As used herein with respect to Mandatory Convertible Preferred Stock:
 
“Accumulated Dividend Amount” means, in connection with a Fundamental Change, the aggregate amount of accumulated and unpaid dividends, if any, for Dividend Periods prior to the Fundamental Change Effective Date for the relevant Fundamental Change, including for the partial Dividend Period, if any, from, and including, the Dividend Payment Date immediately preceding such Fundamental Change Effective Date to, but excluding, such Fundamental Change Effective Date, subject to the proviso in Section 9(a).
   
“ADRs” shall have the meaning set forth in Section 14.
 
“Agent Members” shall have the meaning set forth in Section 20(a). 

“Applicable Market Value” means the Average VWAP per share of Common Stock over the Settlement Period.

“Articles of Incorporation” shall have the meaning set forth in the recitals. 

“Average Price” shall have the meaning set forth in Section 3(c)(iii).
  
“Average VWAP” per share over a certain period means the arithmetic average of the VWAP per share for each Trading Day in such period.
 
“Averaging Period” shall have the meaning set forth in Section 13(a)(v).

“Board of Directors” shall have the meaning set forth in the recitals.
 
“Business Day” means any day other than a Saturday or Sunday or any other day on which commercial banks in New York City are authorized or required by law or executive order to close or be closed.
 
“By-Laws” means the Amended and Restated By-Laws of the Corporation, as they may be amended or restated from time to time.

“Clause A Distribution” shall have the meaning set forth in Section 13(a)(iii).
 
“Clause B Distribution” shall have the meaning set forth in Section 13(a)(iii).
 
“Clause C Distribution” shall have the meaning set forth in Section 13(a)(iii).
 
“close of business” means 5:00 p.m., New York City time.

A-1
Exhibit 3.03
“Common Stock” means the common stock, no par value per share, of the Corporation, subject to Section 14.
 
“Conversion and Dividend Disbursing Agent” means American Stock Transfer & Trust Company LLC, the Corporation’s duly appointed conversion and dividend disbursing agent for Mandatory Convertible Preferred Stock, and any successor appointed under Section 15.
 
“Conversion Date” shall mean the Mandatory Conversion Date, the Fundamental Change Conversion Date or the Early Conversion Date, as applicable.
 
“Corporation” shall have the meaning set forth in the recitals.
 
“Credit Agreement” means the Corporation’s amended and restated credit agreement, dated as of September 24, 2019, by and among the Corporation, Bank of America, N.A., as Administrative Agent, Swing Line Lender and an L/C Issuer, and the other lenders party thereto.

“Depositary” means DTC or its nominee or any successor appointed by the Corporation.
 
“Dividend Payment Date” means January 1, April 1, July 1 and October 1 of each year to, and including, July 1, 2023, commencing on October 1, 2020.
 
“Dividend Period” means the period from, and including, a Dividend Payment Date to, but excluding, the next Dividend Payment Date, except that the initial Dividend Period shall commence on, and include, the Initial Issue Date and shall end on, and exclude, the October 1, 2020 Dividend Payment Date.
 
“Dividend Rate” shall have the meaning set for in Section 3(a).

“DTC” means The Depository Trust Company.
 
“Early Conversion” shall have the meaning set forth in Section 8(a).
 
“Early Conversion Additional Conversion Amount” shall have the meaning set forth in Section 8(b)(i).
 
“Early Conversion Average Price” shall have the meaning set forth in Section 8(b)(ii).

“Early Conversion Date” shall have the meaning set forth in Section 10(b).
 
“Early Conversion Settlement Period” shall have the meaning set forth in Section 8(b)(ii).
 
“Effective Date,” as used in Section 13(a)(i) and Section 13(a)(xii), shall mean the first date on which the shares of Common Stock trade on the Relevant Stock Exchange, regular way, reflecting the relevant share split or share combination, as applicable.
 
“Ex-Date” means the first date on which the shares of Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive the issuance, dividend or distribution in question, from the Corporation or, if applicable, from the seller of the Common Stock on such exchange or market (in the form of due bills or otherwise) as determined by such exchange or market.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
 
“Exchange Property” shall have the meaning set forth in Section 14.
 
“Expiration Date” shall have the meaning set forth in Section 13(a)(v).
 
“Fixed Conversion Rates” means the Maximum Conversion Rate and the Minimum Conversion Rate.
A-2
Exhibit 3.03
 
“Floor Price” shall have the meaning set forth in Section 3(e)(ii).
 
A “Fundamental Change” shall be deemed to have occurred, at any time after the Initial Issue Date of the Mandatory Convertible Preferred Stock, if any of the following occurs:

(i) any “person” or “group” (as such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable), other than the Corporation, any of its Wholly-Owned Subsidiaries or any of the Corporation’s or its Wholly-Owned Subsidiaries’ employee benefit plans, has become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 50% of the total voting power of the Common Stock;
(ii) the consummation of (A) any recapitalization, reclassification or change of the Common Stock (other than changes resulting from a subdivision or combination or change in par value) as a result of which the Common Stock would be converted into, or exchanged for, stock, other securities, other property or assets (including cash or a combination thereof); (B) any consolidation, merger or other combination of the Corporation or binding share exchange pursuant to which the Common Stock will be converted into, or exchanged for, stock, other securities or other property or assets (including cash or a combination thereof); or (C) any sale, lease or other transfer or disposition in one transaction or a series of transactions of all or substantially all of the consolidated assets of the Corporation and its Subsidiaries taken as a whole, to any person other than one or more of its Wholly-Owned Subsidiaries; or
(iii) the Common Stock (or other common equity underlying the Mandatory Convertible Preferred Stock) ceases to be listed or quoted for trading on any of The New York Stock Exchange, the Nasdaq Global Select Market or the Nasdaq Global Market (or any of their respective successors).
However, a transaction or transactions described in clause (i) or clause (ii) above shall not constitute a Fundamental Change if at least 90% of the consideration received or to be received by holders of Common Stock, excluding cash payments for fractional shares or pursuant to statutory appraisal rights, in connection with such transaction or transactions consists of shares of common stock that are listed or quoted on any of The New York Stock Exchange, the Nasdaq Global Select Market or the Nasdaq Global Market (or any of their respective successors) or shall be so listed or quoted when issued or exchanged in connection with such transaction or transactions and as a result of such transaction or transactions such consideration (excluding cash payments for fractional shares or pursuant to statutory appraisal rights) becomes the Exchange Property.
 
“Fundamental Change Conversion” shall have the meaning set forth in Section 9(a)(i).
 
“Fundamental Change Conversion Date” shall have the meaning set forth in Section 10(c).
 
“Fundamental Change Conversion Period” means the period beginning on, and including, the Fundamental Change Effective Date and ending at the close of business on the date that is 20 calendar days after the Fundamental Change Effective Date (or, if later, the date that is 20 calendar days after the date of the Fundamental Change Notice for such Fundamental Change), but in no event later than July 1, 2023.
 
“Fundamental Change Conversion Rate” means, for any Fundamental Change Conversion, the conversion rate per share of Mandatory Convertible Preferred Stock set forth in the table below for the Fundamental Change Effective Date and the Fundamental Change Share Price, in each case, applicable to such Fundamental Change:
 
A-3
Exhibit 3.03
Fundamental Change Share Price
Fundamental Change Effective Date $10.00 $20.00 $30.00 $40.00 $43.00 $47.50 $51.60 $55.00 $60.00 $70.00 $80.00 $100.00 $120.00
July 7, 2020 4.5110 4.2837 4.1080 3.9970 3.9731 3.9434 3.9216 3.9066 3.8886 3.8633 3.8475 3.8310 3.8240
July 1, 2021 4.5861 4.4180 4.2216 4.0761 4.0432 4.0020 3.9715 3.9506 3.9257 3.8915 3.8708 3.8506 3.8429
July 1, 2022 4.6290 4.5735 4.3961 4.1953 4.1442 4.0786 4.0299 3.9968 3.9586 3.9096 3.8839 3.8640 3.8587
July 1, 2023 4.6512 4.6512 4.6512 4.6512 4.6512 4.2105 3.8760 3.8760 3.8760 3.8760 3.8760 3.8760 3.8760
The exact Fundamental Change Share Price and Fundamental Change Effective Date may not be set forth in the table, in which case:

(i)if the Fundamental Change Share Price is between two Fundamental Change Share Price amounts in the table above or the Fundamental Change Effective Date is between two Fundamental Change Effective Dates in the table above, the Fundamental Change Conversion Rate shall be determined by a straight-line interpolation between the Fundamental Change Conversion Rates set forth for the higher and lower Fundamental Change Share Price amounts and the earlier and later Fundamental Change Effective Dates, as applicable, based on a 365 or 366-day year, as applicable;
(ii)if the Fundamental Change Share Price is in excess of $120.00 per share (subject to adjustment in the same manner as adjustments are made to the Fundamental Change Share Price in the column headings of the table above), then the Fundamental Change Conversion Rate shall be the Minimum Conversion Rate; and
(iii)if the Fundamental Change Share Price is less than $10.00 per share (subject to adjustment in the same manner as adjustments are made to the Fundamental Change Share Price in the column headings of the table above), then the Fundamental Change Conversion Rate shall be the Maximum Conversion Rate.
 The Fundamental Change Share Prices in the column headings in the table above are each subject to adjustment as of any date on which the Fixed Conversion Rates are adjusted. The adjusted Fundamental Change Share Prices shall equal (x) the Fundamental Change Share Prices applicable immediately prior to such adjustment, multiplied by (y) a fraction, the numerator of which is the Minimum Conversion Rate immediately prior to the adjustment giving rise to the Fundamental Change Share Price adjustment and the denominator of which is the Minimum Conversion Rate as so adjusted. The Fundamental Change Conversion Rates set forth in the table above are each subject to adjustment in the same manner and at the same time as each Fixed Conversion Rate as set forth in Section 13.
 
“Fundamental Change Conversion Right” shall have the meaning set forth in Section 9(a).

“Fundamental Change Dividend Make-whole Amount” shall have the meaning set forth in Section 9(a)(ii).
 
“Fundamental Change Effective Date” shall mean the effective date of the relevant Fundamental Change.

“Fundamental Change Notice” shall have the meaning set forth in Section 9(b).
 
“Fundamental Change Share Price” means, for any Fundamental Change, (i) if all holders of Common Stock receive only cash in exchange for their Common Stock in such Fundamental Change, the amount of cash paid per share of Common Stock in such Fundamental Change, and (ii) in all other cases, the Average VWAP per share of Common Stock over the ten consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the relevant Fundamental Change Effective Date.

“funds available to pay dividends” shall have the meaning set forth in Section 3(a).

“Global Preferred Share” shall have the meaning set forth in Section 20(a).
A-4
Exhibit 3.03
 
“Holder” means each Person in whose name shares of Mandatory Convertible Preferred Stock are registered, who shall be treated by the Corporation and the Registrar as the absolute owner of those shares of Mandatory Convertible Preferred Stock for the purpose of making payment and settling conversions and for all other purposes.

“Initial Issue Date” means July 7, 2020, the first original issue date of shares of Mandatory Convertible Preferred Stock.
 
“Initial Price” means $200.00, divided by the Maximum Conversion Rate, which quotient is initially equal to approximately $42.9997.
 
“Junior Stock” means (i) the Common Stock and (ii) each other class or series of capital stock of the Corporation established after the Initial Issue Date, the terms of which do not expressly provide that such class or series ranks either (x) senior to the Mandatory Convertible Preferred Stock as to dividend rights or distribution rights upon the Corporation’s liquidation, winding-up or dissolution or (y) on parity with the Mandatory Convertible Preferred Stock as to dividend rights and distribution rights upon the Corporation’s liquidation, winding-up or dissolution.
 
“Liquidation Dividend Amount” shall have the meaning set forth in Section 4(a).
 
“Liquidation Preference” means, as to Mandatory Convertible Preferred Stock, $200.00 per share of Mandatory Convertible Preferred Stock.
 
“Mandatory Conversion” shall have the meaning set forth in Section 7(a).
 
“Mandatory Conversion Additional Conversion Amount” shall have the meaning set forth in Section 7(c)(i).
 
“Mandatory Conversion Date” means the second Business Day immediately following the last Trading Day of the Settlement Period.
 
“Mandatory Conversion Rate” shall have the meaning set forth in Section 7(b).
 
“Mandatory Convertible Preferred Stock” shall have the meaning set forth in Part 1 of this Statement with Respect to Shares.
 
“Market Disruption Event” means (i) a failure by the Relevant Stock Exchange to open for trading during its regular trading session; or (ii) the occurrence or existence prior to 1:00 p.m., New York City time, on any Scheduled Trading Day for the Common Stock for more than one half-hour period in the aggregate during regular trading hours of any suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the Relevant Stock Exchange or otherwise) in the Common Stock.
“Maximum Conversion Rate” shall have the meaning set forth in Section 7(b)(iii).
 
“Minimum Conversion Rate” shall have the meaning set forth in Section 7(b)(i).
 
“Nonpayment” shall have the meaning set forth in Section 6(b)(i).
 
“Nonpayment Remedy” shall have the meaning set forth in Section 6(b)(iii).

“Officer” means the Chief Executive Officer, the Chief Financial Officer, the President, any Executive Vice President, any Senior Vice President, any Vice President, any Assistant Vice President, the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary of the Corporation.
 
“open of business” means 9:00 a.m., New York City time.

A-5
Exhibit 3.03
“Parity Stock” means any class or series of capital stock of the Corporation established after the Initial Issue Date, the terms of which expressly provide that such class or series shall rank on parity with the Mandatory Convertible Preferred Stock as to dividend rights and distribution rights upon the Corporation’s liquidation, winding-up or dissolution.
 
“Person” means any individual, partnership, firm, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, governmental authority or other entity of whatever nature.
 
“Preferred Stock” shall have the meaning set forth in Part 1 of this Statement with Respect to Shares.
 
“Preferred Stock Directors” shall have the meaning set forth in Section 6(b)(i).
 
“Pricing Committee” shall have the meaning set forth in the recitals.
“Prospectus” means the prospectus dated June 30, 2020, included in the Corporation’s registration statement (file number 333-239549), relating to securities to be issued from time to time by the Corporation.
“Prospectus Supplement” means the preliminary prospectus supplement dated June 30, 2020 relating to the offering and sale of the Mandatory Convertible Preferred Stock, as supplemented by the related pricing term sheet.
“Record Date” means, with respect to any dividend, distribution or other transaction or event in which the holders of the Common Stock (or other applicable security) have the right to receive any cash, securities or other property or in which the Common Stock (or such other security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of holders of the Common Stock (or such other security) entitled to receive such cash, securities or other property (whether such date is fixed by the Board of Directors or a duly authorized committee thereof, statute, contract or otherwise).
 
“Record Holder” means, with respect to any Dividend Payment Date, a Holder of record of Mandatory Convertible Preferred Stock as such Holder appears on the stock register of the Corporation at the close of business on the related Regular Record Date.
 
“Registrar” initially means American Stock Transfer & Trust Company LLC, the Corporation’s duly appointed registrar for Mandatory Convertible Preferred Stock and any successor appointed under Section 15.
 
“Regular Record Date” means, with respect to any Dividend Payment Date, the March 15, June 15, September 15 and December 15, as the case may be, immediately preceding the relevant Dividend Payment Date. These Regular Record Dates shall apply regardless of whether a particular Regular Record Date is a Business Day.

“Relevant Stock Exchange” means The Nasdaq Global Select Market or, if the Common Stock is not then listed on The Nasdaq Global Select Market, on the principal other U.S. national or regional securities exchange on which the Common Stock is then listed or, if the Common Stock is not then listed on a U.S. national or regional securities exchange, on the principal other market on which the Common Stock is then listed or admitted for trading.

“Reorganization Event” shall have the meaning set forth in Section 14.

“Scheduled Trading Day” means any day that is scheduled to be a Trading Day.
 
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.
 
“Senior Stock” means each class or series of capital stock of the Corporation established after the Initial Issue Date, the terms of which expressly provide that such class or series shall rank senior to the Mandatory Convertible Preferred Stock as to dividend rights or distribution rights upon the Corporation’s liquidation, winding-up or dissolution.
 
“Settlement Period” means the 20 consecutive Trading Day period commencing on, and including, the 21st Scheduled Trading Day immediately preceding July 1, 2023.

A-6
Exhibit 3.03
“Share Dilution Amount” means the increase in the number of diluted shares of Common Stock outstanding (determined in accordance with U.S. generally accepted accounting principles, and as measured from the Initial Issue Date) resulting from the grant, vesting or exercise of equity-based compensation to directors, employees and agents and equitably adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction.
 
“Shelf Registration Statement” means a shelf registration statement filed with the Securities and Exchange Commission in connection with the issuance of or resales of shares of Common Stock issued as payment of a dividend on shares of the Mandatory Convertible Preferred Stock, including dividends paid in connection with a conversion.
 
“Spin-Off” means a payment of a dividend or other distribution on the Common Stock of shares of capital stock of any class or series, or similar equity interest, of or relating to a Subsidiary or other business unit of the Corporation that are, or, when issued, will be, listed or admitted for trading on a U.S. national securities exchange.
 
“Statement with Respect to Shares” shall have the meaning set forth in the recitals.
“Subsidiary” means, with respect to any Person, any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of capital stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, general partners or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person; (ii) such Person and one or more Subsidiaries of such Person; or (iii) one or more Subsidiaries of such Person.

“Threshold Appreciation Price” means $200.00, divided by the Minimum Conversion Rate, which quotient is initially equal to approximately $51.5996.

“Trading Day” means a day on which (i) there is no Market Disruption Event and (ii) trading in the Common Stock generally occurs on the Relevant Stock Exchange; provided that if the Common Stock is not listed or admitted for trading, “Trading Day” means a Business Day.
 
“Transfer Agent” shall initially mean American Stock Transfer & Trust Company LLC, the Corporation’s duly appointed transfer agent for Mandatory Convertible Preferred Stock and any successor appointed under Section 15.
 
“Trigger Event” shall have the meaning set forth in Section 13(a)(iii).
 
“Unit of Exchange Property” shall have the meaning set forth in Section 14.
 
“Valuation Period” shall have the meaning set forth in Section 13(a)(iii).

“Voting Preferred Stock” means any other class or series of Parity Stock upon which like voting rights for the election of directors as set forth in Section 6 have been conferred and are exercisable.
 
“VWAP” per share of Common Stock on any Trading Day means the per share volume-weighted average price as displayed on Bloomberg page “IIVI<EQUITY>AQR” (or its equivalent successor if such page is not available) in respect of the period from the scheduled open of trading until the scheduled close of trading of the primary trading session on such Trading Day, taking into account any adjustments made to reported trades at or prior to 4:10 p.m., New York time, but excluding any after-market trades (or if such volume-weighted average price is not available or is manifestly erroneous, the market value per share of the Common Stock on such Trading Day as determined, using a volume-weighted average method, by a nationally recognized independent investment banking firm retained by the Corporation for this purpose).

“Wholly-Owned Subsidiary” means, with respect to any Person, any Subsidiary of such Person, except that, solely for purposes of this definition, the reference to “more than 50%” in the definition of “Subsidiary” shall be deemed to be replaced by a reference to “100%”.
 
Section 3.  Dividends.
A-7
Exhibit 3.03
 
(a) Rate. Subject to the rights of holders of any class or series of the Corporation’s capital stock ranking senior to the Mandatory Convertible Preferred Stock as to dividend rights, Holders shall be entitled to receive, when, as and if declared by the Board of Directors (or an authorized committee thereof) only out of funds available to pay dividends (as defined below), in the case of dividends paid in cash, and shares of Common Stock legally permitted to be issued, in the case of dividends paid in shares of Common Stock, cumulative dividends at the rate per annum of 6.00% of the Liquidation Preference (the “Dividend Rate”) (equivalent to $12.00 per annum per share of Mandatory Convertible Preferred Stock), payable in cash, by delivery of shares of Common Stock or through any combination of cash and shares of Common Stock pursuant to Section 3(c), as determined by the Corporation in its sole discretion (subject to the limitations set forth in Section 3(e)). For purposes of this Statement with Respect to Shares, “funds available to pay dividends” shall mean, under applicable Pennsylvania law, having such funds if, after giving effect to the relevant dividend payment, (i) the Corporation would be able to pay its debts as they become due in the usual course of its business and (ii) the Corporation’s total assets would be greater than or equal to the sum of its our total liabilities plus the amount that would be needed if the Corporation were to be dissolved at the time as of which the dividend is measured, in order to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the dividend.

If declared, dividends on Mandatory Convertible Preferred Stock shall be payable quarterly on each Dividend Payment Date at such annual rate, and dividends shall accumulate from the most recent date as to which dividends shall have been paid or, if no dividends have been paid, from the Initial Issue Date, whether or not in any Dividend Period or Dividend Periods there have been funds available to pay dividends.

If declared, dividends shall be payable on the relevant Dividend Payment Date to Record Holders on the immediately preceding Regular Record Date, whether or not such Record Holders early convert their shares of Mandatory Convertible Preferred Stock, or such shares are automatically converted, after a Regular Record Date and on or prior to the immediately succeeding Dividend Payment Date. If a Dividend Payment Date is not a Business Day, payment shall be made on the next succeeding Business Day, without any interest or other payment in lieu of interest accruing with respect to this delay.
 
The amount of dividends payable on each share of Mandatory Convertible Preferred Stock for each full Dividend Period (subsequent to the initial Dividend Period) shall be computed by dividing the Dividend Rate by four. Dividends payable on Mandatory Convertible Preferred Stock for the initial Dividend Period and any other partial Dividend Period shall be computed based upon the actual number of days elapsed during such period over a 360-day year (consisting of twelve 30-day months). Accumulated dividends on shares of Mandatory Convertible Preferred Stock shall not bear interest, nor shall additional dividends be payable thereon, if they are paid subsequent to the applicable Dividend Payment Date.
 
No dividend shall be paid unless and until the Board of Directors, or an authorized committee of the Board of Directors, declares a dividend payable with respect to the Mandatory Convertible Preferred Stock. No dividend shall be declared or paid upon, or any sum of cash or number of shares of Common Stock set apart for the payment of dividends upon, any outstanding shares of Mandatory Convertible Preferred Stock with respect to any Dividend Period unless all dividends for all preceding Dividend Periods have been declared and paid upon, or a sufficient sum of cash or number of shares of Common Stock have been set apart for the payment of such dividends upon, all outstanding shares of Mandatory Convertible Preferred Stock.
 
Holders shall not be entitled to any dividends on Mandatory Convertible Preferred Stock, whether payable in cash, property or shares of Common Stock, in excess of full cumulative dividends.

Except as described in this Statement with Respect to Shares, dividends on Mandatory Convertible Preferred Stock shall cease to accumulate on July 1, 2023, the Fundamental Change Conversion Date or the Early Conversion Date, as applicable.
 
(b)  Priority of Dividends. So long as any share of Mandatory Convertible Preferred Stock remains outstanding, no dividend or distribution shall be declared or paid on Common Stock or any other class or series of Junior Stock, and no Common Stock or any other class or series of Junior Stock or Parity Stock shall be, directly or indirectly, purchased, redeemed or otherwise acquired for consideration by the Corporation or any of its Subsidiaries unless all accumulated and unpaid dividends for all preceding Dividend Periods have been declared and paid in full in cash, shares of the Common Stock or a combination thereof upon, or a sufficient sum of cash or number of shares of Common Stock has been set apart for the payment of such dividends upon, all outstanding shares of Mandatory Convertible Preferred Stock. The foregoing limitation shall not apply to:
A-8
Exhibit 3.03

(i)any dividend or distribution payable in shares of Common Stock or any other class or series of the Corporation’s capital stock that is neither Parity Stock nor Senior Stock;
(ii)purchases, redemptions or other acquisitions of Common Stock, other Junior Stock or Parity Stock in connection with the administration of any benefit or other incentive plan, including any employment contract, in the ordinary course of business;
(iii)purchases to offset the Share Dilution Amount pursuant to a publicly announced repurchase plan, or acquisitions of shares of Common Stock surrendered, deemed surrendered or withheld in connection with the exercise of stock options or the vesting of restricted shares, restricted shares units, restricted share equivalents, performance share units, or instruments similar to any of the foregoing (provided that the number of shares purchased to offset the Share Dilution Amount shall in no event exceed the Share Dilution Amount);
(iv)purchases of Common Stock or any other class or series of the Corporation’s capital stock that is neither Parity Stock nor Senior Stock pursuant to a contractually binding requirement to buy Common Stock or any such other class or series of the Corporation’s capital stock existing prior to the date of the Prospectus Supplement;
(v)any dividends or distributions of rights or any class or series of the Corporation’s capital stock that is neither Parity Stock nor Senior Stock in connection with a shareholders’ rights plan or any redemption or repurchase of rights pursuant to any shareholders’ rights plan;
(vi)the exchange or conversion of any class or series of the Corporation’s capital stock that is neither Parity Stock nor Senior Stock for or into other class or series of the Corporation’s capital stock that is neither Parity Stock nor Senior Stock or of Parity Stock for or into other Parity Stock (with the same or lesser aggregate liquidation preference) or any class or series of the Corporation’s capital stock that is neither Parity Stock nor Senior Stock and, in each case, the payment of cash solely in lieu of fractional shares; and
(vii)the deemed purchase or acquisition of fractional interests in shares of the Common Stock, any other class or series of the Corporation’s capital stock that is neither Parity Stock nor Senior Stock or Parity Stock pursuant to the conversion or exchange provisions of such shares or the security being converted or exchanged.
When dividends on shares of the Mandatory Convertible Preferred Stock (i) have not been declared and paid in full on any Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from such Dividend Payment Dates, on a dividend payment date falling within a regular dividend period related to such Dividend Payment Date), or (ii) have been declared but a sum of cash or number of shares of Common Stock sufficient for payment thereof has not been set aside for the benefit of the Holders thereof on the applicable Regular Record Date, no dividends may be declared or paid on any shares of Parity Stock unless dividends are declared on the shares of Mandatory Convertible Preferred Stock such that the respective amounts of such dividends declared on the shares of Mandatory Convertible Preferred Stock and such shares of Parity Stock shall be allocated pro rata among the Holders of the shares of Mandatory Convertible Preferred Stock and the holders of any shares of Parity Stock then outstanding. For purposes of calculating the pro rata allocation of partial dividend payments, the Corporation shall allocate those payments so that the respective amounts of those payments for the declared dividend bear the same ratio to each other as all accumulated and unpaid dividends per share on the shares of Mandatory Convertible Preferred Stock and such shares of Parity Stock bear to each other (subject to their having been declared by the Board of Directors, or an authorized committee thereof, out of funds available to pay dividends); provided that any unpaid dividends on the Mandatory Convertible Preferred Stock will continue to accumulate. For purposes of this calculation, with respect to non-cumulative Parity Stock, the Corporation shall use the full amount of dividends that would be payable for the most recent dividend period if dividends were declared in full on such non-cumulative Parity Stock.
 
Subject to the foregoing, and not otherwise, such dividends as may be determined by the Board of Directors (or an authorized committee thereof) may be declared and paid (payable in cash or other property or securities) on any securities, including Common Stock and other Junior Stock, from time to time out of funds available to pay dividends, and Holders shall not be entitled to participate in any such dividends.
 
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Exhibit 3.03
(c) Method of Payment of Dividends. (i) Subject to the limitations set forth in Section 3(e), the Corporation may pay any declared dividend (or any portion of any declared dividend) on the shares of Mandatory Convertible Preferred Stock, whether or not for a current Dividend Period or any prior Dividend Period, as determined in the Corporation’s sole discretion:
 
(A) in cash;
 
(B)  by delivery of shares of Common Stock; or
 
(C)  through any combination of cash and shares of Common Stock.
 
(ii) The Corporation shall make each payment of a declared dividend on the shares of Mandatory Convertible Preferred Stock in cash, except to the extent the Corporation elects to make all or any portion of such payment in shares of Common Stock. The Corporation shall give notice to Holders of any such election, and the portion of such payment that will be made in cash and the portion that will be made in shares of Common Stock, no later than ten Scheduled Trading Days prior to the Dividend Payment Date for such dividend, provided that if the Corporation does not provide timely notice of such election, the Corporation shall be deemed to have elected to pay such relevant dividend in cash.
 
(iii) All cash payments to which a Holder is entitled in connection with a declared dividend on the shares of Mandatory Convertible Preferred Stock will be computed to the nearest cent. If the Corporation elects to make any such payment of a declared dividend, or any portion thereof, in shares of Common Stock, such shares shall be valued for such purpose, in the case of any dividend payment or portion thereof, at the product of (x) 97% and (y) the Average VWAP per share of Common Stock over the five consecutive Trading Day period ending on, and including, the second Trading Day prior to the applicable Dividend Payment Date (the price set forth in clause (y), “Average Price”).
 
(d) No fractional shares of Common Stock shall be delivered to the Holders in payment or partial payment of dividends. A cash adjustment (computed to the nearest cent) shall instead be paid by the Corporation, to the extent the Corporation is legally permitted to do so (including under the terms of the Credit Agreement), to each Holder that would otherwise be entitled to receive a fraction of a share of Common Stock based on the Average Price with respect to such dividend. In the event that the Corporation cannot pay cash in lieu of a fractional share (whether under the terms of the Credit Agreement or otherwise), the Corporation shall instead round up to the nearest whole share for each Holder.
 
(e) Notwithstanding the foregoing, in no event shall the number of shares of Common Stock delivered in connection with any declared dividend, including any declared dividend payable in connection with a conversion, exceed a number equal to:

(i) the declared dividend divided by
(ii)$15.05, subject to adjustment in a manner inversely proportional to any anti-dilution adjustment to each Fixed Conversion Rate as provided in Section 13 (such dollar amount, as adjusted, the “Floor Price”).
To the extent that the amount of any declared dividend exceeds the product of (x) the number of shares of Common Stock delivered in connection with such declared dividend and (y) 97% of the Average Price, the Corporation shall, to the extent it is able to do so under applicable Pennsylvania law, notwithstanding any notice by the Corporation to the contrary, pay such excess amount in cash (computed to the nearest cent). To the extent that the Corporation is not able to pay such excess amount in cash under applicable Pennsylvania law, the Corporation shall not have any obligation to pay such amount in cash or deliver additional shares of Common Stock in respect of such amount, and such amount shall not form a part of the cumulative dividends that may be deemed to accumulate on the shares of Mandatory Convertible Preferred Stock.
(f)  To the extent that a Shelf Registration Statement is required in the Corporation’s reasonable judgment in connection with the issuance of, or for resales of, Common Stock issued as payment of a dividend on the shares of Mandatory Convertible Preferred Stock, including dividends paid in connection with a conversion, the Corporation shall, to the extent such a Shelf Registration Statement is not currently filed and effective, use its commercially reasonable efforts to file and maintain the effectiveness of such a Shelf Registration Statement until the earlier of such time as all such shares of Common Stock have been
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Exhibit 3.03
resold thereunder and such time as all such shares are freely tradable without registration pursuant to Rule 144 under the Securities Act by holders thereof that are not, and have not been within the three months preceding, “affiliates” of the Corporation for purposes of the Securities Act. To the extent applicable, the Corporation shall also use its commercially reasonable efforts to have such shares of Common Stock approved for listing on The Nasdaq Global Select Market (or if the Common Stock is not listed on The Nasdaq Global Select Market, on the principal other U.S. national or regional securities exchange on which the Common Stock is then listed), and qualified or registered under applicable state securities laws, if required; provided that the Corporation shall not be required to qualify as a foreign corporation or to take any action that would subject it to general service of process in any such jurisdiction where it is not presently qualified or where it is not presently subject to taxation as a foreign corporation and such qualification or action would subject it to such taxation.
 
Section 4. Liquidation, Dissolution or Winding-Up. (a) In the event of any voluntary or involuntary liquidation, winding-up or dissolution of the Corporation, each Holder shall be entitled to receive, per share of Mandatory Convertible Preferred Stock, the Liquidation Preference of $200.00 per share of the Mandatory Convertible Preferred Stock, plus an amount (the “Liquidation Dividend Amount”) equal to accumulated and unpaid dividends on such share, whether or not declared, to, but excluding, the date fixed for liquidation, winding-up or dissolution to be paid out of the assets of the Corporation legally available for distribution to its shareholders, after satisfaction of indebtedness and other liabilities owed to the Corporation’s creditors and holders of shares of any class or series of the Corporation’s capital stock ranking senior to the Mandatory Convertible Preferred Stock as to distribution rights upon the Corporation’s liquidation, winding-up or dissolution and before any payment or distribution is made to holders of shares of any class or series of the Corporation’s capital stock ranking junior to the Mandatory Convertible Preferred Stock as to distribution rights upon liquidation, winding-up or dissolution, including, without limitation, Common Stock.
 
(b) If, upon the voluntary or involuntary liquidation, winding-up or dissolution of the Corporation, the amounts payable with respect to (1) the Liquidation Preference plus the Liquidation Dividend Amount of the Mandatory Convertible Preferred Stock and (2) the liquidation preference of, and the amount of accumulated and unpaid dividends, whether or not declared, to, but excluding, the date fixed for such liquidation, winding-up or dissolution, on all Parity Stock, if applicable, are not paid in full, all Holders and all holders of any such Parity Stock shall share equally and ratably in any distribution of the Corporation’s assets in proportion to their respective liquidation preferences and amounts equal to the accumulated and unpaid dividends (if any) to which they are entitled.
 
(c) After the payment to any Holder of the full amount of the Liquidation Preference and the Liquidation Dividend Amount for each of such Holder’s shares of Mandatory Convertible Preferred Stock, such Holder as such shall have no right or claim to any of the remaining assets of the Corporation.
 
(d) Neither the sale, lease nor exchange of all or substantially all of Corporation’s assets or business (other than in connection with the liquidation, winding-up or dissolution of the Corporation), nor the Corporation’s merger or consolidation into or with any other Person, shall be deemed to be the voluntary or involuntary liquidation, winding-up or dissolution of the Corporation.

(e) The Corporation shall not be required to set aside funds to protect the Liquidation Preference of the Mandatory Convertible Preferred Stock.
 
Section 5. [Reserved].


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Exhibit 3.03
Section 6. Voting Rights.
 
(a) General. Holders shall not have any voting rights other than those set forth in this Section 6, except as specifically required by Pennsylvania law or by the Articles of Incorporation from time to time.
 
(b) Right to Elect Two Directors Upon Nonpayment. (i) Whenever dividends on any shares of Mandatory Convertible Preferred Stock have not been declared and paid for the equivalent of six or more dividend periods (including, for the avoidance of doubt, the Dividend Period beginning on, and including, the Initial Issue Date and ending on, but excluding, October 1, 2020), whether or not for consecutive Dividend Periods (a “Nonpayment”), the authorized number of directors on the Board of Directors shall, at the next annual meeting of shareholders or at a special meeting of shareholders as provided below, automatically be increased by two and Holders of record, voting together as a single class with holders of record of any and all other series of Voting Preferred Stock then outstanding, shall be entitled, at the Corporation’s next annual meeting of shareholders or at a special meeting of shareholders as provided below, to vote for the election of a total of two additional members of the Board of Directors (the “Preferred Stock Directors”); provided that the election of any such Preferred Stock Directors will not cause the Corporation to violate the corporate governance requirements of The Nasdaq Global Select Market (or any other exchange or automated quotation system on which the Corporation’s securities may be listed or quoted) that requires listed or quoted companies to have a majority of independent directors; provided further that the Board of Directors shall, at no time, include more than two Preferred Stock Directors.

(ii) In the event of a Nonpayment, the Holders of at least 25% of the shares of Mandatory Convertible Preferred Stock and holders of record of any other series of Voting Preferred Stock may request that a special meeting of shareholders be called to elect such Preferred Stock Directors (provided, however, to the extent permitted by the By-Laws, if the next annual or a special meeting of shareholders is scheduled to be held within 90 days of the receipt of such request, the election of such Preferred Stock Directors shall be included in the agenda for, and shall be held at, such scheduled annual or special meeting of shareholders). The Preferred Stock Directors shall stand for reelection annually, at each subsequent annual meeting of the shareholders, so long as the Holders continue to have such voting rights. At any meeting at which the Holders are entitled to elect Preferred Stock Directors, the holders of record of a majority of the then outstanding shares of Mandatory Convertible Preferred Stock and all other series of Voting Preferred Stock, present in person or represented by proxy, shall constitute a quorum and the vote of the holders of record of a majority of such shares of Mandatory Convertible Preferred Stock and other Voting Preferred Stock so present or represented by proxy at any such meeting at which there shall be a quorum shall be sufficient to elect the Preferred Stock Directors. Whether a plurality, majority or other portion in voting power of Mandatory Convertible Preferred Stock and any other Voting Preferred Stock have been voted in favor of any matter shall be determined by reference to the respective liquidation preference amounts of the Mandatory Convertible Preferred Stock and such other Voting Preferred Stock voted.
 
(iii) If and when all accumulated and unpaid dividends on the Mandatory Convertible Preferred Stock have been paid in full (a “Nonpayment Remedy”), the Holders shall immediately and, without any further action by the Corporation, be divested of the voting rights described in this Section 6(b), subject to the revesting of such rights in the event of each subsequent Nonpayment. If such voting rights for the Holders and all other holders of Voting Preferred Stock shall have terminated, the term of office of each Preferred Stock Director so elected shall terminate at such time and the authorized number of directors on the Board of Directors shall automatically decrease by two.
 
(iv)  Any Preferred Stock Director may be removed at any time, with or without cause, by the Holders of record of a majority in voting power of the outstanding shares of Mandatory Convertible Preferred Stock and any other series of Voting Preferred Stock then outstanding (voting together as a single class) when they have the voting rights described in this Section 6(b). In the event that a Nonpayment shall have occurred and there shall not have been a Nonpayment Remedy, any vacancy in the office of a Preferred Stock Director (other than prior to the initial election of Preferred Stock Directors after a Nonpayment) may be filled by the written consent of the Preferred Stock Director remaining in office, except in the event that such vacancy is created as a result of such Preferred Stock Director being removed or if no Preferred Stock Director remains in office, such vacancy may be filled by a vote of the Holders of record of a majority in voting power of the outstanding shares of Mandatory Convertible Preferred Stock and any other series of Voting Preferred Stock then outstanding (voting together as a single class) when they have the voting rights described above; provided that the election of any such Preferred Stock Directors to fill such vacancy will not cause the Corporation to violate the corporate governance requirements of The Nasdaq Global Select Market (or any other exchange or automated quotation system on which the Corporation’s securities may be listed or quoted) that requires listed or quoted companies to have a majority of independent
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Exhibit 3.03
directors. The Preferred Stock Directors shall each be entitled to one vote per director on any matter that shall come before the Board of Directors for a vote.

(c) Other Voting Rights. So long as any shares of Mandatory Convertible Preferred Stock are outstanding, in addition to any other vote or consent of shareholders required by applicable Pennsylvania law or by the Articles of Incorporation, the Corporation shall not, without the affirmative vote or consent of the Holders of at least two-thirds in voting power of the outstanding shares of Mandatory Convertible Preferred Stock and all other series of Voting Preferred Stock at the time outstanding and entitled to vote thereon, voting together as a single class, given in person or by proxy, either in writing or at an annual or special meeting of such shareholders:
 
(i) amend or alter the provisions of Articles of Incorporation so as to authorize or create, or increase the authorized amount of, any Senior Stock;
 
(ii) amend, alter or repeal the provisions of the Articles of Incorporation or this Statement with Respect to Shares so as to adversely affect the special rights, preferences, privileges or voting powers of the Mandatory Convertible Preferred Stock; or
 
(iii) consummate a binding share exchange or reclassification involving the shares of Mandatory Convertible Preferred Stock or a merger or consolidation of the Corporation with another entity, unless in each case: (i) the shares of Mandatory Convertible Preferred Stock remain outstanding and are not amended in any respect or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, are converted or reclassified into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent; and (ii) such Mandatory Convertible Preferred Stock remaining outstanding or such preference securities, as the case may be, have such special rights, preferences, privileges and voting powers, taken as a whole, as are not materially less favorable to the holders thereof than the special rights, preferences, privileges and voting powers of the Mandatory Convertible Preferred Stock immediately prior to such consummation;
 
provided, however, that in the event a transaction would trigger voting rights under clauses (ii) and (iii) above, clause (iii) shall govern; provided, further, however, that for all purposes of this Section 6(c):
(1)any increase in the amount of the Corporation’s authorized but unissued shares of Preferred Stock,
(2)any increase in the amount of the Corporation’s authorized or issued shares of Mandatory Convertible Preferred Stock, and
(3)the creation and issuance, or an increase in the authorized or issued amount, of any other series of Parity Stock or any class or series of the Corporation’s capital stock ranking junior to the Mandatory Convertible Preferred Stock as to dividend rights and distribution rights upon the Corporation’s liquidation, winding-up or dissolution,
shall be deemed not to adversely affect the rights, preferences, privileges or voting powers of the Mandatory Convertible Preferred Stock and shall not require the affirmative vote or consent of Holders.
        If any amendment, alteration, repeal, binding share exchange, reclassification, merger or consolidation described in this Section 6(c) would adversely affect the special rights, preferences, privileges or voting powers of one or more but not all series of Voting Preferred Stock (including the Mandatory Convertible Preferred Stock for this purpose), then only the series of Voting Preferred Stock the special rights, preferences, privileges or voting powers of which are adversely affected and entitled to vote, shall vote as a class in lieu of all series of Voting Preferred Stock.
(d) Without the consent of the Holders, so long as such action does not adversely affect the special rights, preferences, privileges or voting powers of the Mandatory Convertible Preferred Stock and limitations and restrictions thereof, the Corporation may amend, alter, supplement or repeal any terms of the Mandatory Convertible Preferred Stock to:

A-13
Exhibit 3.03
(i)to cure any ambiguity, omission or mistake, or to correct or supplement any provision contained in this Statement with Respect to Shares that may be defective or inconsistent with any other provision contained in this Statement with Respect to Shares;
(ii)to make any provision with respect to matters or questions relating to the Mandatory Convertible Preferred Stock that is not inconsistent with the provisions of the Articles of Incorporation or this Statement with Respect to Shares; or
(iii)to waive any of the Corporation’s rights with respect to the Mandatory Convertible Preferred Stock.

(e)Without the consent of the Holders, the Corporation may amend, alter, supplement or repeal any terms of the Mandatory Convertible Preferred Stock to:
(i)  conform the terms of the Mandatory Convertible Preferred Stock to the description thereof in the Prospectus as supplemented and/or amended by the “Description of Mandatory Convertible Preferred Stock” section of the Prospectus Supplement;
(ii) file a statement of correction with respect to this Statement with Respect to Shares to the extent permitted by Section 138 of the Pennsylvania Associations Code; or
(iii) amend this Statement with Respect to Shares in connection with a Reorganization Event to the extent required pursuant to Section 14.
(f)Prior to the close of business on the applicable Conversion Date, the shares of Common Stock issuable upon conversion of the Mandatory Convertible Preferred Stock shall not be outstanding, or deemed to be outstanding, and Holders shall have no voting rights with respect to such shares of Common Stock by virtue of holding the Mandatory Convertible Preferred Stock, including the right to vote on any amendment to the Articles of Incorporation or this Statement with Respect to Shares that would adversely affect the rights of holders of the Common Stock.
(g)The number of votes that each share of Mandatory Convertible Preferred Stock and any Voting Preferred Stock participating in any vote set forth in this Section 6 shall have shall be in proportion to the liquidation preference of such share.
(h)The rules and procedures for calling and conducting any meeting of the Holders (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other procedural aspect or matter with regard to such a meeting or such consents shall be governed by any rules the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Articles of Incorporation, the By-Laws, applicable law and the rules of any national securities exchange or other trading facility on which the Mandatory Convertible Preferred Stock is listed or traded at the time.
Section 7.  Mandatory Conversion on the Mandatory Conversion Date. (a) Each outstanding share of Mandatory Convertible Preferred Stock shall automatically convert (unless previously converted in accordance with Section 8 or Section 9) on the Mandatory Conversion Date (“Mandatory Conversion”), into a number of shares of Common Stock equal to the Mandatory Conversion Rate. If the Mandatory Conversion Date occurs after July 1, 2023 (whether because a Scheduled Trading Day during the Settlement Period is not a Trading Day due to the occurrence of a Market Disruption Event or otherwise), no interest or other amounts shall accrue as a result of such postponement.
 
(b) The “Mandatory Conversion Rate” shall, subject to adjustment in accordance with Section 7(c), be as follows:
 
(i) if the Applicable Market Value is greater than the Threshold Appreciation Price, then the Mandatory Conversion Rate shall be equal to 3.8760 shares of Common Stock per share of Mandatory Convertible Preferred Stock (the “Minimum Conversion Rate”);
 
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Exhibit 3.03
(ii)  if the Applicable Market Value is less than or equal to the Threshold Appreciation Price but equal to or greater than the Initial Price, then the Mandatory Conversion Rate per share of Mandatory Convertible Preferred Stock shall be equal to $200.00 divided by the Applicable Market Value, rounded to the nearest ten-thousandth of a share of Common Stock; or
 
(iii) if the Applicable Market Value is less than the Initial Price, then the Mandatory Conversion Rate shall be equal to 4.6512 shares of Common Stock per share of Mandatory Convertible Preferred Stock (the “Maximum Conversion Rate”);
 
provided that the Fixed Conversion Rates are each subject to adjustment in accordance with the provisions of Section 13.
 
(c) If the Corporation declares a dividend on the Mandatory Convertible Preferred Stock for the Dividend Period ending on, but excluding, July 1, 2023, the Corporation shall pay such dividend to the Record Holders as of the immediately preceding Regular Record Date, in accordance with Section 3. If on or prior to July 1, 2023, the Corporation has not declared all or any portion of the accumulated and unpaid dividends on the Mandatory Convertible Preferred Stock through July 1, 2023, the Mandatory Conversion Rate shall be adjusted so that Holders receive an additional number of shares of Common Stock equal to:

(i)the amount of such accumulated and unpaid dividends that have not been declared (“Mandatory Conversion Additional Conversion Amount”), divided by
(ii)the greater of (x) the Floor Price and (y) 97% of the Average Price (calculated using July 1, 2023 as the applicable Dividend Payment Date).
To the extent that the Mandatory Conversion Additional Conversion Amount exceeds the product of such number of additional shares and 97% of the Average Price, the Corporation shall, to the extent it is able to do so under applicable Pennsylvania law, declare and pay such excess amount in cash (computed to the nearest cent) pro rata per share to the Holders. To the extent that the Corporation is not able to pay such excess amount in cash under applicable Pennsylvania law, the Corporation shall not have any obligation to pay such amount in cash or deliver additional shares of Common Stock in respect of such amount, and such amount will not form a part of the cumulative dividends that may be deemed to accumulate on the shares of Mandatory Convertible Preferred Stock.    
Section 8. Early Conversion at the Option of the Holder. (a) Other than during a Fundamental Change Conversion Period, subject to satisfaction of the conversion procedures set forth in Section 10, the Holders shall have the right to convert their Mandatory Convertible Preferred Stock, in whole or in part (but in no event less than one share of Mandatory Convertible Preferred Stock), at any time prior to July 1, 2023 (“Early Conversion”), into shares of Common Stock at the Minimum Conversion Rate, subject to adjustments in accordance with Section 8(b).
 
(b) If, as of any Early Conversion Date, the Corporation has not declared all or any portion of the accumulated and unpaid dividends for all full Dividend Periods ending on or before the Dividend Payment Date immediately prior to such Early Conversion Date, the Minimum Conversion Rate shall be adjusted, with respect to the relevant Early Conversion, so that the Holders converting their Mandatory Convertible Preferred Stock at such time receive an additional number of shares of Common Stock equal to:

(i)the amount of such accumulated and unpaid dividends per share of Mandatory Convertible Preferred Stock that have not been declared for such prior full Dividend Periods (the “Early Conversion Additional Conversion Amount”), divided by
(ii)the greater of (x) the Floor Price and (y) the Average VWAP per share of the Common Stock over the 20 consecutive Trading Day period (the “Early Conversion Settlement Period”) commencing on, and including, the 21st Scheduled Trading Day immediately preceding the Early Conversion Date (such average being referred to as the “Early Conversion Average Price”).
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Exhibit 3.03
To the extent that the Early Conversion Additional Conversion Amount exceeds the product of such number of additional shares of Common Stock and the Early Conversion Average Price, the Corporation shall not have any obligation to pay the shortfall in cash or deliver shares of Common Stock in respect of such shortfall.
Except as set forth in the first sentence of this Section 8(b), upon any Early Conversion of any shares of Mandatory Convertible Preferred Stock, the Corporation shall make no payment or allowance for unpaid dividends on such shares of Mandatory Convertible Preferred Stock, unless such Early Conversion Date occurs after the Regular Record Date for a declared dividend and on or prior to the immediately succeeding Dividend Payment Date, in which case the Corporation shall pay such dividend on such Dividend Payment Date to the Record Holder of the converted shares of Mandatory Convertible Preferred Stock as of such Regular Record Date, in accordance with Section 3.
Section 9. Fundamental Change Conversion. (a) If a Fundamental Change occurs on or prior to July 1, 2023, the Holders shall have the right (the “Fundamental Change Conversion Right”) during the Fundamental Change Conversion Period to:

(i)convert their shares of Mandatory Convertible Preferred Stock, in whole or in part (but in no event less than one share of Mandatory Convertible Preferred Stock) (any such conversion pursuant to this Section 9(a) being a “Fundamental Change Conversion”) into a number of shares of Common Stock (or, to the extent applicable, Units of Exchange Property in accordance with Section 14) equal to the Fundamental Change Conversion Rate per share of Mandatory Convertible Preferred Stock;
(ii)with respect to such converted shares of Mandatory Convertible Preferred Stock, receive an amount equal to the present value, calculated using a discount rate of 5.00% per annum, of all dividend payments on such shares (excluding any Accumulated Dividend Amount) for (a) the partial Dividend Period, if any, from, and including, the Fundamental Change Effective Date to, but excluding, the next Dividend Payment Date and (b) all the remaining full Dividend Periods from, and including, the Dividend Payment Date following the Fundamental Change Effective Date to, but excluding, July 1, 2023 (the “Fundamental Change Dividend Make-whole Amount”), payable in cash to the extent the Corporation is legally permitted to do so or in shares of Common Stock; and
(iii)with respect to such converted shares of Mandatory Convertible Preferred Stock, receive the Accumulated Dividend Amount payable in cash or shares of Common Stock,
subject in the case of clauses (ii) and (iii) to the Corporation’s right to deliver shares of Common Stock in lieu of all or part of such amounts as set forth in Section 9(d); provided that, if the Fundamental Change Effective Date or the Fundamental Change Conversion Date falls after the Regular Record Date for a declared dividend and prior to the next Dividend Payment Date, the Corporation shall pay such dividend on such Dividend Payment Date to the Record Holders as of such Regular Record Date, in accordance with Section 3, and such dividend shall not be included in the Accumulated Dividend Amount, and the Fundamental Change Dividend Make-whole Amount shall not include the present value of the payment of such dividend.

(b) To exercise the Fundamental Change Conversion Right, Holders must submit their shares of Mandatory Convertible Preferred Stock for conversion at any time during the Fundamental Change Conversion Period. Holders that submit their shares of Mandatory Convertible Preferred Stock for conversion during the Fundamental Change Conversion Period shall be deemed to have exercised their Fundamental Change Conversion Right. Holders who do not submit their shares for conversion during the Fundamental Change Conversion Period shall not be entitled to convert their shares of Mandatory Convertible Preferred Stock at the relevant Fundamental Change Conversion Rate or to receive the relevant Fundamental Change Dividend Make-whole Amount or the relevant Accumulated Dividend Amount.
 
The Corporation shall provide written notice (the “Fundamental Change Notice”) to Holders of the anticipated Fundamental Change Effective Date as soon as reasonably practicable and in any event no later than the second Business Day immediately following the actual Fundamental Change Effective Date. The Fundamental Change Notice shall state:
 
(i)  the event causing the Fundamental Change;
 
A-16
Exhibit 3.03
(ii) the anticipated Fundamental Change Effective Date or actual Fundamental Change Effective Date, as the case may be;
 
(iii)  that Holders shall have the right to effect a Fundamental Change Conversion in connection with such Fundamental Change during the Fundamental Change Conversion Period;
 
(iv)  the Fundamental Change Conversion Period; and
 
(v)  the instructions a Holder must follow to effect a Fundamental Change Conversion in connection with such Fundamental Change.
  
(c)  As soon as reasonably practicable and in any event no later than the second Business Day immediately following the Fundamental Change Effective Date, the Corporation shall notify Holders of:
 
(i) the Fundamental Change Conversion Rate;
 
(ii) the Fundamental Change Dividend Make-whole Amount and whether the Corporation will pay such amount in cash, shares of Common Stock (or, to the extent applicable, Units of Exchange Property) or a combination thereof, specifying the combination, if applicable; and
 
(iii) the Accumulated Dividend Amount as of the Fundamental Change Effective Date and whether the Corporation will pay such amount in cash, shares of Common Stock (or, to the extent applicable, Units of Exchange Property) or a combination thereof, specifying the combination, if applicable.
 
(d) (i) For any shares of Mandatory Convertible Preferred Stock that are converted during the Fundamental Change Conversion Period, in addition to the Common Stock issued upon conversion at the Fundamental Change Conversion Rate, the Corporation shall at its option (subject to satisfaction of the requirements of this Section):
 
(A)  pay the Fundamental Change Dividend Make-whole Amount in cash (computed to the nearest cent), to the extent the Corporation is legally permitted to do so;
 
(B)  increase the number of shares of Common Stock (or, to the extent applicable, Units of Exchange Property) to be issued on conversion by a number equal to (x) the Fundamental Change Dividend Make-whole Amount divided by (y) the greater of (i) the Floor Price and (ii) 97% of the Fundamental Change Share Price; or
 
(C)  pay the Fundamental Change Dividend Make-whole Amount in a combination of cash and shares of Common Stock (or, to the extent applicable, Units of Exchange Property) in accordance with the provisions of clauses (A) and (B) above.
 
(ii) In addition, to the extent that the Accumulated Dividend Amount exists as of the Fundamental Change Effective Date and subject to the limitations described in this Section 9(d), the converting Holder shall be entitled to receive such Accumulated Dividend Amount upon such Fundamental Change Conversion. The Corporation shall, at its option, pay the Accumulated Dividend Amount (subject to satisfaction of the requirements of this Section):
 
(A)  in cash (computed to the nearest cent), to the extent the Corporation is legally permitted to do so;
 
(B)  in an additional number of shares of Common Stock (or, to the extent applicable, Units of Exchange Property) equal to (x) the Accumulated Dividend Amount divided by (y) the greater of (i) the Floor Price and (ii) 97% of the Fundamental Change Share Price; or
 
(C)  through any combination of cash and shares of Common Stock (or, to the extent applicable, Units of Exchange Property) in accordance with the provisions of clauses (A) and (B) above.
 
A-17
Exhibit 3.03
(iii) The Corporation shall pay the Fundamental Change Dividend Make-whole Amount and the Accumulated Dividend Amount in cash, except to the extent the Corporation elects on or prior to the second Business Day following the relevant Fundamental Change Effective Date to make all or any portion of such payments in shares of Common Stock (or, to the extent applicable, Units of Exchange Property). If the Corporation elects to deliver Common Stock (or, to the extent applicable, Units of Exchange Property) in respect of all or any portion of the Fundamental Change Dividend Make-whole Amount or the Accumulated Dividend Amount, to the extent that the Fundamental Change Dividend Make-whole Amount or the Accumulated Dividend Amount (or, if applicable, the dollar amount of any portion thereof paid in Common Stock (or, to the extent applicable, Units of Exchange Property)) exceeds the product of the number of additional shares the Corporation delivers in respect thereof and 97% of the Fundamental Change Share Price, the Corporation shall, if it is able to do so under applicable Pennsylvania law, pay such excess amount in cash (computed to the nearest cent). To the extent that the Corporation is not able to pay such excess amount in cash under applicable Pennsylvania law, the Corporation shall not have any obligation to pay such amount in cash or deliver additional shares of Common Stock in respect of such amount.
 
(iv) No fractional shares of Common Stock (or, to the extent applicable, Units of Exchange Property) shall be delivered by the Corporation to converting Holders in respect of the Fundamental Change Dividend Make-whole Amount or the Accumulated Dividend Amount. The Corporation shall instead, to the extent legally permissible and in compliance with the terms of the Corporation’s then-existing indebtedness (including the Credit Agreement), pay a cash adjustment (computed to the nearest cent) to each converting Holder that would otherwise be entitled to receive a fraction of a share of Common Stock (or, to the extent applicable, Units of Exchange Property) based on the Average VWAP per share of Common Stock (or, to the extent applicable, Units of Exchange Property) over the five consecutive Trading Day period ending on, and including, the second Trading Day immediately preceding the relevant Fundamental Change Conversion Date. In the event that the Corporation cannot pay cash in lieu of a fractional share (whether under the terms of the Credit Agreement or otherwise), the Corporation shall instead round up to the nearest whole share for each Holder.

(v) If the Corporation is prohibited from paying or delivering, as the case may be, the Fundamental Change Dividend Make-whole Amount (whether in cash or in shares of Common Stock), in whole or in part, due to limitations of applicable Pennsylvania law, the Fundamental Change Conversion Rate will instead be increased by a number of shares of Common Stock equal to:

(A) the cash amount of the aggregate unpaid and undelivered Fundamental Change Dividend Make-whole Amount, divided by
 
(B)  the greater of (i) the Floor Price and (ii) 97% of the Fundamental Change Share Price.

To the extent that the cash amount of the aggregate unpaid and undelivered Fundamental Change Dividend Make-whole Amount exceeds the product of such number of additional shares and 97% of the Fundamental Change Share Price, the Corporation shall not have any obligation to pay the shortfall in cash or deliver additional shares of Common Stock in respect of such amount.
 
Section 10. Conversion Procedures. (a) Pursuant to Section 7, on the Mandatory Conversion Date, any outstanding shares of Mandatory Convertible Preferred Stock shall automatically convert into shares of Common Stock.

If more than one share of the Mandatory Convertible Preferred Stock held by the same Holder is automatically converted on the Mandatory Conversion Date, the number of shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Mandatory Convertible Preferred Stock so converted. A Holder of shares of the Mandatory Convertible Preferred Stock that are mandatorily converted shall not be required to pay any transfer taxes or duties relating to the issuance or delivery of the Common Stock, except that such Holder shall be required to pay any tax or duty that may be payable relating to any transfer involved in the issuance or delivery of the Common Stock in a name other than the name of such Holder.

A certificate representing the shares of Common Stock issuable upon conversion shall be issued and delivered to the converting Holder or, if Mandatory Convertible Preferred Stock being converted are in book-entry form, the shares of Common Stock issuable upon conversion shall be delivered to the converting Holder through book-entry transfer through the facilities of the Depositary, in each case, together with delivery by the Corporation to the converting Holder of any cash to which the converting
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Exhibit 3.03
Holder is entitled, on the later of (i) the Mandatory Conversion Date and (ii) the Business Day after the Holder has paid in full all applicable taxes and duties, if any.

The Person or Persons entitled to receive the shares of Common Stock issuable upon Mandatory Conversion shall be treated as the record holder(s) of such shares of Common Stock as of the close of business on the Mandatory Conversion Date. Except as provided under Section 13, prior to the close of business on the Mandatory Conversion Date, the Common Stock issuable upon conversion of Mandatory Convertible Preferred Stock shall not be outstanding, or deemed to be outstanding, for any purpose and Holders shall have no rights, powers, preferences or privileges with respect to such Common Stock, including voting rights, rights to respond to tender offers and rights to receive any dividends or other distributions on the Common Stock, by virtue of holding Mandatory Convertible Preferred Stock.
 
(b) To effect an Early Conversion pursuant to Section 8, a Holder must:
(i)complete and manually sign the conversion notice on the back of the Mandatory Convertible Preferred Stock certificate or a facsimile of such conversion notice;
(ii)deliver the completed conversion notice and the certificated shares of Mandatory Convertible Preferred Stock to be converted to the Conversion and Dividend Disbursing Agent; and
(iii)if required, furnish appropriate endorsements and transfer documents.
Notwithstanding the foregoing, to effect an Early Conversion pursuant to Section 8 of shares of Mandatory Convertible Preferred Stock represented by Global Preferred Shares, the Holder must, in lieu of the foregoing, comply with the applicable procedures of DTC (or any other Depositary for the shares of Mandatory Convertible Preferred Stock represented by Global Preferred Shares appointed by the Corporation).
The Early Conversion shall be effective on the date on which a Holder has satisfied the foregoing requirements, to the extent applicable (“Early Conversion Date”).

If more than one share of the Mandatory Convertible Preferred Stock is surrendered for conversion at one time by or for the same Holder, the number of shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of the Mandatory Convertible Preferred Stock so surrendered.

A Holder shall not be required to pay any taxes or duties relating to the issuance or delivery of Common Stock upon conversion, but such Holder shall be required to pay any tax or duty that may be payable relating to any transfer involved in the issuance or delivery of Common Stock in a name other than the name of such Holder.

A certificate representing the shares of Common Stock issuable upon conversion shall be issued and delivered to the converting Holder or, if Mandatory Convertible Preferred Stock being converted are in book-entry form, the shares of Common Stock issuable upon conversion shall be delivered to the converting Holder through book-entry transfer through the facilities of the Depositary, in each case, together with delivery by the Corporation to the converting Holder of any cash to which the converting Holder is entitled, on the latest of (i) the second Business Day immediately succeeding the Early Conversion Date, (ii) the second Business Day immediately succeeding the last day of the Early Conversion Settlement Period, and (iii) the Business Day after the Holder has paid in full all applicable taxes and duties, if any.
 
The Person or Persons entitled to receive the shares of Common Stock issuable upon Early Conversion shall be treated for all purposes as the record holder(s) of such shares of Common Stock as of the close of business on the applicable Early Conversion Date. Except as set forth in Section 13, prior to the close of business on such applicable Early Conversion Date, the shares of Common Stock issuable upon conversion of any shares of Mandatory Convertible Preferred Stock shall not be outstanding, or deemed to be outstanding, for any purpose, and Holders shall have no rights with respect to such shares of Common Stock, including voting rights, rights to respond to tender offers for the Common Stock and rights to receive any dividends or other distributions on the Common Stock, by virtue of holding shares of Mandatory Convertible Preferred Stock.
 
A-19
Exhibit 3.03
In the event that an Early Conversion is effected with respect to shares of Mandatory Convertible Preferred Stock representing less than all the shares of Mandatory Convertible Preferred Stock held by a Holder, upon such Early Conversion the Corporation shall execute and instruct the Registrar and Transfer Agent to countersign and deliver to the Holder thereof, at the expense of the Corporation, a certificate evidencing the shares of Mandatory Convertible Preferred Stock as to which Early Conversion was not effected, or, if Mandatory Convertible Preferred Stock is held in book-entry form, the Corporation shall cause the Transfer Agent and Registrar to reduce the number of shares of Mandatory Convertible Preferred Stock represented by Global Preferred Shares by making a notation on Schedule I attached to the Global Preferred Share or otherwise notate such reduction in the register maintained by such Transfer Agent and Registrar.
 
(c) To effect a Fundamental Change Conversion pursuant to Section 9, a Holder must:
(i)complete and manually sign the conversion notice on the back of the Mandatory Convertible Preferred Stock certificate or a facsimile of such conversion notice;
(ii)deliver the completed conversion notice and the certificated shares of Mandatory Convertible Preferred Stock to be converted to the Conversion and Dividend Disbursing Agent; and
(iii)if required, furnish appropriate endorsements and transfer documents.
Notwithstanding the foregoing, to effect a Fundamental Change Conversion pursuant to Section 9 of shares of Mandatory Convertible Preferred Stock represented by Global Preferred Shares, the Holder must, in lieu of the foregoing, comply with the applicable procedures of DTC (or any other Depositary for the shares of Mandatory Convertible Preferred Stock represented by Global Preferred Shares appointed by the Corporation). In either case, if required, such Holder must pay all taxes or duties that may be payable relating to any transfer involved in the issuance or delivery of Common Stock upon conversion in a name other than such Holder.
The Fundamental Change Conversion shall be effective on the date on which a Holder has satisfied the foregoing requirements, to the extent applicable (the “Fundamental Change Conversion Date”).

If more than one share of the Mandatory Convertible Preferred Stock is surrendered for conversion at one time by or for the same Holder, the number of shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of the Mandatory Convertible Preferred Stock so surrendered.

A Holder shall not be required to pay any taxes or duties relating to the issuance or delivery of Common Stock upon conversion, but such Holder shall be required to pay any tax or duty that may be payable relating to any transfer involved in the issuance or delivery of Common Stock in a name other than the name of such Holder.

A certificate representing the shares of Common Stock issuable upon conversion shall be issued and delivered to the converting Holder or, if Mandatory Convertible Preferred Stock being converted are in book-entry form, the shares of Common Stock issuable upon conversion shall be delivered to the converting Holder through book-entry transfer through the facilities of the Depositary, in each case, together with delivery by the Corporation to the converting Holder of any cash to which the converting Holder is entitled, on the later of (i) the second Business Day immediately succeeding the Fundamental Change Conversion Date and (ii) the Business Day after the Holder has paid in full all applicable taxes and duties, if any.
 
The Person or Persons entitled to receive the shares of Common Stock issuable upon such Fundamental Change Conversion shall be treated for all purposes as the record holder(s) of such shares of Common Stock as of the close of business on the applicable Fundamental Change Conversion Date. Except as set forth in Section 13, prior to the close of business on such applicable Fundamental Change Conversion Date, the shares of Common Stock issuable upon conversion of any shares of Mandatory Convertible Preferred Stock shall not be outstanding, or deemed to be outstanding, for any purpose, and Holders shall have no rights with respect to the Common Stock, including voting rights, rights to respond to tender offers for the Common Stock and rights to receive any dividends or other distributions on the Common Stock, by virtue of holding shares of Mandatory Convertible Preferred Stock.
 
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Exhibit 3.03
In the event that a Fundamental Change Conversion is effected with respect to shares of Mandatory Convertible Preferred Stock representing less than all the shares of Mandatory Convertible Preferred Stock held by a Holder, upon such Fundamental Change Conversion the Corporation shall execute and instruct the Registrar and Transfer Agent to countersign and deliver to the Holder thereof, at the expense of the Corporation, a certificate evidencing the shares of Mandatory Convertible Preferred Stock as to which Fundamental Change Conversion was not effected, or, if Mandatory Convertible Preferred Stock is held in book-entry form, the Corporation shall cause the Transfer Agent and Registrar to reduce the number of shares of Mandatory Convertible Preferred Stock represented by Global Preferred Shares by making a notation on Schedule I attached to the Global Preferred Share or otherwise notate such reduction in the register maintained by such Transfer Agent and Registrar.
 
(d) In the event that a Holder shall not by written notice designate the name in which shares of Common Stock to be issued upon conversion of such Mandatory Convertible Preferred Stock should be registered or, if applicable, the address to which the certificate or certificates representing such shares of Common Stock should be sent, the Corporation shall be entitled to register such shares, and make such payment, in the name of the Holder as shown on the records of the Corporation and, if applicable, to send the certificate or certificates representing such shares of Common Stock to the address of such Holder shown on the records of the Corporation.
 
(e) Shares of Mandatory Convertible Preferred Stock shall cease to be outstanding on the applicable Conversion Date, subject to the right of Holders of such shares to receive shares of Common Stock issuable upon conversion of such shares of Mandatory Convertible Preferred Stock and other amounts and shares of Common Stock, if any, to which they are entitled pursuant to Sections 7, 8 or 9, as applicable and, if the applicable Conversion Date occurs after the Regular Record Date for a declared dividend and prior to the immediately succeeding Dividend Payment Date, subject to the right of the Record Holders of such shares of the Mandatory Convertible Preferred Stock on such Regular Record Date to receive payment of the full amount of such declared dividend on such Dividend Payment Date pursuant to Section 3.
 
Section 11. Reservation of Common Stock. (a) The Corporation shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for issuance upon the conversion of shares of Mandatory Convertible Preferred Stock into shares of Common Stock as herein provided, free from any preemptive or other similar rights, a number of shares of Common Stock equal to the maximum number of shares of Common Stock deliverable upon conversion of all shares of Mandatory Convertible Preferred Stock (which shall initially equal a number of shares of Common Stock equal to the sum of (x) the product of (i) 2,300,000 shares of Mandatory Convertible Preferred Stock, and (ii) the initial Maximum Conversion Rate and (y) the product of (i) 2,300,000 shares of Mandatory Convertible Preferred Stock, and (ii) the maximum number of shares of Common Stock that would be added to the Mandatory Conversion Rate assuming (A) the Corporation paid no dividends on the shares of Mandatory Convertible Preferred Stock prior to the Mandatory Conversion Date and (B) the Floor Price is greater than 97% of the relevant Average Price). For purposes of this Section 11(a), the number of shares of Common Stock that shall be deliverable upon the conversion of all outstanding shares of Mandatory Convertible Preferred Stock shall be computed as if at the time of computation all such outstanding shares were held by a single Holder.
 
(b) Notwithstanding the foregoing, the Corporation shall be entitled to deliver upon conversion of shares of Mandatory Convertible Preferred Stock or as payment of any dividend on such shares of Mandatory Convertible Preferred Stock, as herein provided, shares of Common Stock reacquired and held in the treasury of the Corporation (in lieu of the issuance of authorized and unissued shares of Common Stock), so long as any such treasury shares are free and clear of all liens, charges, security interests or encumbrances (other than liens, charges, security interests and other encumbrances created by the Holders).
 
(c) All shares of Common Stock delivered upon conversion of, or as payment of a dividend on, the Mandatory Convertible Preferred Stock shall be duly authorized, validly issued, fully paid and non-assessable, free and clear of all liens, claims, security interests and other encumbrances (other than liens, charges, security interests and other encumbrances created by the Holders) and free of preemptive rights.
 
(d) Prior to the delivery of any securities that the Corporation shall be obligated to deliver upon conversion of Mandatory Convertible Preferred Stock, the Corporation shall use commercially reasonable efforts to comply with all federal and state laws and regulations thereunder requiring the registration of such securities with, or any approval of or consent to the delivery thereof by, any governmental authority.
 
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Exhibit 3.03
(e) The Corporation hereby covenants and agrees that, if at any time the Common Stock shall be listed on The Nasdaq Global Select Market or any other national securities exchange or automated quotation system, the Corporation shall, if permitted by the rules of such exchange or automated quotation system, list and use its commercially reasonable efforts to keep listed, so long as the Common Stock shall be so listed on such exchange or automated quotation system, all Common Stock issuable upon conversion (including, without limitation, for the avoidance of doubt, with respect to the Mandatory Conversion Additional Conversion Amount or Early Conversion Additional Conversion Amount) of, or issuable in respect of the payment of dividends, the Accumulated Dividend Amount and the Fundamental Change Dividend Make-whole Amount on, the Mandatory Convertible Preferred Stock; provided, however, that if the rules of such exchange or automated quotation system permit the Corporation to defer the listing of such Common Stock until the earlier of (x) the first conversion of Mandatory Convertible Preferred Stock into Common Stock in accordance with the provisions hereof and (y) the first payment of any dividends, any Accumulated Dividend Amount or any Fundamental Change Dividend Make-whole Amount on the Mandatory Convertible Preferred Stock, the Corporation covenants to list such Common Stock issuable upon the earlier of (1) the first conversion of the Mandatory Convertible Preferred Stock and (2) the first payment of any dividends, any Accumulated Dividend Amount or any Fundamental Change Dividend Make-whole Amount on the Mandatory Convertible Preferred Stock in accordance with the requirements of such exchange or automated quotation system at such time.
 
Section 12. Fractional Shares. (a) No fractional shares of Common Stock shall be issued to Holders as a result of any conversion of shares of Mandatory Convertible Preferred Stock.
 
(b) In lieu of any fractional shares of Common Stock otherwise issuable in respect of the shares of Mandatory Convertible Preferred Stock of any Holder that are converted on the Mandatory Conversion Date pursuant to Section 7 or at the option of the Holder pursuant to Section 8 or Section 9, the Corporation shall, to the extent legally permitted to do so (including under the terms of the Credit Agreement), pay an amount in cash (computed to the nearest cent) equal to the product of (i) that same fraction and (ii) the Average VWAP of the Common Stock over the five consecutive Trading Day period ending on, and including, the second Trading Day immediately preceding the Mandatory Conversion Date, Early Conversion Date or Fundamental Change Conversion Date, as applicable. In the event that the Corporation cannot pay cash in lieu of a fractional share, the Corporation shall instead round up to the nearest whole share for each Holder.
 
Section 13. Anti-Dilution Adjustments to the Fixed Conversion Rates. (a) Each Fixed Conversion Rate shall be adjusted as set forth in this Section 13, except that the Corporation shall not make any adjustments to the Fixed Conversion Rates if Holders participate (other than in the case of a share split or share combination or a tender or exchange offer described in Section 13(a)(v)), at the same time and upon the same terms as holders of Common Stock and solely as a result of holding the Mandatory Convertible Preferred Stock, in any of the transactions set forth in Sections 13(a)(i)-(v) without having to convert their shares of Mandatory Convertible Preferred Stock as if they held a number of shares of Common Stock equal to (i) the Maximum Conversion Rate as of the Record Date for such transaction, multiplied by (ii) the number of shares of Mandatory Convertible Preferred Stock held by such Holder.
 
(i)If the Corporation exclusively issues shares of Common Stock as a dividend or distribution on shares of Common Stock, or if the Corporation effects a share split or share combination, each Fixed Conversion Rate shall be adjusted based on the following formula:
 
CR1 = CR0 ×
OS1
OS0
where,
CR0 =  such Fixed Conversion Rate in effect immediately prior to the close of business on the Record Date of such dividend or distribution, or immediately prior to the open of business on the Effective Date of such share split or share combination, as applicable;
CR1 =  such Fixed Conversion Rate in effect immediately after the close of business on such Record Date or immediately after the open of business on such Effective Date, as applicable;
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Exhibit 3.03
OS0 =  the number of shares of Common Stock outstanding immediately prior to the close of business on such Record Date or immediately prior to the open of business on such Effective Date, as applicable, before giving effect to such dividend, distribution, share split or share combination; and
OS1 =  the number of shares of Common Stock outstanding immediately after giving effect to such dividend, distribution, share split or share combination.
        Any adjustment made under this Section 13(a)(i) shall become effective immediately after the close of business on the Record Date for such dividend or distribution, or immediately after the open of business on the Effective Date for such share split or share combination, as applicable. If any dividend or distribution of the type set forth in this Section 13(a)(i) is declared but not so paid or made, each Fixed Conversion Rate shall be immediately readjusted, effective as of the date the Board of Directors or a committee thereof determines not to pay such dividend or distribution, to such Fixed Conversion Rate that would then be in effect if such dividend or distribution had not been declared. For the purposes of this clause (i), the number of shares of Common Stock outstanding immediately prior to the close of business on the relevant Record Date or immediately prior to the open of business on the relevant Effective Date, as the case may be, and the number of shares of Common Stock outstanding immediately after giving effect to such dividend, distribution, share split or share combination shall, in each case, not include shares that the Corporation holds in treasury. The Corporation shall not pay any dividend or make any distribution on shares of Common Stock that it holds in treasury.
(i)If the Corporation issues to all or substantially all holders of Common Stock any rights, options or warrants entitling them, for a period of not more than 45 calendar days after the announcement date of such issuance, to subscribe for or purchase shares of Common Stock at a price per share that is less than the Average VWAP per share of Common Stock for the ten consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the date of announcement of such issuance, each Fixed Conversion Rate shall be increased based on the following formula:

A-23
Exhibit 3.03
CR1 = CR0 ×
OS0 + X
OS0 + Y
 
where,
CR0 =  such Fixed Conversion Rate in effect immediately prior to the close of business on the Record Date for such issuance;
CR1 =  such Fixed Conversion Rate in effect immediately after the close of business on such Record Date;
OS0 =  the number of shares of Common Stock outstanding immediately prior to the close of business on such Record Date;
X =  the total number of shares of Common Stock issuable pursuant to such rights, options or warrants; and
Y =  the number of shares of Common Stock equal to (i) the aggregate price payable to exercise such rights, options or warrants, divided by (ii) the Average VWAP per share of Common Stock over the ten consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the date of announcement of the issuance of such rights, options or warrants.
        Any increase made under this Section 13(a)(ii) shall be made successively whenever any such rights, options or warrants are issued and shall become effective immediately after the close of business on the Record Date for such issuance. To the extent that such rights, options or warrants are not exercised prior to their expiration or shares of Common Stock are not delivered after the exercise of such rights, options or warrants, each Fixed Conversion Rate shall be decreased to such Fixed Conversion Rate that would then be in effect had the increase with respect to the issuance of such rights, options or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered, if any. If such rights, options or warrants are not so issued, each Fixed Conversion Rate shall be immediately readjusted, effective as of the date the Board of Directors or a committee thereof determines not to issue such rights, options or warrants, to such Fixed Conversion Rate that would then be in effect if such Record Date for such issuance had not occurred.
For the purpose of this Section 13(a)(ii), in determining whether any rights, options or warrants entitle the holders of Common Stock to subscribe for or purchase shares of Common Stock at less than such Average VWAP per share for the ten consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the date of announcement of such issuance, and in determining the aggregate offering price of such shares of Common Stock, there shall be taken into account any consideration received by the Corporation for such rights, options or warrants and any amount payable on exercise or conversion thereof, the value of such consideration, if other than cash, to be determined by the Board of Directors or a committee thereof in good faith.

(ii)If the Corporation distributes shares of its capital stock, evidences of the Corporation’s indebtedness, other assets or property of the Corporation or rights, options or warrants to acquire its capital stock or other securities, to all or substantially all holders of Common Stock, excluding: 
(A) dividends, distributions or issuances as to which the provisions set forth in Section 13(a)(i) or Section 13(a)(ii) shall apply;
 
(B) dividends or distributions paid exclusively in cash as to which the provisions set forth in Section 13(a)(iv) shall apply;

(C) any dividends and distributions upon conversion of, or in exchange for, shares of Common Stock in connection with a recapitalization, reclassification, change, consolidation, merger or other combination, share exchange, or sale, lease or other transfer or disposition resulting in the change in the consideration due upon conversion as set forth under Section 14;
(D) except as otherwise set forth in Section 13(a)(vii), rights issued pursuant to a shareholder rights plan adopted by the Corporation; and
A-24
Exhibit 3.03
(E) Spin-Offs as to which the provisions set forth below in this Section 13(a)(iii) shall apply;
then each Fixed Conversion Rate shall be increased based on the following formula:
CR1 = CR0 ×
SP0
SP0 – FMV
where,
CR0 =  such Fixed Conversion Rate in effect immediately prior to the close of business on the Record Date for such distribution;
CR1 =  such Fixed Conversion Rate in effect immediately after the close of business on such Record Date;
SP0 =  the Average VWAP per share of Common Stock over the ten consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the Ex-Date for such distribution; and
FMV =  the fair market value (as determined by the Board of Directors or a committee thereof in good faith) of the shares of capital stock, evidences of indebtedness, assets, property, rights, options or warrants so distributed, expressed as an amount per share of Common Stock on the Ex-Date for such distribution.
        Any increase made under the portion of this Section 13(a)(iii) will become effective immediately after the close of business on the Record Date for such distribution. If such distribution is not so paid or made, each Fixed Conversion Rate shall be immediately readjusted, effective as of the date the Board of Directors or a committee thereof determines not to pay such dividend or distribution, to be such Fixed Conversion Rate that would then be in effect if such distribution had not been declared.
        Notwithstanding the foregoing, if “FMV” (as defined above) is equal to or greater than “SP0” (as defined above), or if the difference is less than $1.00, in lieu of the foregoing increase, each Holder shall receive, in respect of each share of Mandatory Convertible Preferred Stock, at the same time and upon the same terms as holders of Common Stock, the amount and kind of the Corporation’s capital stock, evidences of the Corporation’s indebtedness, other assets or property of the Corporation or rights, options or warrants to acquire its capital stock or other securities that such Holder would have received if such Holder owned a number of shares of Common Stock equal to the Maximum Conversion Rate in effect on the Record Date for the distribution.
        With respect to an adjustment pursuant to this Section 13(a)(iii) where there has been a Spin-Off, each Fixed Conversion Rate shall be increased based on the following formula:
CR1 = CR0 ×
FMV0 + MP0
MP0
where,
CR0 = such Fixed Conversion Rate in effect immediately prior to the open of business on the Ex-Date for the Spin-Off;
CR1 = such Fixed Conversion Rate in effect immediately after the open of business on the Ex-Date for the Spin-Off;
FMV0 = the Average VWAP per share of the capital stock or similar equity interest distributed to holders of Common Stock applicable to one share of Common Stock over the ten consecutive Trading Day period commencing on, and including, the Ex-Date for the Spin-Off (the “Valuation Period”); and
MP0 = the Average VWAP per share of Common Stock over the Valuation Period.
The increase to each Fixed Conversion Rate under the preceding paragraph will be calculated as of the close of business on the last Trading Day of the Valuation Period but will be given retroactive effect as of immediately after the open of business on the Ex-Date of the Spin-Off. Because the Corporation shall make the adjustment to each Fixed Conversion Rate with retroactive effect, the Corporation shall delay the settlement of any conversion of the Mandatory Convertible Preferred Stock where any date for determining the number of shares of Common Stock issuable to a Holder occurs during the Valuation Period until the second Business Day after the last Trading Day of such Valuation Period. If such dividend or distribution is not so paid, each Fixed Conversion Rate
A-25
Exhibit 3.03
shall be decreased, effective as of the date the Board of Directors or a committee thereof determines not to make or pay such dividend or distribution, to be such Fixed Conversion Rate that would then be in effect if such dividend or distribution had not been declared.
For purposes of this Section 13(a)(iii) (and subject in all respects to Section 13(a)(i) and Section 13(a)(ii)):
1.rights, options or warrants distributed by the Corporation to all or substantially all holders of the Common Stock entitling them to subscribe for or purchase shares of the Corporation’s capital stock, including Common Stock (either initially or under certain conditions), which rights, options or warrants, until the occurrence of a specified event or events (“Trigger Event”):
(1) are deemed to be transferred with such shares of the Common Stock;
(2) are not exercisable; and
(3) are also issued in respect of future issuances of the Common Stock,
shall be deemed not to have been distributed for purposes of this Section 13(a)(iii) (and no adjustment to the Fixed Conversion Rates under this Section 13(a)(iii) shall be required) until the occurrence of the earliest Trigger Event, whereupon such rights, options or warrants shall be deemed to have been distributed and an appropriate adjustment (if any is required) to the Fixed Conversion Rates shall be made under this Section 13(a)(iii).
(B) If any such right, option or warrant, including any such existing rights, options or warrants distributed prior to the Initial Issue Date, are subject to events, upon the occurrence of which such rights, options or warrants become exercisable to purchase different securities, evidences of indebtedness or other assets, then the date of the occurrence of any and each such event shall be deemed to be the date of distribution and Record Date with respect to new rights, options or warrants with such rights (in which case the existing rights, options or warrants shall be deemed to terminate and expire on such date without exercise by any of the holders thereof).
(C) In addition, in the event of any distribution (or deemed distribution) of rights, options or warrants, or any Trigger Event or other event (of the type described in the immediately preceding clause (B)) with respect thereto that was counted for purposes of calculating a distribution amount for which an adjustment to the Fixed Conversion Rates under this clause (iii) was made:
(1) in the case of any such rights, options or warrants that shall all have been redeemed or repurchased without exercise by any holders thereof, upon such final redemption or repurchase (x) the Fixed Conversion Rates shall be readjusted as if such rights, options or warrants had not been issued and (y) the Fixed Conversion Rates shall then again be readjusted to give effect to such distribution, deemed distribution or Trigger Event, as the case may be, as though it were a cash distribution pursuant to Section 13(a)(iv), equal to the per share redemption or repurchase price received by a holder or holders of Common Stock with respect to such rights, options or warrants (assuming such holder had retained such rights, options or warrants), made to all holders of Common Stock as of the date of such redemption or repurchase; and
(2) in the case of such rights, options or warrants that shall have expired or been terminated without exercise by any holders thereof, the Fixed Conversion Rates shall be readjusted as if such rights, options and warrants had not been issued;
provided that, in each case, such rights, options or warrants are deemed to be transferred with such shares of the Common Stock and are also issued in respect of future issuances of the Common Stock.
        For purposes of Section 13(a)(i), Section 13(a)(ii) and this Section 13(a)(iii), if any dividend or distribution to which this Section 13(a)(iii) is applicable includes one or both of:
A-26
Exhibit 3.03
1.a dividend or distribution of shares of Common Stock to which Section 13(a)(i) is applicable (the “Clause A Distribution”); or
(B) an issuance of rights, options or warrants to which Section 13(a)(ii) is applicable (the “Clause B Distribution”),
then:
(1) such dividend or distribution, other than the Clause A Distribution and the Clause B Distribution, shall be deemed to be a dividend or distribution to which this Section 13(a)(iii) is applicable (the “Clause C Distribution”) and any Fixed Conversion Rate adjustment required by this Section 13(a)(iii) with respect to such Clause C Distribution shall then be made; and
(2) the Clause A Distribution and Clause B Distribution shall be deemed to immediately follow the Clause C Distribution and any Fixed Conversion Rate adjustment required by Section 13(a)(i) and Section 13(a)(ii) with respect thereto shall then be made, except that, if determined by the Corporation (I) the “Record Date” of the Clause A Distribution and the Clause B Distribution shall be deemed to be the Record Date of the Clause C Distribution and (II) any shares of Common Stock included in the Clause A Distribution or Clause B Distribution shall be deemed not to be “outstanding immediately prior to the close of business on such Record Date or immediately prior to the open of business on such Effective Date” within the meaning of Section 13(a)(i) or “outstanding immediately prior to close of business on such Record Date” within the meaning of Section 13(a)(ii).
(iii)If any cash dividend or distribution is made to all or substantially all holders of Common Stock, each Fixed Conversion Rate shall be adjusted based on the following formula:
CR1 = CR0 ×
SP0
SP0 – C
where,
CR0 =  such Fixed Conversion Rate in effect immediately prior to the close of business on the Record Date for such dividend or distribution;
CR1 =  such Fixed Conversion Rate in effect immediately after the close of business on the Record Date for such dividend or distribution;
SP0 =  the Average VWAP per share of Common Stock over the ten consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the Ex-Date for such dividend or distribution; and
C =  the amount in cash per share the Corporation distributes to all or substantially all holders of Common Stock. 
Any increase made under this Section 13(a)(iv) shall become effective immediately after the close of business on the Record Date for such dividend or distribution. If such dividend or distribution is not so paid, each Fixed Conversion Rate shall be decreased, effective as of the date the Board of Directors or a committee thereof determines not to make or pay such dividend or distribution, to be such Fixed Conversion Rate that would then be in effect if such dividend or distribution had not been declared.
        Notwithstanding the foregoing, if “C” (as defined above) is equal to or greater than “SP0” (as defined above), or if the difference is less than $1.00, in lieu of the foregoing increase, each Holder shall receive, in respect of each share of Mandatory Convertible Preferred Stock, at the same time and upon the same terms as holders of shares of Common Stock, the amount of cash that such Holder would have received if such Holder owned a number of shares of Common Stock equal to the Maximum Conversion Rate on the Record Date for such cash dividend or distribution.
(iv)If the Corporation or any of its Subsidiaries make a payment in respect of a tender or exchange offer for Common Stock, to the extent that the cash and value of any other consideration included in the payment per share of
A-27
Exhibit 3.03
Common Stock exceeds the Average VWAP per share of Common Stock over the ten consecutive Trading Day period commencing on, and including, the Trading Day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer (the “Expiration Date”), each Fixed Conversion Rate shall be increased based on the following formula:
CR1 = CR0 x
AC + (SP1 x OS1)
OS0 x SP1
where,
CR0 =  such Fixed Conversion Rate in effect immediately prior to the close of business on the Expiration Date;
CR1 =  such Fixed Conversion Rate in effect immediately after the close of business on the Expiration Date;
AC =  the aggregate value of all cash and any other consideration (as determined by the Board of Directors or a committee thereof in good faith) paid or payable for shares purchased in such tender or exchange offer;
OS0 =  the number of shares of Common Stock outstanding immediately prior to the Expiration Date (prior to giving effect to the purchase of all shares accepted for purchase or exchange in such tender or exchange offer);
OS1 =  the number of shares of Common Stock outstanding immediately after the Expiration Date (after giving effect to the purchase of all shares accepted for purchase or exchange in such tender or exchange offer); and
SP1 =  the Average VWAP of Common Stock over the ten consecutive Trading Day period commencing on, and including, the Trading Day next succeeding the Expiration Date (the “Averaging Period”).
        The increase to each Fixed Conversion Rate under the preceding paragraph will be calculated at the close of business on the last Trading Day of the Averaging Period but will be given retroactive effect as of immediately after the close of business on the Expiration Date. Because the Corporation will make the adjustment to each Fixed Conversion Rate with retroactive effect, the Corporation shall delay the settlement of any conversion of Mandatory Convertible Preferred Stock where any date for determining the number of shares of Common Stock issuable to a Holder occurs within the Averaging Period until the second Business Day after the last Trading Day of such Averaging Period. For the avoidance of doubt, no adjustment under this Section 13(a)(v) will be made if such adjustment would result in a decrease in any Fixed Conversion Rate, except as set forth in the immediately succeeding sentence.
        In the event that the Corporation or one of its Subsidiaries is obligated to purchase shares of Common Stock pursuant to any such tender offer or exchange offer, but the Corporation or such Subsidiary is permanently prevented by applicable law from effecting any such purchases, or all such purchases are rescinded, then each Fixed Conversion Rate shall again be adjusted to be such Fixed Conversion Rate that would then be in effect if such tender offer or exchange offer had not been made (or had been made only in respect of the purchases that have been made and not rescinded).
(v)If:
(A) the record date for a dividend or distribution on shares of the Common Stock occurs after the end of the 20 consecutive Trading Day period used for calculating the Applicable Market Value and before the Mandatory Conversion Date; and
 
(B)  such dividend or distribution would have resulted in an adjustment of the number of shares of Common Stock issuable to the Holders had such record date occurred on or before the last Trading Day of such 20-trading day period,

then the Corporation shall deem the Holders to be holders of record, for each share of their Mandatory Convertible Preferred Stock, of a number of shares of Common Stock equal to the Mandatory Conversion Rate for purposes of that dividend or distribution, and in such a case, the Holders would receive the dividend or distribution on Common Stock together with the number of shares of Common Stock issuable upon mandatory conversion of Mandatory Convertible Preferred Stock.

A-28
Exhibit 3.03
(vi)If the Corporation has a rights plan in effect upon conversion of the Mandatory Convertible Preferred Stock into Common Stock, the Holders shall receive, in addition to any shares of Common Stock received in connection with such conversion, the rights under the rights plan. However, if, prior to any conversion, the rights have separated from the shares of Common Stock in accordance with the provisions of the applicable rights plan, each Fixed Conversion Rate will be adjusted at the time of separation as if the Corporation distributed to all or substantially all holders of Common Stock, shares of its capital stock, evidences of indebtedness, assets, property, rights, options or warrants as set forth in Section 13(a)(iii), subject to readjustment in the event of the expiration, termination or redemption of such rights.
(vii)The Corporation may (but is not required to), to the extent permitted by law and the rules of The Nasdaq Global Select Market or any other securities exchange on which the shares of Common Stock or the Mandatory Convertible Preferred Stock is then listed, increase each Fixed Conversion Rate by any amount for a period of at least 20 Business Days if such increase is irrevocable during such 20 Business Days and the Board of Directors (or a committee thereof) determines that such increase would be in the best interest of the Corporation. The Corporation may also (but is not required to) increase each Fixed Conversion Rate as it deems advisable in order to avoid or diminish any income tax to holders of Common Stock resulting from any dividend or distribution of shares of Common Stock (or issuance of rights or warrants to acquire shares of Common Stock) or from any event treated as such for income tax purposes or for any other reason. However, in either case, the Corporation may only make such discretionary adjustments if it makes the same proportionate adjustment to each Fixed Conversion Rate.
(viii)The Corporation shall not adjust the Fixed Conversion Rates:
a.upon the issuance of shares of Common Stock pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on securities of the Corporation and the investment of additional optional amounts in Common Stock under any plan;
b.upon the issuance of any shares of Common Stock or options, restricted share units, performance share units, rights or warrants to purchase such shares of Common Stock pursuant to any present or future benefit or other incentive plan or program of or assumed by the Corporation or any of its Subsidiaries;
c.upon the issuance of any shares of Common Stock pursuant to any option, warrant, right or exercisable, exchangeable or convertible security not described in (B) of this Section 13(a)(ix) and outstanding as of the Initial Issue Date;
d.for a change in the par value of the Common Stock;
e.for sales of Common Stock for cash, other than in a transaction described in Section 13(a)(ii) or Section 13(a)(iii) above;
f.for stock repurchases that are not tender or exchange offers referred to in Section 13(a)(v), including structured or derivative transactions or pursuant to a stock repurchase program approved by the Board of Directors; or
g.for accumulated dividends on the Mandatory Convertible Preferred Stock, except as described in Sections 7, 8 and 9.
(ix)Adjustments to each Fixed Conversion Rate will be calculated to the nearest 1/10,000th of a share. No adjustment to any Fixed Conversion Rate will be required unless the adjustment would require an increase or decrease of at least 1% to each of the Fixed Conversion Rates; provided, however, that if an adjustment is not made because the adjustment does not change each of the Fixed Conversion Rates by at least 1%, then such adjustment will be carried forward and taken into account in any future adjustment. Notwithstanding the foregoing, on each date for determining the number of shares of Common Stock issuable to a Holder upon any conversion of Mandatory Convertible Preferred Stock, and on each Trading Day during the Settlement Period or any other valuation period in connection with a conversion of the Mandatory Convertible Preferred Stock, the Corporation will give effect to all adjustments that it has otherwise deferred pursuant to this sentence, and those adjustments will no longer be carried forward and taken into account in any future adjustment. Except as otherwise
A-29
Exhibit 3.03
provided above, the Corporation shall be responsible for making all calculations called for under the Mandatory Convertible Preferred Stock. These calculations include, but are not limited to, determinations of the Fundamental Change Share Price, the VWAPs, the Average VWAPs and the Fixed Conversion Rates of the Mandatory Convertible Preferred Stock.
(x)For the avoidance of doubt, if an adjustment is made to the Fixed Conversion Rates, no separate inversely proportionate adjustment will be made to the Initial Price or the Threshold Appreciation Price because the Initial Price is equal to $200.00 divided by the Maximum Conversion Rate (as adjusted in the manner described herein) and the Threshold Appreciation Price is equal to $200.00 divided by the Minimum Conversion Rate (as adjusted in the manner described herein).
(xi)Whenever any provision of this Statement with Respect to Shares requires the Corporation to calculate the VWAP per share of Common Stock over a span of multiple days, the Board of Directors or a committee thereof shall make appropriate adjustments in good faith (including, without limitation, to the Applicable Market Value, the Early Conversion Average Price, the Fundamental Change Share Price and the Average Price, as the case may be) to account for any adjustments to the Fixed Conversion Rates (as the case may be) that become effective, or any event that would require such an adjustment if the Record Date, Ex-Date, Effective Date or Expiration Date, as the case may be, of such event occurs during the relevant period used to calculate such prices or values, as the case may be.
(b) Whenever the Fixed Conversion Rates and the Fundamental Change Conversion Rates set forth in the table in the definition of “Fundamental Change Conversion Rate” are to be adjusted, the Corporation shall:
(i) compute such adjusted Fixed Conversion Rates and Fundamental Change Conversion Rates;
(ii) within ten Business Days after the Fixed Conversion Rates are to be adjusted, provide or cause to be provided, a written notice to the Holders of the occurrence of such event; and
(iii) within ten Business Days after the Fixed Conversion Rates are to be adjusted, provide or cause to be provided, to the Holders, a statement setting forth in reasonable detail the method by which the adjustments to the Fixed Conversion Rates and Fundamental Change Conversion Rates were determined and setting forth such adjusted Fixed Conversion Rates and Fundamental Change Conversion Rates. 

A-30
Exhibit 3.03
Section 14. Recapitalizations, Reclassifications and Changes of Common Stock. In the event of:
 
(i)any consolidation or merger of the Corporation with or into another Person;
(ii)any sale, transfer, lease or conveyance to another Person of all or substantially all of the property and assets of the Corporation; 
(iii)any reclassification of Common Stock into securities (other than a share split or share combination) including securities other than Common Stock; or
(iv) any statutory exchange of securities of the Corporation with another Person (other than in connection with a merger or acquisition),
in each case, as a result of which the Common Stock would be converted into, or exchanged for, stock, other securities or other property or assets (including cash or any combination thereof) (each, a “Reorganization Event”), each share of Mandatory Convertible Preferred Stock outstanding immediately prior to such Reorganization Event shall, without the consent of the Holders, become convertible into the kind of stock, other securities or other property or assets (including cash or any combination thereof) that such Holder would have been entitled to receive if such Holder had converted its Mandatory Convertible Preferred Stock into Common Stock immediately prior to such Reorganization Event (such stock, other securities or other property or assets (including cash or any combination thereof), the “Exchange Property,” with each “Unit of Exchange Property” meaning the kind and amount of such Exchange Property that a holder of one share of Common Stock is entitled to receive), and, at the effective time of such Reorganization Event, the Corporation shall amend this Statement with Respect to Shares without the consent of any of the Holders to provide for such change in the convertibility of the Mandatory Convertible Preferred Stock. If any Reorganization Event causes the Common Stock to be converted into, or exchanged for, the right to receive more than a single type of consideration (determined based in part upon any form of shareholder election), the Exchange Property into which the Mandatory Convertible Preferred Stock shall be convertible shall be deemed to be the weighted average of the types and amounts of consideration actually received by the holders of the Common Stock in such Reorganization Event.

The number of Units of Exchange Property the Corporation shall deliver upon conversion of each share of Mandatory Convertible Preferred Stock or as a payment of dividends on the Mandatory Convertible Preferred Stock, as applicable, following the effective date of such Reorganization Event shall be determined as if references in Section 3, Section 7, Section 8 and/or Section 9 to shares of Common Stock, as the case may be, were to Units of Exchange Property (without interest thereon and without any right to dividends or distributions thereon which have a Record Date that is prior to the date on which the holders of the shares of Mandatory Convertible Preferred Stock become holders of record of the underlying shares of the Common Stock). For the purpose of determining which of clauses (i), (ii) and (iii) of Section 7(b) shall apply upon Mandatory Conversion, and for the purpose of calculating the Mandatory Conversion Rate if clause (ii) of Section 7(b) is applicable, the value of a Unit of Exchange Property shall be determined in good faith by the Board of Directors or a committee thereof (which determination will be final), except that if a Unit of Exchange Property includes common stock or American Depositary Receipts (“ADRs”) that are traded on a U.S. national securities exchange, the value of such common stock or ADRs shall be the average over the 20 consecutive Trading Day period used for calculating the Applicable Market Value of the volume-weighted Average Prices for such common stock or ADRs, as displayed on the applicable Bloomberg screen (as determined in good faith by the Board of Directors or a committee thereof (which determination will be final)); or, if such price is not available, the average market value per share of such common stock or ADRs over such period as determined, using a volume-weighted average method, by a nationally recognized independent investment banking firm retained by the Corporation for this purpose.
 
The above provisions of this Section 14 shall similarly apply to successive Reorganization Events, and the provisions of Section 13 shall apply to any shares of common equity or ADRs of the Corporation (or any successor thereto) received by the holders of shares of Common Stock in any such Reorganization Event.
 
The Corporation (or any successor thereto) shall, as soon as reasonably practicable (but in any event within twenty calendar days) after the occurrence of any Reorganization Event, provide written notice to the Holders of such occurrence and of the kind and amount of the cash, securities or other property that constitute the Exchange Property. Failure to deliver such notice shall not affect the operation of this Section 14.
A-31
Exhibit 3.03

Section 15. Transfer Agent, Registrar, and Conversion and Dividend Disbursing Agent. The duly appointed Transfer Agent, Registrar and Conversion and Dividend Disbursing Agent for Mandatory Convertible Preferred Stock shall be American Stock Transfer & Trust Company LLC. The Corporation may, in its sole discretion, remove the Transfer Agent, Registrar or Conversion and Dividend Disbursing Agent in accordance with the agreement between the Corporation and the Transfer Agent, Registrar or Conversion and Dividend Disbursing Agent, as the case may be; provided that if the Corporation removes American Stock Transfer & Trust Company LLC, the Corporation shall appoint a successor transfer agent, registrar or conversion and dividend disbursing agent, as the case may be, who shall accept such appointment prior to the effectiveness of such removal. Upon any such removal or appointment, the Corporation shall give notice thereof to the Holders.
  
Section 16. Record Holders. To the fullest extent permitted by applicable law, the Corporation and the Transfer Agent may deem and treat the Holder of any shares of Mandatory Convertible Preferred Stock as the true and lawful owner thereof for all purposes.
 
Section 17. Notices. All notices or communications in respect of Mandatory Convertible Preferred Stock shall be sufficiently given if given in writing and delivered in person or by first class mail, postage prepaid, or if given in such other manner as may be permitted in this Statement with Respect to Shares, in the Articles of Incorporation or the By-Laws and by applicable law. Notwithstanding the foregoing, if the shares of Mandatory Convertible Preferred Stock are represented by Global Preferred Shares, such notices may also be given to the Holders in any manner permitted by DTC or any similar facility used for the settlement of transactions in Mandatory Convertible Preferred Stock.
 
Section 18. No Preemptive Rights. The Holders shall have no preemptive or preferential rights to purchase or subscribe for any stock, obligations, warrants or other securities of the Corporation of any class.
 
Section 19. Other Rights. The shares of Mandatory Convertible Preferred Stock shall not have any rights, preferences, privileges or voting powers or relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, other than as set forth herein or in the Articles of Incorporation or as provided by applicable Pennsylvania law.
 
Section 20. Book-Entry Form. (a) The Mandatory Convertible Preferred Stock shall be issued in the form of one or more permanent global shares of Mandatory Convertible Preferred Stock in definitive, fully registered form eligible for book-entry settlement with the global legend as set forth on the form of Mandatory Convertible Preferred Stock certificate attached hereto as Exhibit A (each, a “Global Preferred Share”), which is hereby incorporated in and expressly made part of this Statement with Respect to Shares. The Global Preferred Shares may have notations, legends or endorsements required by law, stock exchange rules, agreements to which the Corporation is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Corporation). The Global Preferred Shares shall be deposited on behalf of the Holders represented thereby with the Registrar, at its New York office as custodian for the Depositary, and registered in the name of the Depositary, duly executed by the Corporation and countersigned and registered by the Registrar as hereinafter provided. The aggregate number of shares represented by each Global Preferred Share may from time to time be increased or decreased by adjustments made on the records of the Registrar and the Depositary or its nominee as hereinafter provided.
 
This Section 20(a) shall apply only to a Global Preferred Share deposited with or on behalf of the Depositary. The Corporation shall execute and the Registrar shall, in accordance with this Section 20(a), countersign and deliver any Global Preferred Shares that (i) shall be registered in the name of Cede & Co. or other nominee of the Depositary and (ii) shall be delivered by the Registrar to Cede & Co. or pursuant to instructions received from Cede & Co. or held by the Registrar as custodian for the Depositary pursuant to an agreement between the Depositary and the Registrar. Members of, or participants in, the Depositary (“Agent Members”) shall have no rights under this Statement with Respect to Shares with respect to any Global Preferred Share held on their behalf by the Depositary or by the Registrar as the custodian of the Depositary, or under such Global Preferred Share, and the Depositary may be treated by the Corporation, the Registrar and any agent of the Corporation or the Registrar as the absolute owner of such Global Preferred Share for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Corporation, the Registrar or any agent of the Corporation or the Registrar from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices of the Depositary governing the exercise of the rights of a holder of a beneficial interest in any Global Preferred Share. The Holder of the Global Preferred Shares may grant proxies or otherwise authorize any Person to take any action that a Holder is entitled to take pursuant to the Global Preferred Shares, this Statement with Respect to Shares or the Articles of Incorporation.
A-32
Exhibit 3.03
 
Owners of beneficial interests in Global Preferred Shares shall not be entitled to receive physical delivery of certificated shares of Series A Mandatory Convertible Preferred Stock, unless (x) the Depositary notifies the Corporation that it is unwilling or unable to continue as Depositary for the Global Preferred Shares and the Corporation does not appoint a qualified replacement for the Depositary within 90 days or (y) the Depositary ceases to be a “clearing agency” registered under the Exchange Act and the Corporation does not appoint a qualified replacement for the Depositary within 90 days. In any such case, the Global Preferred Shares shall be exchanged in whole for definitive stock certificates that are not issued in global form, with the same terms and of an equal aggregate Liquidation Preference, and such definitive stock certificates shall be registered in the name or names of the Person or Persons specified by the Depositary in a written instrument to the Registrar.
 
(b)  Two Officers permitted by applicable Pennsylvania law shall sign each Global Preferred Share for the Corporation, in accordance with the Corporation’s Bylaws and applicable law, by manual or facsimile signature. If an Officer whose signature is on a Global Preferred Share no longer holds that office at the time the Registrar countersigned such Global Preferred Share, such Global Preferred Share shall be valid nevertheless. A Global Preferred Share shall not be valid until an authorized signatory of the Registrar manually countersigns such Global Preferred Share. Each Global Preferred Share shall be dated the date of its countersignature. The foregoing paragraph shall likewise apply to any certificate representing shares of Series A Mandatory Convertible Preferred Stock.
 
Section 21. Listing. The Corporation hereby covenants and agrees that, if its listing application for the Mandatory Convertible Preferred Stock is approved by The Nasdaq Global Select Market, upon such listing, the Corporation shall use its commercially reasonable efforts to keep the Mandatory Convertible Preferred Stock listed on The Nasdaq Global Select Market.
 
If the Global Preferred Share or Global Preferred Shares, as the case may be, or the Mandatory Convertible Preferred Stock represented thereby shall be listed on The Nasdaq Global Select Market or any other stock exchange, the Depositary may, with the written approval of the Corporation, appoint a registrar (acceptable to the Corporation) for registration of such Global Preferred Share or Global Preferred Shares, as the case may be, or the Mandatory Convertible Preferred Stock represented thereby in accordance with the requirements of such exchange. Such registrar (which may be the Registrar if so permitted by the requirements of such exchange) may be removed and a substitute registrar appointed by the Registrar upon the request or with the written approval of the Corporation. If the Global Preferred Share or Global Preferred Shares, as the case may be, or the Mandatory Convertible Preferred Stock represented thereby, are listed on one or more other stock exchanges, the Registrar will, at the request and expense of the Corporation, arrange such facilities for the delivery, transfer, surrender and exchange of such Global Preferred Share or Global Preferred Shares, as the case may be, or the Mandatory Convertible Preferred Stock represented thereby as may be required by law or applicable stock exchange regulations.
 
Section 22. Stock Certificates. (a)  Shares of Mandatory Convertible Preferred Stock may, but shall not be required to, be represented by stock certificates substantially in the form set forth as Exhibit A hereto.
(b) Stock certificates representing shares of the Mandatory Convertible Preferred Stock, to the extent issued, shall be signed by (i) the Chairman of the Board, the President or any Vice President, of the Corporation and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, in accordance with the By-Laws and applicable Pennsylvania law, by manual or facsimile signature.
(c) A stock certificate representing shares of the Mandatory Convertible Preferred Stock shall not be valid until manually countersigned by an authorized signatory of the Transfer Agent and Registrar. Each stock certificate representing shares of the Mandatory Convertible Preferred Stock shall be dated the date of its countersignature.
(d) If any Officer of the Corporation who has signed a stock certificate no longer holds that office at the time the Transfer Agent and Registrar countersigns the stock certificate, the stock certificate shall be valid nonetheless.
Section 23. Replacement Certificates. If any Mandatory Convertible Preferred Stock certificate shall be mutilated, lost, stolen or destroyed, the Corporation shall, at the expense of the Holder, issue, in exchange and in substitution for and upon cancellation of the mutilated Mandatory Convertible Preferred Stock certificate, or in lieu of and substitution for the Mandatory Convertible Preferred Stock certificate lost, stolen or destroyed, a new Mandatory Convertible Preferred Stock certificate of like tenor and representing an equivalent Liquidation Preference of shares of Mandatory Convertible Preferred Stock, but only upon receipt of
A-33
Exhibit 3.03
evidence of such loss, theft or destruction of such Mandatory Convertible Preferred Stock certificate and bond of indemnity, if requested, in each case, reasonably satisfactory to the Corporation and the Transfer Agent.

 

A-34
Exhibit 3.03
EXHIBIT A
 
[FORM OF FACE OF 6.00% SERIES A MANDATORY CONVERTIBLE PREFERRED STOCK
CERTIFICATE]
 
[INCLUDE FOR GLOBAL PREFERRED SHARES]
 
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE CORPORATION OR THE TRANSFER AGENT NAMED ON THE FACE OF THIS CERTIFICATE, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL IN AS MUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO. HAS AN INTEREST HEREIN.

TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR’S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE STATEMENT WITH RESPECT TO SHARES. IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE TRANSFER AGENT NAMED ON THE FACE OF THIS CERTIFICATE SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.
 
 

        307694351 v1
Exhibit 3.03

Certificate Number [      ] [Initial] Number of Shares of Mandatory
Convertible Preferred Stock [     ]
 
CUSIP [_________]
ISIN [____________]
 
II-VI INCORPORATED
 
6.00% Series A Mandatory Convertible Preferred Stock
(no par value per share)
(Liquidation Preference as specified below)
 
II-VI Incorporated, a Pennsylvania corporation (the “Corporation”), hereby certifies that [              ] (the “Holder”), is the registered owner of [      ] [the number shown on Schedule I hereto of] fully paid and non-assessable shares of the Corporation’s designated 6.00% Series A Mandatory Convertible Preferred Stock, with no par value per share and a Liquidation Preference of $200.00 per share (the “Mandatory Convertible Preferred Stock”). The shares of Mandatory Convertible Preferred Stock are transferable on the books and records of the Registrar, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer. The designations, rights, privileges, restrictions, preferences and other terms and provisions of Mandatory Convertible Preferred Stock represented hereby are and shall in all respects be subject to the provisions of the Statement with Respect to Shares for the 6.00% Series A Mandatory Convertible Preferred Stock of II-VI Incorporated, dated July 6, 2020, as the same may be amended from time to time (the “Statement with Respect to Shares”). Capitalized terms used herein but not defined shall have the meaning given them in the Statement with Respect to Shares. The Corporation will provide a copy of the Statement with Respect to Shares to the Holder without charge upon written request to the Corporation at its principal place of business. In the case of any conflict between this Certificate and the Statement with Respect to Shares, the provisions of the Statement with Respect to Shares shall control and govern.
 
Reference is hereby made to the provisions of Mandatory Convertible Preferred Stock set forth on the reverse hereof and in the Statement with Respect to Shares, which provisions shall for all purposes have the same effect as if set forth at this place.
 
Upon receipt of this executed certificate, the Holder is bound by the Statement with Respect to Shares and is entitled to the benefits thereunder.
 
Unless the Transfer Agent and Registrar have properly countersigned, these shares of Mandatory Convertible Preferred Stock shall not be entitled to any benefit under the Statement with Respect to Shares or be valid or obligatory for any purpose.
 

 
        
Exhibit 3.03
IN WITNESS WHEREOF, this certificate has been executed on behalf of the Corporation by two Officers of the Corporation this ______ of July 2020.
 
  II-VI Incorporated
     
  By:  
    Name:
    Title:
     
  By:  
    Name:
    Title:
 
 
        
Exhibit 3.03
COUNTERSIGNATURE
 
These are shares of Mandatory Convertible Preferred Stock referred to in the within-mentioned Statement with Respect to Shares.
 
Dated: July ______, 2020
 
  AMERICAN STOCK TRANSFER & TRUST COMPANY LLC,
  as Registrar and Transfer Agent
     
  By:  
    Name:
    Title:
 
 
        
Exhibit 3.03
[FORM OF REVERSE OF CERTIFICATE FOR 6.00% SERIES A MANDATORY CONVERTIBLE PREFERRED STOCK]
 
Cumulative dividends on each share of Mandatory Convertible Preferred Stock shall be payable at the applicable rate provided in the Statement with Respect to Shares.
 
The shares of Mandatory Convertible Preferred Stock shall be convertible in the manner and accordance with the terms set forth in the Statement with Respect to Shares.
 
The Corporation shall furnish without charge to each Holder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class or series of stock of the Corporation and the qualifications, limitations or restrictions of such preferences and/or rights.
 
 
        
Exhibit 3.03
NOTICE OF CONVERSION
 
(To be Executed by the Holder
in order to Convert 6.00% Series A Mandatory Convertible Preferred Stock)
 
The undersigned hereby irrevocably elects to convert (the “Conversion”) 6.00% Series A Mandatory Convertible Preferred Stock (the “Mandatory Convertible Preferred Stock”), of II-VI Incorporated (hereinafter called the “Corporation”), represented by stock certificate No(s). [     ] (the “Mandatory Convertible Preferred Stock Certificates”), into common stock, no par value per share, of the Corporation (the “Common Stock”) according to the conditions of the Statement with Respect to Shares of Mandatory Convertible Preferred Stock (the “Statement with Respect to Shares”), as of the date written below. Holders that submit shares of Mandatory Convertible Preferred Stock during a Fundamental Change Conversion Period shall be deemed to have exercised their Fundamental Change Conversion Right.

If Common Stock is to be issued in the name of a Person other than the undersigned, the undersigned shall pay all transfer taxes payable with respect thereto, if any. Each Mandatory Convertible Preferred Stock Certificate (or evidence of loss, theft or destruction thereof) is attached hereto.
 
Capitalized terms used but not defined herein shall have the meanings ascribed thereto in or pursuant to the Statement with Respect to Shares.
 
Date of Conversion:    
Applicable Conversion Rate:    
Shares of Mandatory Convertible Preferred Stock to be Converted:  
Shares of Common Stock to be Issued:*    
Signature:    
Name:    
Address:**    
Fax No.:    
 
IMAGE11.JPG
* The Corporation is not required to issue Common Stock until the original Mandatory Convertible Preferred Stock Certificate(s) (or evidence of loss, theft or destruction thereof) to be converted are received by the Corporation or the Conversion and Dividend Disbursing Agent.
 
** Address where Common Stock and any other payments or certificates shall be sent by the Corporation.
 
 
        
Exhibit 3.03
ASSIGNMENT
 
FOR VALUE RECEIVED, the undersigned assigns and transfers the shares of 6.00% Series A Mandatory Convertible Preferred Stock evidenced hereby to:
 
(Insert assignee’s social security or taxpayer identification number, if any)
 
(Insert address and zip code of assignee)
 
and irrevocably appoints:
 
as agent to transfer the shares of 6.00% Series A Mandatory Convertible Preferred Stock evidenced hereby on the books of the Transfer Agent. The agent may substitute another to act for him or her.
 
Date:
 
Signature:  
   
(Sign exactly as your name appears on the other side of this Certificate)
 
Signature Guarantee:  
 
(Signature must be guaranteed by an “eligible guarantor institution” that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Transfer Agent, which requirements include membership or participation in the Securities Transfer Agents Medallion Program (“STAMP”) or such other “signature guarantee program” as may be determined by the Transfer Agent in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.)
 
 
        
Exhibit 3.03
SCHEDULE I
 
II-VI Incorporated
 
Global Preferred Share 6.00% Series A Mandatory Convertible Preferred Stock
 
Certificate Number:
 
The number of shares of Mandatory Convertible Preferred Stock initially represented by this Global Preferred Share shall be [      ]. Thereafter the Transfer Agent and Registrar shall note changes in the number of shares of Mandatory Convertible Preferred Stock evidenced by this Global Preferred Share in the table set forth below:
 
Amount of Decrease
in Number of Shares
Represented by this
Global Preferred Share 		  Amount of Increase in
Number of Shares
Represented by this
Global Preferred Share 		  Number of Shares
Represented by this
Global Preferred
Share following
Decrease or Increase 		  Signature of
Authorized Officer of
Transfer Agent and
Registrar
             
             
             
             
             
             
             
             
             
             
             
             
             
             
 
IMAGE11.JPG
(I)  Attach Schedule I only to Global Preferred Shares.
        
Exhibit 4.03

DESCRIPTION OF II-VI INCORPORATED’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
As of August 12, 2019, II-VI Incorporated (“II-VI”) has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which is its common stock, no par value (“Common Stock”).
Description of Common Stock
The following description of our Common Stock is a summary and does not purport to be complete. It is subject to and qualified in its entirety by reference to our Amended and Restated Articles of Incorporation (the “Articles of Incorporation”) and our Amended and Restated By-Laws (the “By-Laws”), each of which are incorporated by reference as an exhibit to the Annual Report on Form 10-K of which this description is a part. We encourage you to read our Articles of Incorporation, our By-Laws and the applicable provisions of the Pennsylvania Business Corporation Law (the “BCL”) for additional information.
Authorized Capital Shares
Our authorized capital shares consist of 300,000,000 shares of Common Stock and 5,000,000 shares of preferred stock, no par value (“Preferred Stock”). The outstanding shares of our Common Stock are fully paid and nonassessable.
Voting Rights
The holders of Common Stock are entitled to one vote per share on all matters to be voted upon by the shareholders. The holders of Common Stock are not entitled to cumulative voting of their shares in elections of directors.
Dividend Rights
Subject to preferences that may be applicable to any then outstanding Preferred Stock, the holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by our Board of Directors out of funds legally available therefor.
Liquidation Rights
In the event of a liquidation, dissolution or winding up of II-VI, the holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities and the liquidation preference of any then outstanding shares of our Preferred Stock.
Other Rights and Preferences
Holders of Common Stock have no preemptive or conversion rights or other subscription rights. Our Common Stock is not subject to any redemption or sinking fund provisions. The rights, preferences, and privileges of holders of Common Stock are subject to, and may be adversely affected by, the rights of holders of shares of any then outstanding Preferred Stock.
Provisions in the Articles of Incorporation and the By-Laws
The Articles of Incorporation and the By-Laws contain provisions that could make II-VI a less attractive target for a hostile takeover and could make more difficult or discourage a merger proposal, a tender offer or a proxy contest.
Such provisions include:
•a requirement that shareholder-nominated director nominees be nominated in advance of the meeting at which directors are elected and that specific information be provided in connection with such nomination;
•the ability of II-VI’s Board of Directors to issue additional shares of Common Stock or Preferred Stock without shareholder approval; and
•certain provisions requiring supermajority approval (at least two-thirds of the votes cast by all shareholders entitled to vote thereon, voting together as a single class).
Listing
The Common Stock is traded on The Nasdaq Global Select Market under the trading symbol “IIVI.”

Exhibit 4.03


Description of Mandatory Convertible Preferred Stock

The following description of the Mandatory Convertible Preferred Stock is a summary as of August 19, 2020 and does not purport to be complete. It is subject to and qualified in its entirety by reference to our Statement with Respect to Shares, which is filed as an exhibit to the Annual Report on Form 10-K of which this description is a part (the “Statement with Respect to Shares”). We encourage you to read the Articles of Incorporation, the applicable provisions of the BCL and the Statement with Respect to Shares for additional information.
For purposes of this description, references to:
•“the Company,” “us,” “we” or “our” refer to II-VI Incorporated and not any of its subsidiaries;

•“Business Day” refer to any day other than a Saturday or Sunday or other day on which commercial banks in New York City are authorized or required by law or executive order to close or be closed; and

•close of business” refer to 5:00 p.m., New York City time, and “open of business” refer to 9:00 a.m., New York City time.
General
We have issued 2,300,000 shares of Mandatory Convertible Preferred Stock. The Mandatory Convertible Preferred Stock is, and our Common Stock issuable upon the conversion of the Mandatory Convertible Preferred Stock will be, fully paid and nonassessable. The holders of the Mandatory Convertible Preferred Stock have no preemptive or preferential rights to purchase or subscribe for any class of our stock, obligations, warrants or other securities.

Ranking
The Mandatory Convertible Preferred Stock, with respect to dividend rights and/or distribution rights upon our liquidation, winding-up or dissolution, as applicable, ranks:
•senior to (i) our Common Stock and (ii) each other class or series of our capital stock established after the first original issue date of shares of the Mandatory Convertible Preferred Stock (which we refer to as the “Initial Issue Date”), the terms of which do not expressly provide that such class or series ranks either (x) senior to the Mandatory Convertible Preferred Stock as to dividend rights or distribution rights upon our liquidation, winding-up or dissolution or (y) on parity with the Mandatory Convertible Preferred Stock as to dividend rights and distribution rights upon our liquidation, winding-up or dissolution (which we refer to collectively as “Junior Stock”);

•on parity with any class or series of our capital stock established after the Initial Issue Date the terms of which expressly provide that such class or series will rank on parity with the Mandatory Convertible Preferred Stock as to dividend rights and distribution rights upon our liquidation, winding-up or dissolution (which we refer to collectively as “Parity Stock”);

•junior to each class or series of our capital stock established after the Initial Issue Date the terms of which expressly provide that such class or series will rank senior to the Mandatory Convertible Preferred Stock as to dividend rights or distribution rights upon our liquidation, winding-up or dissolution (which we refer to collectively as “Senior Stock”); and

•junior to our existing and future indebtedness and other liabilities.
In addition, with respect to dividend rights and distribution rights upon our liquidation, winding-up or dissolution, the Mandatory Convertible Preferred Stock is structurally subordinated to existing and future indebtedness and other obligations of each of our subsidiaries.

Exhibit 4.03


Listing
We have listed the Mandatory Convertible Preferred Stock on The Nasdaq Global Select Market under the symbol “IIVIP.” We have agreed to use our commercially reasonable efforts to keep the Mandatory Convertible Preferred Stock listed on The Nasdaq Global Select Market. However, there can be no assurance that the Mandatory Convertible Preferred Stock will be listed, and if listed, that it will continue to be listed. Listing the Mandatory Convertible Preferred Stock on The Nasdaq Global Select Market does not guarantee that a trading market will develop or, if a trading market does develop, the depth or liquidity of that market or the ability of holders to sell their Mandatory Convertible Preferred Stock easily.

Dividends
Subject to the rights of holders of any class or series of our capital stock ranking senior to the Mandatory Convertible Preferred Stock as to dividend rights, holders of the Mandatory Convertible Preferred Stock are entitled to receive, when, as and if declared by our board of directors, or an authorized committee thereof, only out of funds available to pay dividends (as defined below), in the case of dividends paid in cash, and shares of Common Stock legally permitted to be issued, in the case of dividends paid in shares of Common Stock, cumulative dividends at the rate per annum of 6.00% of the Liquidation Preference of $200.00 per share of the Mandatory Convertible Preferred Stock (equivalent to $12.00 per annum per share), payable in cash, by delivery of shares of our Common Stock or through any combination of cash and shares of our Common Stock, as determined by us in our sole discretion (subject to the limitations described below). Under applicable Pennsylvania law, we will have “funds available to pay dividends” if after giving effect to the relevant dividend payment we (i) would be able to pay our debts as they become due in the usual course of our business and (ii) our total assets would be greater than or equal to the sum of our total liabilities plus the amount that would be needed if we were to be dissolved at the time as of which the dividend is measured, in order to satisfy the preferential rights upon dissolution of shareholders whose preferential rights are superior to those receiving the dividend.
If declared, dividends on the Mandatory Convertible Preferred Stock will be payable quarterly on January 1, April 1, July 1 and October 1 of each year to, and including, July 1, 2023 commencing on October 1, 2020 (each, a “Dividend Payment Date”), at such annual rate, and dividends shall accumulate from the most recent date as to which dividends shall have been paid or, if no dividends have been paid, from the Initial Issue Date of the Mandatory Convertible Preferred Stock, whether or not in any dividend period or periods there have been funds available to pay dividends.
If declared, dividends will be payable on the relevant Dividend Payment Date to holders of record of the Mandatory Convertible Preferred Stock as they appear on our stock register at the close of business on the March 15, June 15, September 15 or December 15, as the case may be, immediately preceding the relevant Dividend Payment Date (each, a “Regular Record Date”), whether or not such holders early convert their shares, or such shares are automatically converted, after a Regular Record Date and on or prior to the immediately succeeding Dividend Payment Date. These Regular Record Dates will apply regardless of whether a particular Regular Record Date is a Business Day. If a Dividend Payment Date is not a Business Day, payment will be made on the next succeeding Business Day, without any interest or other payment in lieu of interest accruing with respect to this delay.
A full dividend period is the period from, and including, a Dividend Payment Date to, but excluding, the next Dividend Payment Date, except that the initial dividend period will commence on, and include, the Initial Issue Date of the Mandatory Convertible Preferred Stock and will end on, and exclude, the October 1, 2020 Dividend Payment Date. The amount of dividends payable on each share of the Mandatory Convertible Preferred Stock for each full dividend period (subsequent to the initial dividend period) will be computed by dividing the annual dividend rate by four. Dividends payable on the Mandatory Convertible Preferred Stock for the initial dividend period and any other partial dividend period will be computed based upon the actual number of days elapsed during the period over a 360-day year (consisting of twelve 30-day months). Accordingly, the dividend on the Mandatory Convertible Preferred Stock for the initial dividend period will be $2.80 per share of Mandatory Convertible Preferred Stock (based on the annual dividend rate of 6.00% and a Liquidation Preference of $200.00 per share) and will be payable, when, as and if declared, on October 1, 2020 to the holders of record thereof on September 15, 2020. The dividend on the Mandatory Convertible Preferred Stock for each subsequent full dividend period, when, as and if declared, will be $3.00 per share of Mandatory Convertible Preferred Stock (based on the annual dividend rate of 6.00% and a Liquidation Preference of $200.00 per share). Accumulated dividends on shares of the Mandatory Convertible Preferred Stock will not bear interest, nor shall additional dividends be payable thereon, if they are paid subsequent to the applicable Dividend Payment Date.

Exhibit 4.03

No dividend will be paid unless and until our board of directors, or an authorized committee of our board of directors, declares a dividend payable with respect to the Mandatory Convertible Preferred Stock. No dividend will be declared or paid upon, or any sum of cash or number of shares of our Common Stock set apart for the payment of dividends upon, any outstanding shares of Mandatory Convertible Preferred Stock with respect to any dividend period unless all dividends for all preceding dividend periods have been declared and paid upon, or a sufficient sum of cash or number of shares of our Common Stock has been set apart for the payment of such dividends upon, all outstanding shares of Mandatory Convertible Preferred Stock.
Except as described herein, dividends on shares of Mandatory Convertible Preferred Stock converted into Common Stock will cease to accumulate on July 1, 2023, the Fundamental Change Conversion Date or the Early Conversion Date, as applicable.
Our ability to declare and pay cash dividends and to make other distributions with respect to our capital stock, including our Mandatory Convertible Preferred Stock, is limited by the terms of our Credit Agreement and may be limited by the terms of our and our subsidiaries’ existing and any future indebtedness. In addition, our ability to declare and pay dividends may also be limited by applicable Pennsylvania law.

Method of Payment of Dividends
Subject to the limitations described below, we may pay any declared dividend (or any portion of any declared dividend) on the shares of Mandatory Convertible Preferred Stock (whether or not for a current dividend period or any prior dividend period) determined in our sole discretion:
•in cash;

•by delivery of shares of our Common Stock; or

•through any combination of cash and shares of our Common Stock.
We will make each payment of a declared dividend on the shares of Mandatory Convertible Preferred Stock in cash, except to the extent we elect to make all or any portion of such payment in shares of our Common Stock. We will give the holders of the Mandatory Convertible Preferred Stock notice of any such election, and the portion of such payment that will be made in cash and the portion that will be made in shares of our Common Stock no later than ten Scheduled Trading Days (as defined under “—Mandatory Conversion—Definitions”) prior to the Dividend Payment Date for such dividend; provided that if we do not provide timely notice of this election, we will be deemed to have elected to pay the relevant dividend in cash.
All cash payments to which a holder of the Mandatory Convertible Preferred Stock is entitled in connection with a declared dividend on the shares of Mandatory Convertible Preferred Stock will be computed to the nearest cent. If we elect to make any such payment of a declared dividend, or any portion thereof, in shares of our Common Stock, such shares shall be valued for such purpose, in the case of any dividend payment or portion thereof, at 97% of the Average VWAP (as defined under “—Mandatory Conversion—Definitions”) per share of our Common Stock over the five consecutive Trading Day (as defined under “—Mandatory Conversion— Definitions”) period ending on, and including, the second Trading Day prior to the applicable Dividend Payment Date (the “Average Price”).
No fractional shares of our Common Stock will be delivered to the holders of the Mandatory Convertible Preferred Stock in payment or partial payment of dividends. We will instead, to the extent we are legally permitted to do so (including under the terms of our Credit Agreement), pay a cash adjustment (computed to the nearest cent) to each holder that would otherwise be entitled to a fraction of a share of our Common Stock based on the Average Price with respect to such dividend. In the event that we cannot pay cash in lieu of a fractional share (whether under the terms of our Credit Agreement or otherwise), we will instead round up to the nearest whole share for each holder.
To the extent a shelf registration statement is required in our reasonable judgment in connection with the issuance of or for resales of shares of our Common Stock issued as payment of a dividend on the shares of Mandatory Convertible Preferred Stock, including dividends paid in connection with a conversion, we will, to the extent such a shelf registration statement is not currently filed and effective, use our commercially reasonable efforts to file and maintain the effectiveness of such a shelf registration statement until the earlier of such time as all such shares of Common Stock have been resold thereunder and such time as all such shares are freely tradable without registration pursuant to Rule 144 by holders thereof that are not, and have not been within the three months preceding, “affiliates” of ours for purposes of the Securities Act of 1933 (the “Securities Act”).

Exhibit 4.03

Notwithstanding the foregoing, in no event will the number of shares of our Common Stock delivered in connection with any declared dividend, including any declared dividend payable in connection with a conversion, exceed a number equal to:
•the declared dividend divided by

•$15.05, which amount represents approximately 35% of the Initial Price (as defined under “—Mandatory Conversion—Definitions”), subject to adjustment in a manner inversely proportional to any anti-dilution adjustment to each Fixed Conversion Rate as set forth below in “—Anti-dilution Adjustments” (such dollar amount, as adjusted, the “Floor Price”).
To the extent that the amount of any declared dividend exceeds the product of (x) the number of shares of our Common Stock delivered in connection with such declared dividend and (y) 97% of the Average Price, we will, to the extent we are able to do so under applicable Pennsylvania law, notwithstanding any notice by us to the contrary, pay such excess amount in cash (computed to the nearest cent). Any such payment in cash may not be permitted by our Credit Agreement or by the terms of our then-existing indebtedness (including our Credit Agreement). To the extent that we are not able to pay such excess amount in cash under applicable Pennsylvania law, we will not have any obligation to pay such amount in cash or deliver additional shares of our Common Stock in respect of such amount, and such amount will not form a part of the cumulative dividends that may be deemed to accumulate on the shares of Mandatory Convertible Preferred Stock.
Dividend Stopper
So long as any share of Mandatory Convertible Preferred Stock remains outstanding, no dividend or distribution shall be declared or paid on our Common Stock or any other class or series of Junior Stock, and no Common Stock or any other class or series of Junior Stock or Parity Stock shall be, directly or indirectly, purchased, redeemed or otherwise acquired for consideration by us or any of our subsidiaries unless all accumulated and unpaid dividends for all preceding dividend periods have been declared and paid in full in cash, shares of our Common Stock or a combination thereof upon, or a sufficient sum of cash or number of shares of our Common Stock has been set apart for the payment of such dividends upon, all outstanding shares of Mandatory Convertible Preferred Stock.
The foregoing limitation shall not apply to:
•any dividend or distribution payable in shares of Common Stock or any other class or series of our capital stock that is neither Parity Stock nor Senior Stock;

•purchases, redemptions or other acquisitions of Common Stock, other Junior Stock or Parity Stock in connection with the administration of any benefit or other incentive plan, including any employment contract, in the ordinary course of business;

•purchases to offset the Share Dilution Amount pursuant to a publicly announced repurchase plan, or acquisitions of shares of Common Stock surrendered, deemed surrendered or withheld in connection with the exercise of stock options or the vesting of restricted shares, restricted share units, restricted share equivalents, performance share units, or instruments similar to any of the foregoing (provided that the number of shares purchased to offset the Share Dilution Amount shall in no event exceed the Share Dilution Amount);

•purchases of Common Stock or any other class or series of our capital stock that is neither Parity Stock nor Senior Stock pursuant to a contractually binding requirement to buy Common Stock or any such other class or series of our capital stock existing prior to July 1, 2020;

•any dividends or distributions of rights or any class or series of our capital stock that is neither Parity Stock nor Senior Stock in connection with a shareholders’ rights plan or any redemption or repurchase of rights pursuant to any shareholders’ rights plan;


Exhibit 4.03

•the exchange or conversion of any class or series of our capital stock that is neither Parity Stock nor Senior Stock for or into other class or series of our capital stock that is neither Parity Stock nor Senior Stock or of Parity Stock for or into other Parity Stock (with the same or lesser aggregate liquidation preference) or any class or series of our capital stock that is neither Parity Stock nor Senior Stock and, in each case, the payment of cash solely in lieu of fractional shares; and

•the deemed purchase or acquisition of fractional interests in shares of our Common Stock, any other class or series of our capital stock that is neither Parity Stock nor Senior Stock or Parity Stock pursuant to the conversion or exchange provisions of such shares or the security being converted or exchanged.
The phrase “Share Dilution Amount” means the increase in the number of diluted shares of our Common Stock outstanding (determined in accordance with U.S. GAAP, and as measured from the Initial Issue Date) resulting from the grant, vesting or exercise of equity-based compensation to directors, employees and agents and equitably adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction.
When dividends on shares of the Mandatory Convertible Preferred Stock (i) have not been declared and paid in full on any Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from such Dividend Payment Dates, on a dividend payment date falling within a regular dividend period related to such Dividend Payment Date), or (ii) have been declared but a sum of cash or number of shares of our Common Stock sufficient for payment thereof has not been set aside for the benefit of the holders thereof on the applicable Regular Record Date, no dividends may be declared or paid on any shares of Parity Stock unless dividends are declared on the shares of Mandatory Convertible Preferred Stock such that the respective amounts of such dividends declared on the shares of Mandatory Convertible Preferred Stock and such shares of Parity Stock shall be allocated pro rata among the holders of the shares of Mandatory Convertible Preferred Stock and the holders of any shares of Parity Stock then outstanding. For purposes of calculating the pro rata allocation of partial dividend payments, we shall allocate those payments so that the respective amounts of those payments for the declared dividend bear the same ratio to each other as all accumulated and unpaid dividends per share on the shares of Mandatory Convertible Preferred Stock and such shares of Parity Stock bear to each other (subject to their having been declared by our board of directors, or an authorized committee thereof, out of funds available to pay dividends); provided that any unpaid dividends on the Mandatory Convertible Preferred Stock will continue to accumulate. For purposes of this calculation, with respect to non-cumulative Parity Stock, we will use the full amount of dividends that would be payable for the most recent dividend period if dividends were declared in full on such non-cumulative Parity Stock.
Subject to the foregoing, and not otherwise, such dividends as may be determined by our board of directors, or an authorized committee thereof, may be declared and paid (payable in cash or other property or securities) on any securities, including our Common Stock and other Junior Stock, from time to time out of funds available to pay dividends, and holders of the Mandatory Convertible Preferred Stock shall not be entitled to participate in any such dividends.
Redemption
The Mandatory Convertible Preferred Stock will not be redeemable. However, at our option, we may purchase or otherwise acquire (including in an exchange transaction) the Mandatory Convertible Preferred Stock from time to time in the open market, by tender or exchange offer or otherwise, without the consent of, or notice to, holders.
Liquidation Preference
In the event of our voluntary or involuntary liquidation, winding-up or dissolution, each holder of the Mandatory Convertible Preferred Stock will be entitled to receive a Liquidation Preference in the amount of $200.00 per share of the Mandatory Convertible Preferred Stock (the “Liquidation Preference”), plus an amount equal to accumulated and unpaid dividends on such shares, whether or not declared, to, but excluding, the date fixed for liquidation, winding-up or dissolution to be paid out of our assets legally available for distribution to our shareholders, after satisfaction of indebtedness and other liabilities to our creditors and holders of shares of any class or series of our capital stock ranking senior to the Mandatory Convertible Preferred Stock as to distribution rights upon our liquidation, winding up or dissolution and before any payment or distribution is made to holders of any class or series of our capital stock ranking junior to the Mandatory Convertible Preferred Stock as to distribution rights upon our liquidation, winding up or dissolution (including our Common Stock). If, upon our voluntary or involuntary liquidation, winding-up or dissolution, the amounts payable with respect to (1) the Liquidation Preference, plus an amount equal to accumulated and unpaid dividends, whether or not declared, to, but excluding, the date fixed for such liquidation, winding-up or dissolution, on the shares of Mandatory Convertible Preferred Stock and (2) the liquidation preference of, and the amount of accumulated and unpaid dividends, whether or not declared, to, but

Exhibit 4.03

excluding, the date fixed for such liquidation, winding-up or dissolution, on the shares of all Parity Stock are not paid in full, all holders of the Mandatory Convertible Preferred Stock and all holders of any such Parity Stock will share equally and ratably in any distribution of our assets in proportion to their respective liquidation preferences and amounts equal to accumulated and unpaid dividends (if any) to which they are entitled. After payment of the full amount of the Liquidation Preference and an amount equal to accumulated and unpaid dividends to which they are entitled, the holders of the Mandatory Convertible Preferred Stock will have no right or claim to any of our remaining assets.
Neither the sale, lease nor exchange of all or substantially all of our assets or business (other than in connection with our liquidation, winding-up or dissolution), nor our merger or consolidation into or with any other person, will be deemed to be our voluntary or involuntary liquidation, winding-up or dissolution.
The Articles of Incorporation, including the Statement with Respect to Shares, does not contain any provision requiring funds to be set aside to protect the Liquidation Preference of the Mandatory Convertible Preferred Stock even though it is substantially in excess of the par value thereof.
Voting Rights
The holders of the Mandatory Convertible Preferred Stock do not have voting rights other than those described below, except as specifically required by Pennsylvania law or by the Articles of Incorporation from time to time.
Whenever dividends on any shares of the Mandatory Convertible Preferred Stock have not been declared and paid for the equivalent of six or more dividend periods (including, for the avoidance of doubt, the dividend period beginning on, and including, the Initial Issue Date and ending on, but excluding, October 1, 2020), whether or not for consecutive dividend periods (a “Nonpayment”), the authorized number of directors on our board of directors will, at the next annual meeting of shareholders or at a special meeting of shareholders as provided below, automatically be increased by two and the holders of record of such shares of the Mandatory Convertible Preferred Stock, voting together as a single class with holders of record of any and all other series of Voting Preferred Stock (as defined below) then outstanding, will be entitled, at our next annual meeting of shareholders or at a special meeting of shareholders as provided below, to vote for the election of a total of two additional members of our board of directors (the “Preferred Stock Directors”); provided that the election of any such Preferred Stock Directors will not cause us to violate the corporate governance requirements of The Nasdaq Global Select Market (or any other exchange or automated quotation system on which our securities may be listed or quoted) that requires listed or quoted companies to have a majority of independent directors; provided further that our board of directors shall, at no time, include more than two Preferred Stock Directors.
In the event of a Nonpayment, the holders of record of at least 25% of the shares of the Mandatory Convertible Preferred Stock and any other series of Voting Preferred Stock may request that a special meeting of shareholders be called to elect such Preferred Stock Directors (provided, however, to the extent permitted by our amended and restated by-laws, if our next annual or a special meeting of shareholders is scheduled to be held within 90 days of the receipt of such request, the election of such Preferred Stock Directors will be included in the agenda for, and will be held at, such scheduled annual or special meeting of shareholders). The Preferred Stock Directors will stand for reelection annually, at each subsequent annual meeting of the shareholders, so long as the holders of the Mandatory Convertible Preferred Stock continue to have such voting rights.
At any meeting at which the holders of the Mandatory Convertible Preferred Stock are entitled to elect Preferred Stock Directors, the holders of record of a majority of the then outstanding shares of the Mandatory Convertible Preferred Stock and all other series of Voting Preferred Stock, present in person or represented by proxy, will constitute a quorum and the vote of the holders of record of a majority of such shares of the Mandatory Convertible Preferred Stock and other Voting Preferred Stock so present or represented by proxy at any such meeting at which there shall be a quorum shall be sufficient to elect the Preferred Stock Directors.
As used in this description, “Voting Preferred Stock” means any other class or series of our Parity Stock upon which like voting rights for the election of directors have been conferred and are exercisable. Whether a plurality, majority or other portion in voting power of the Mandatory Convertible Preferred Stock and any other Voting Preferred Stock have been voted in favor of any matter shall be determined by reference to the respective liquidation preference amounts of the Mandatory Convertible Preferred Stock and such other Voting Preferred Stock voted.
If and when all accumulated and unpaid dividends on the Mandatory Convertible Preferred Stock have been paid in full (a “Nonpayment Remedy”), the holders of the Mandatory Convertible Preferred Stock shall immediately and, without any further action by us, be divested of the foregoing voting rights, subject to the revesting of such rights in the event of each subsequent Nonpayment. If such voting rights for the holders of the Mandatory Convertible Preferred Stock and all other holders of Voting Preferred Stock have terminated, the term of office of each Preferred

Exhibit 4.03

Stock Director so elected will terminate at such time and the authorized number of directors on our board of directors shall automatically decrease by two.
Any Preferred Stock Director may be removed at any time, with or without cause, by the holders of record of a majority in voting power of the outstanding shares of the Mandatory Convertible Preferred Stock and any other series of Voting Preferred Stock then outstanding (voting together as a single class) when they have the voting rights described above. In the event that a Nonpayment shall have occurred and there shall not have been a Nonpayment Remedy, any vacancy in the office of a Preferred Stock Director (other than prior to the initial election of Preferred Stock Directors after a Nonpayment) may be filled by the written consent of the Preferred Stock Director remaining in office, except in the event that such vacancy is created as a result of such Preferred Stock Director being removed or if no Preferred Stock Director remains in office, such vacancy may be filled by a vote of the holders of record of a majority in voting power of the outstanding shares of the Mandatory Convertible Preferred Stock and any other series of Voting Preferred Stock then outstanding (voting together as a single class) when they have the voting rights described above; provided that the election of any such Preferred Stock Directors will not cause us to violate the corporate governance requirements of The Nasdaq Global Select Market (or any other exchange or automated quotation system on which our securities may be listed or quoted) that requires listed or quoted companies to have a majority of independent directors. The Preferred Stock Directors will each be entitled to one vote per director on any matter that comes before our board of directors for a vote.
So long as any shares of Mandatory Convertible Preferred Stock remain outstanding, we will not, without the affirmative vote or consent of the holders of at least two-thirds in voting power of the outstanding shares of Mandatory Convertible Preferred Stock and all other series of Voting Preferred Stock at the time outstanding and entitled to vote thereon, voting together as a single class, given in person or by proxy, either in writing or at an annual or special meeting of such shareholders:
•amend or alter the provisions of our Articles of Incorporation so as to authorize or create, or increase the authorized amount of, any Senior Stock;

•amend, alter or repeal the provisions of our Articles of Incorporation or the Statement with Respect to Shares with respect to the Mandatory Convertible Preferred Stock so as to adversely affect the special rights, preferences, privileges or voting powers of the Mandatory Convertible Preferred Stock; or

•consummate a binding share exchange or reclassification involving the shares of Mandatory Convertible Preferred Stock or a merger or consolidation of us with another entity, unless, in each case: (i) the shares of Mandatory Convertible Preferred Stock remain outstanding and are not amended in any respect or, in the case of any such merger or consolidation with respect to which we are not the surviving or resulting entity, are converted or reclassified into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent; and (ii) such Mandatory Convertible Preferred Stock remaining outstanding or such preference securities, as the case may be, have such special rights, preferences, privileges and voting powers, taken as a whole, as are not materially less favorable to the holders thereof than the special rights, preferences, privileges and voting powers of the Mandatory Convertible Preferred Stock immediately prior to such consummation;
provided, however, that in the event that a transaction would trigger voting rights under both the second and third bullet point above, the third bullet point will govern; provided, further, however, that:
•any increase in the amount of our authorized but unissued shares of preferred stock;

•any increase in the amount of authorized or issued shares of Mandatory Convertible Preferred Stock; and

•the creation and issuance, or an increase in the authorized or issued amount, of any other series of Parity Stock or any class or series of our capital stock ranking junior to the Mandatory Convertible Preferred Stock as to dividend rights and distribution rights upon our liquidation, winding up or dissolution,
will be deemed not to adversely affect the rights, preferences, privileges or voting powers of the Mandatory Convertible Preferred Stock and shall not require the affirmative vote or consent of holders of the Mandatory Convertible Preferred Stock.

Exhibit 4.03

The Articles of Incorporation and Pennsylvania law permit us, without the approval of any of our shareholders (including any holders of the Mandatory Convertible Preferred Stock), to establish and issue a new series of preferred stock ranking equally with or junior to the Mandatory Convertible Preferred Stock, which may dilute the voting and other interests of holders of Mandatory Convertible Preferred Stock.
If any amendment, alteration, repeal, binding share exchange, reclassification, merger or consolidation described above would adversely affect the special rights, preferences, privileges or voting powers of one or more but not all series of Voting Preferred Stock (including the Mandatory Convertible Preferred Stock for this purpose), then only the series of Voting Preferred Stock the special rights, preferences, privileges or voting powers of which are adversely affected and entitled to vote, shall vote as a class in lieu of all series of Voting Preferred Stock.
Without the consent of the holders of the Mandatory Convertible Preferred Stock, so long as such action does not adversely affect the special rights, preferences, privileges or voting powers of the Mandatory Convertible Preferred Stock and limitations and restrictions thereof, we may amend, alter, supplement or repeal any terms of the Mandatory Convertible Preferred Stock to:
•to cure any ambiguity, omission or mistake, or to correct or supplement any provision contained in the Statement with Respect to Shares establishing the terms of the Mandatory Convertible Preferred Stock that may be defective or inconsistent with any other provision contained in such Statement with Respect to Shares;

•to make any provision with respect to matters or questions relating to the Mandatory Convertible Preferred Stock that is not inconsistent with the provisions of our Articles of Incorporation or the Statement with Respect to Shares establishing the terms of the Mandatory Convertible Preferred Stock; or

•to waive any of our rights with respect thereto.
Without the consent of the holders of the Mandatory Convertible Preferred Stock, we may amend, alter, supplement or repeal any terms of the Mandatory Convertible Preferred Stock to (i) conform the terms of the Mandatory Convertible Preferred Stock to the description thereof in the applicable offering documents relating to our public offering of Mandatory Convertible Preferred Stock consummated on the Initial Issue Date (ii) file a statement of correction with respect to the Statement with Respect to Shares to the extent permitted by Section 138 of the Pennsylvania Associations Code or (iii) amend the Statement with Respect to Shares for the Mandatory Convertible Preferred Stock in connection with a Reorganization Event to the extent required pursuant to the provisions below under the heading “—Recapitalization, Reclassifications and Changes of Our Common Stock.”
Mandatory Conversion
Each outstanding share of the Mandatory Convertible Preferred Stock, unless previously converted, will automatically convert on the Mandatory Conversion Date (as defined below), into a number of shares of our Common Stock equal to the conversion rate described below.
The conversion rate, which is the number of shares of our Common Stock issuable upon conversion of each share of the Mandatory Convertible Preferred Stock on the Mandatory Conversion Date (excluding any shares of our Common Stock issued in respect of accrued and unpaid dividends, as described below), will be as follows:
•if the Applicable Market Value of our Common Stock is greater than the Threshold Appreciation Price, which is approximately $51.5996, then the conversion rate will be 3.8760 shares of our Common Stock per share of Mandatory Convertible Preferred Stock (the “Minimum Conversion Rate”);

•if the Applicable Market Value of our Common Stock is less than or equal to the Threshold Appreciation Price but equal to or greater than the Initial Price, which is approximately $42.9997, then the conversion rate will be equal to $200.00 divided by the Applicable Market Value of our Common Stock, rounded to the nearest ten-thousandth of a share; or

•if the Applicable Market Value of our Common Stock is less than the Initial Price, then the conversion rate will be 4.6512 shares of our Common Stock per share of Mandatory Convertible Preferred Stock (the “Maximum Conversion Rate”).

Exhibit 4.03

We refer to the Minimum Conversion Rate and the Maximum Conversion Rate collectively as the “Fixed Conversion Rates.” The “Threshold Appreciation Price” is calculated by dividing $200.00 by the Minimum Conversion Rate, and represents an approximately 20% appreciation over the Initial Price. The “Initial Price” is calculated by dividing $200.00 by the Maximum Conversion Rate of 4.6512 shares of Common Stock, and initially is approximately equal to $43.00. The Fixed Conversion Rates are subject to adjustment as described in “—Anti-dilution Adjustments” below.
If we declare a dividend on the Mandatory Convertible Preferred Stock for the dividend period ending on, but excluding, July 1, 2023, we will pay such dividend to the holders of record as of the immediately preceding Regular Record Date, as described above under “—Dividends.” If on or prior to July 1, 2023 we have not declared all or any portion of the accumulated and unpaid dividends on the Mandatory Convertible Preferred Stock, the conversion rate will be adjusted so that holders receive an additional number of shares of our Common Stock equal to:
•the amount of such accumulated and unpaid dividends that have not been declared (the “Mandatory Conversion Additional Conversion Amount”), divided by

•the greater of (i) the Floor Price and (ii) 97% of the Average Price (calculated using July 1, 2023 as the applicable Dividend Payment Date).
To the extent that the Mandatory Conversion Additional Conversion Amount exceeds the product of the number of additional shares and 97% of the Average Price, we will, to the extent we are able to do so under applicable Pennsylvania law, declare and pay such excess amount in cash (computed to the nearest cent) pro rata per share to the holders of the Mandatory Convertible Preferred Stock. Any such payment in cash may not be permitted by the terms of our then-existing indebtedness (including our Credit Agreement). To the extent that we are not able to pay such excess amount in cash under applicable Pennsylvania law, we will not have any obligation to pay such amount in cash or deliver additional shares of our Common Stock in respect of such amount, and such amount will not form a part of the cumulative dividends that may be deemed to accumulate on the shares of Mandatory Convertible Preferred Stock.
Definitions
“Applicable Market Value” means the Average VWAP per share of our Common Stock over the Settlement Period.
“Settlement Period” means the 20 consecutive Trading Day period commencing on, and including, the 21st Scheduled Trading Day immediately preceding July 1, 2023.
“Mandatory Conversion Date” means the second Business Day immediately following the last Trading Day of the Settlement Period. The Mandatory Conversion Date is expected to be July 1, 2023. If the Mandatory Conversion Date occurs after July 1, 2023 (whether because a Scheduled Trading Day during the Settlement Period is not a Trading Day due to the occurrence of a Market Disruption Event or otherwise), no interest or other amounts will accrue as a result of such postponement.
A “Trading Day” means a day on which:
•there is no Market Disruption Event; and

•trading in our Common Stock generally occurs on the Relevant Stock Exchange;
provided, that if our Common Stock is not listed or admitted for trading, “Trading Day” means a “Business Day.”
A “Scheduled Trading Day” is any day that is scheduled to be a Trading Day.
“Market Disruption Event” means:
•a failure by the Relevant Stock Exchange to open for trading during its regular trading session; or

•the occurrence or existence prior to 1:00 p.m., New York City time, on any Scheduled Trading Day for our Common Stock for more than one half-hour period in the aggregate during regular trading hours of any suspension or limitation imposed on trading (by reason of movements in price exceeding limits permitted by the Relevant Stock Exchange or otherwise) in our Common Stock.
“Relevant Stock Exchange” means The Nasdaq Global Select Market or, if our Common Stock is not then listed on The Nasdaq Global Select Market, on the principal other U.S. national or regional securities exchange on which our

Exhibit 4.03

Common Stock is then listed or, if our Common Stock is not then listed on a U.S. national or regional securities exchange, on the principal other market on which our Common Stock is then listed or admitted for trading.
“VWAP” per share of our Common Stock on any Trading Day means the per share volume-weighted average price as displayed on Bloomberg page “IIVI <EQUITY> AQR” (or its equivalent successor if such page is not available) in respect of the period from the scheduled open of trading until the scheduled close of trading of the primary trading session on such Trading Day, taking into account any adjustments made to reported trades at or prior to 4:10 p.m., New York time, but excluding any after-market trades (or if such volume-weighted average price is not available or is manifestly erroneous, the market value per share of our Common Stock on such Trading Day as determined, using a volume-weighted average method, by a nationally recognized independent investment banking firm retained by us for this purpose, which may include any of the underwriters for this offering). The “Average VWAP” per share over a certain period means the arithmetic average of the VWAP per share for each Trading Day in such period.
Early Conversion at the Option of the Holder
Other than during a Fundamental Change Conversion Period (as defined below in “—Conversion at the Option of the Holder upon Fundamental Change; Fundamental Change Dividend Make-whole Amount”), holders of shares of Mandatory Convertible Preferred Stock will have the right to convert their Mandatory Convertible Preferred Stock, in whole or in part (but in no event less than one share of Mandatory Convertible Preferred Stock), at any time prior to July 1, 2023 (an “Early Conversion”), into shares of our Common Stock at the Minimum Conversion Rate of shares of our Common Stock per share of Mandatory Convertible Preferred Stock, subject to adjustments as described in “—Anti-dilution Adjustments” below.
If, as of the conversion date (as defined below under “—Conversion Procedures—Upon Early Conversion or Upon a Conversion in Connection with a Fundamental Change”) of any Early Conversion (the “Early Conversion Date”), we have not declared all or any portion of the accumulated and unpaid dividends for all full dividend periods ending on or before the Dividend Payment Date immediately prior to such Early Conversion Date, the conversion rate for such Early Conversion will be adjusted so that holders converting their Mandatory Convertible Preferred Stock at such time receive an additional number of shares of our Common Stock equal to:
•such amount of accumulated and unpaid dividends per share of Mandatory Convertible Preferred Stock that have not been declared for such prior full dividend periods (the “Early Conversion Additional Conversion Amount”), divided by

•the greater of (i) the Floor Price and (ii) the Average VWAP per share of our Common Stock over the 20 consecutive Trading Day period (the “Early Conversion Settlement Period”) commencing on, and including, the 21st Scheduled Trading Day immediately preceding the Early Conversion Date (the “Early Conversion Average Price”).
To the extent that the Early Conversion Additional Conversion Amount exceeds the product of such number of additional shares and the Early Conversion Average Price, we will not have any obligation to pay the shortfall in cash or deliver shares of our Common Stock in respect of such shortfall.
Except as described above, upon any Early Conversion of any Mandatory Convertible Preferred Stock, we will make no payment or allowance for unpaid dividends on such shares of the Mandatory Convertible Preferred Stock, unless such Early Conversion Date occurs after the Regular Record Date for a declared dividend and on or prior to the immediately succeeding Dividend Payment Date, in which case such dividend will be paid on such Dividend Payment Date to the holder of record of the converted shares of the Mandatory Convertible Preferred Stock as of such Regular Record Date, as described under “—Dividends.”
Conversion at the Option of the Holder upon Fundamental Change; Fundamental Change Dividend Make-whole Amount
General
If a “Fundamental Change” (as defined below) occurs on or prior to July 1, 2023, holders of the Mandatory Convertible Preferred Stock will have the right (the “Fundamental Change Conversion Right”) during the Fundamental Change Conversion Period (as defined below) to:
(i) convert their Mandatory Convertible Preferred Stock, in whole or in part (but in no event less than one share of Mandatory Convertible Preferred Stock), into shares of our Common Stock (or, to the extent applicable, Units of Exchange Property as described below) at the conversion rate specified in the table below (the “Fundamental Change Conversion Rate”);

Exhibit 4.03

(ii) with respect to such converted shares, receive a Fundamental Change Dividend Make-whole Amount (as defined below) payable in cash or shares of our Common Stock; and
(iii) with respect to such converted shares, receive the Accumulated Dividend Amount (as defined below) payable in cash or shares of our Common Stock,
subject in the case of clauses (ii) and (iii) to certain limitations with respect to the number of shares of our Common Stock that we will be required to deliver, all as described below. Notwithstanding clauses (ii) and (iii) above, if the Fundamental Change Effective Date (as defined below) or the Fundamental Change Conversion Date (as defined below) falls after the Regular Record Date for a declared dividend and prior to the next Dividend Payment Date, such dividend will be paid on such Dividend Payment Date to the holders of record as of such Regular Record Date, as described under “—Dividends” and will not be included in the Accumulated Dividend Amount, and the Fundamental Change Dividend Make-whole Amount will not include the present value of the payment of such dividend.
To exercise this Fundamental Change Conversion Right, holders must submit their shares of the Mandatory Convertible Preferred Stock for conversion at any time during the period, which we call the “Fundamental Change Conversion Period,” beginning on, and including, the Fundamental Change Effective Date and ending at the close of business on the date that is 20 calendar days after the Fundamental Change Effective Date (or, if later, the date that is 20 calendar days after the date of notice of such Fundamental Change), but in no event later than July 1, 2023. Holders of the Mandatory Convertible Preferred Stock that submit the shares for conversion during the Fundamental Change Conversion Period shall be deemed to have exercised their Fundamental Change Conversion Right. Holders of the Mandatory Convertible Preferred Stock who do not submit their shares for conversion during the Fundamental Change Conversion Period will not be entitled to convert their Mandatory Convertible Preferred Stock at the relevant Fundamental Change Conversion Rate or to receive the relevant Fundamental Change Dividend Make-whole Amount or the relevant Accumulated Dividend Amount. The “Fundamental Change Conversion Date” refers to the conversion date (as defined below under “—Conversion Procedures—Upon Early Conversion or Upon a Conversion in Connection with a Fundamental Change”) during the Fundamental Change Conversion Period.
We will notify holders of the Fundamental Change Effective Date as soon as reasonably practicable and in any event no later than the second Business Day immediately following the Fundamental Change Effective Date.
A “Fundamental Change” will be deemed to have occurred, at any time after the Initial Issue Date of the Mandatory Convertible Preferred Stock, if any of the following occurs:
(i) any “person” or “group” (as such terms are used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable), other than us, any of our wholly-owned subsidiaries or any of our or our wholly-owned subsidiaries’ employee benefit plans, has become the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 50% of the total voting power of our Common Stock;
(ii) the consummation of (A) any recapitalization, reclassification or change of our Common Stock (other than changes resulting from a subdivision or combination or change in par value) as a result of which our Common Stock would be converted into, or exchanged for, stock, other securities, other property or assets (including cash or a combination thereof); (B) any consolidation, merger or other combination of us or binding share exchange pursuant to which our Common Stock will be converted into, or exchanged for, stock, other securities or other property or assets (including cash or a combination thereof); or (C) any sale, lease or other transfer or disposition in one transaction or a series of transactions of all or substantially all of the consolidated assets of ours and our subsidiaries taken as a whole, to any person other than one or more of our wholly-owned subsidiaries; or
(iii) our Common Stock (or other common equity underlying the Mandatory Convertible Preferred Stock) ceases to be listed or quoted for trading on any of The New York Stock Exchange, The Nasdaq Global Select Market or The Nasdaq Global Market (or any of their respective successors).
However, a transaction or transactions described in clause (i) or clause (ii) above will not constitute a Fundamental Change if at least 90% of the consideration received or to be received by our common shareholders, excluding cash payments for fractional shares or pursuant to statutory appraisal rights, in connection with such transaction or transactions consists of shares of Common Stock that are listed or quoted on any of The New York Stock Exchange, The Nasdaq Global Select Market or The Nasdaq Global Market (or any of their respective successors) or will be so listed or quoted when issued or exchanged in connection with such transaction or transactions and as a result of such transaction or transactions such consideration (excluding cash payments for fractional shares or pursuant to statutory appraisal rights) becomes the Exchange Property.

Exhibit 4.03

Fundamental Change Conversion Rate
The Fundamental Change Conversion Rate will be determined by reference to the table below and is based on the effective date of the Fundamental Change (the “Fundamental Change Effective Date”) and the price (the “Fundamental Change Share Price”) paid (or deemed paid) per share of our Common Stock in such Fundamental Change. If all holders of our Common Stock receive only cash in exchange for their Common Stock in the Fundamental Change, the Fundamental Change Share Price shall be the cash amount paid per share of Common Stock. Otherwise, the Fundamental Change Share Price shall be the Average VWAP per share of our Common Stock over the ten consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the relevant Fundamental Change Effective Date.
The Fundamental Change Share Prices set forth in the first row of the table (i.e., the column headers) will be adjusted as of any date on which the Fixed Conversion Rates of the Mandatory Convertible Preferred Stock are adjusted. The adjusted Fundamental Change Share Prices will equal (i) the Fundamental Change Share Prices applicable immediately prior to such adjustment, multiplied by (ii) a fraction, the numerator of which is the Minimum Conversion Rate immediately prior to the adjustment giving rise to the Fundamental Change Share Price adjustment and the denominator of which is the Minimum Conversion Rate as so adjusted. Each of the Fundamental Change Conversion Rates in the table below will be subject to adjustment in the same manner and at the same time as each Fixed Conversion Rate as set forth in “—Anti-dilution Adjustments.”
The following table sets forth the Fundamental Change Conversion Rate per share of the Mandatory Convertible Preferred Stock for each Fundamental Change Share Price and Fundamental Change Effective Date set forth below.

Fundamental Change Share Price
Fundamental Change Effective Date $10.00 $20.00 $30.00 $40.00 $43.00 $47.50 $51.60 $55.00 $60.00 $70.00 $80.00 $100.00 $120.00
July 7, 2020 4.5110 4.2837 4.1080 3.9970 3.9731 3.9434 3.9216 3.9066 3.8886 3.8633 3.8475 3.8310 3.8240
July 1, 2021 4.5861 4.4180 4.2216 4.0761 4.0432 4.0020 3.9715 3.9506 3.9257 3.8915 3.8708 3.8506 3.8429
July 1, 2022 4.6290 4.5735 4.3961 4.1953 4.1442 4.0786 4.0299 3.9968 3.9586 3.9096 3.8839 3.8640 3.8587
July 1, 2023 4.6512 4.6512 4.6512 4.6512 4.6512 4.2105 3.8760 3.8760 3.8760 3.8760 3.8760 3.8760 3.8760
The exact Fundamental Change Share Price and Fundamental Change Effective Date may not be set forth in the table, in which case:
•if the Fundamental Change Share Price is between two Fundamental Change Share Price amounts in the table or the Fundamental Change Effective Date is between two Fundamental Change Effective Dates in the table, the Fundamental Change Conversion Rate will be determined by a straight-line interpolation between the Fundamental Change Conversion Rates set forth for the higher and lower Fundamental Change Share Price amounts and the earlier and later Fundamental Change Effective Dates, as applicable, based on a 365 or 366-day year, as applicable;

•if the Fundamental Change Share Price is in excess of $120.00 per share (subject to adjustment in the same manner as the Fundamental Change Share Prices set forth in the first row of the table above), then the Fundamental Change Conversion Rate will be the Minimum Conversion Rate; and

•if the Fundamental Change Share Price is less than $10.00 per share (subject to adjustment in the same manner as the Fundamental Change Share Prices set forth in the first row of the table above), then the Fundamental Change Conversion Rate will be the Maximum Conversion Rate.
Fundamental Change Dividend Make-whole Amount and Accumulated Dividend Amount
For any shares of Mandatory Convertible Preferred Stock that are converted during the Fundamental Change Conversion Period, in addition to the Common Stock issued upon conversion at the Fundamental Change Conversion Rate, we will at our option (subject to satisfaction of the requirements described below):
(a) pay in cash (computed to the nearest cent), to the extent we are legally permitted to do so, the present value, computed using a discount rate of 5.00% per annum, of all dividend payments on the Mandatory Convertible Preferred Stock (excluding any Accumulated Dividend Amount) for (i) the partial dividend period, if any,

Exhibit 4.03

from, and including, the Fundamental Change Effective Date to, but excluding, the next Dividend Payment Date and (ii) all the remaining full dividend periods from, and including, the Dividend Payment Date following the Fundamental Change Effective Date to, but excluding, July 1, 2023 (the “Fundamental Change Dividend Make-whole Amount”);
(b) increase the number of shares of our Common Stock (or, to the extent applicable, Units of Exchange Property as described below) to be issued on conversion by a number equal to (x) the Fundamental Change Dividend Make-whole Amount divided by (y) the greater of (i) the Floor Price and (ii) 97% of the Fundamental Change Share Price; or
(c) pay the Fundamental Change Dividend Make-whole Amount in a combination of cash and shares of our Common Stock (or, to the extent applicable, Units of Exchange Property as described below) in accordance with the provisions of clauses (a) and (b) above.
In addition, to the extent that the Accumulated Dividend Amount exists as of the Fundamental Change Effective Date and subject to the limitations described below, holders who convert their Mandatory Convertible Preferred Stock within the Fundamental Change Conversion Period will be entitled to receive such Accumulated Dividend Amount upon conversion. As used herein, the term “Accumulated Dividend Amount” means, in connection with a Fundamental Change, the aggregate amount of accumulated and unpaid dividends, if any, for dividend periods prior to the relevant Fundamental Change Effective Date, including for the partial dividend period, if any, from, and including, the Dividend Payment Date immediately preceding such Fundamental Change Effective Date to, but excluding, such Fundamental Change Effective Date. The Accumulated Dividend Amount will be payable at our election (subject to satisfaction of the requirements described below):
•in cash (computed to the nearest cent), to the extent we are legally permitted to do so,

•in an additional number of shares of our Common Stock (or, to the extent applicable, Units of Exchange Property as described below) equal to (x) the Accumulated Dividend Amount divided by (y) the greater of (i) the Floor Price and (ii) 97% of the Fundamental Change Share Price, or

•through any combination of cash and shares of our Common Stock (or, to the extent applicable, Units of Exchange Property as described below) in accordance with the provisions of the preceding two bullets.
We will pay the Fundamental Change Dividend Make-whole Amount and the Accumulated Dividend Amount in cash, except to the extent we elect on or prior to the second Business Day following the Fundamental Change Effective Date to make all or any portion of such payments in shares of our Common Stock (or, to the extent applicable, Units of Exchange Property as described below). Any such payment in cash may not be permitted by our Credit Agreement or by the terms of our then-existing indebtedness (including our Credit Agreement).
If we elect to deliver Common Stock (or, to the extent applicable, Units of Exchange Property as described below) in respect of all or any portion of the Fundamental Change Dividend Make-whole Amount or the Accumulated Dividend Amount, to the extent that the Fundamental Change Dividend Make-whole Amount or the Accumulated Dividend Amount (or, if applicable, the dollar amount of any portion thereof paid in Common Stock (or, to the extent applicable, Units of Exchange Property as described below)) exceeds the product of the number of additional shares we deliver in respect thereof and 97% of the Fundamental Change Share Price, we will, if we are able to do so under applicable Pennsylvania law, pay such excess amount in cash (computed to the nearest cent). Any such payment in cash may not be permitted by the terms of our then-existing indebtedness (including our Credit Agreement). To the extent that we are not able to pay such excess amount in cash under applicable Pennsylvania law, we will not have any obligation to pay such amount in cash or deliver additional shares of our Common Stock in respect of such amount.
No fractional shares of our Common Stock (or, to the extent applicable, Units of Exchange Property as described below) will be delivered to converting holders of the Mandatory Convertible Preferred Stock in respect of the Fundamental Change Dividend Make-whole Amount or the Accumulated Dividend Amount. We will instead, to the extent legally permissible and in compliance with the terms of our then-existing indebtedness, pay a cash adjustment (computed to the nearest cent) to each converting holder that would otherwise be entitled to a fraction of a share of our Common Stock (or, to the extent applicable, Units of Exchange Property as described below) based on the Average VWAP per share of our Common Stock (or, to the extent applicable, Units of Exchange Property as described below) over the five consecutive Trading Day period ending on, and including, the second Trading Day immediately preceding the relevant conversion date. In the event that we cannot pay cash in lieu of a fractional share, we will instead round up to the nearest whole share for each holder. The terms of our then-existing

Exhibit 4.03

indebtedness, including our Credit Agreement, may not permit the payment of a cash amount in lieu of a fractional share.
However, if we are prohibited from paying or delivering, as the case may be, the Fundamental Change Dividend Make-whole Amount (whether in cash or in shares of our Common Stock), in whole or in part, due to limitations of applicable Pennsylvania law, the Fundamental Change Conversion Rate will instead be increased by a number of shares of Common Stock equal to the cash amount of the aggregate unpaid and undelivered Fundamental Change Dividend Make-whole Amount, divided by the greater of (i) the Floor Price and (ii) 97% of the Fundamental Change Share Price. To the extent that the cash amount of the aggregate unpaid and undelivered Fundamental Change Dividend Make-whole Amount exceeds the product of such number of additional shares and 97% of the Fundamental Change Share Price, we will not have any obligation to pay the shortfall in cash or deliver additional shares of our Common Stock in respect of such amount.
As soon as reasonably practical and in any event not later than the second Business Day following the Fundamental Change Effective Date, we will notify holders of:
•the Fundamental Change Conversion Rate;

•the Fundamental Change Dividend Make-whole Amount and whether we will pay such amount in cash, shares of our Common Stock (or, to the extent applicable, Units of Exchange Property) or a combination thereof, specifying the combination, if applicable; and

•the Accumulated Dividend Amount as of the Fundamental Change Effective Date and whether we will pay such amount in cash, shares of our Common Stock (or, to the extent applicable, Units of Exchange Property) or a combination thereof, specifying the combination, if applicable.
Our obligation to deliver shares at the Fundamental Change Conversion Rate and pay the Fundamental Change Dividend Make-whole Amount (whether in cash, our Common Stock (or, to the extent applicable, Units of Exchange Property as described below) or any combination thereof) could be considered a penalty, in which case the enforceability thereof would be subject to general principles of reasonableness of economic remedies and therefore may not be enforceable in whole or in part.
Conversion Procedures
Upon Mandatory Conversion
Any outstanding shares of Mandatory Convertible Preferred Stock will automatically convert into shares of Common Stock on the Mandatory Conversion Date.
If more than one share of the Mandatory Convertible Preferred Stock held by the same holder is automatically converted on the Mandatory Conversion Date, the number of shares of our Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of the Mandatory Convertible Preferred Stock so converted.
A holder will not be required to pay any transfer taxes or duties relating to the issuance or delivery of our Common Stock upon conversion, but a holder will be required to pay any tax or duty that may be payable relating to any transfer involved in the issuance or delivery of the Common Stock in a name other than the holder’s name.
So long as the shares of the Mandatory Convertible Preferred Stock being converted are in global form, the shares of Common Stock issuable upon conversion will be delivered to the converting holder through the facilities of DTC, in each case together with delivery by the Company to the converting holder of any cash to which the converting holder is entitled, on the later of (i) the Mandatory Conversion Date and (ii) the Business Day after the converting holder has paid in full all applicable taxes and duties, if any.
The person or persons entitled to receive the shares of our Common Stock issuable upon mandatory conversion of the Mandatory Convertible Preferred Stock will be treated as the record holder(s) of such shares as of the close of business on the Mandatory Conversion Date. Except as provided in “—Anti-dilution Adjustments,” prior to the close of business on the Mandatory Conversion Date, the Common Stock issuable upon conversion of the Mandatory Convertible Preferred Stock will not be deemed to be outstanding for any purpose and a holder will have no rights, powers, preferences or privileges with respect to such Common Stock, including voting rights, rights to respond to tender offers and rights to receive any dividends or other distributions on the Common Stock, by virtue of holding the Mandatory Convertible Preferred Stock.

Exhibit 4.03

Upon Early Conversion or Upon a Conversion in Connection with a Fundamental Change
If a holder elects to convert the Mandatory Convertible Preferred Stock prior to July 1, 2023, in the manner described in “—Early Conversion at the Option of the Holder” or “—Conversion at the Option of the Holder upon Fundamental Change; Fundamental Change Dividend Make-whole Amount,” a holder must observe the following conversion procedures:
•if such holder holds a beneficial interest in a global share of Mandatory Convertible Preferred Stock, such holder must deliver to DTC the appropriate instruction form for conversion pursuant to DTC’s conversion program; and

•if such holder holds shares of the Mandatory Convertible Preferred Stock in certificated form, such holder must comply with certain procedures set forth in the Statement with Respect to Shares.
The “conversion date” will be the date on which a holder has satisfied the foregoing requirements, to the extent applicable.
If more than one share of the Mandatory Convertible Preferred Stock is surrendered for conversion at one time by or for the same holder, the number of shares of our Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of the Mandatory Convertible Preferred Stock so surrendered.
A holder will not be required to pay any taxes or duties relating to the issuance or delivery of our Common Stock upon conversion, but a holder will be required to pay any tax or duty that may be payable relating to any transfer involved in the issuance or delivery of the Common Stock in a name other than its own.
So long as the shares of the Mandatory Convertible Preferred Stock being converted are in global form, the shares of Common Stock will be issued and delivered to the converting holder through the facilities of DTC on the latest of (i) the second Business Day immediately succeeding the conversion date, (ii) the second Business Day immediately succeeding the last day of the Early Conversion Settlement Period and (iii) the Business Day after a holder has paid in full all applicable taxes and duties, if any.
The person or persons entitled to receive the Common Stock issuable upon early conversion of the Mandatory Convertible Preferred Stock will be treated as the record holder(s) of such shares as of the close of
business on the applicable Early Conversion Date or Fundamental Change Conversion Date. Except as provided in “—Anti-dilution Adjustments,” prior to the close of business on the applicable Early Conversion Date or Fundamental Change Conversion Date, the Common Stock issuable upon early conversion of the Mandatory Convertible Preferred Stock will not be outstanding, or deemed to be outstanding, for any purpose and a holder will have no rights, powers, preferences or privileges with respect to such Common Stock, including voting rights, rights to respond to tender offers and rights to receive any dividends or other distributions on the Common Stock, by virtue of holding the Mandatory Convertible Preferred Stock.
Fractional Shares
No fractional shares of our Common Stock will be issued to holders of the Mandatory Convertible Preferred Stock upon conversion. In lieu of any fractional shares of our Common Stock otherwise issuable in respect of the aggregate number of shares of the Mandatory Convertible Preferred Stock of any holder that are converted, that holder will be entitled to receive an amount in cash (computed to the nearest cent) equal to the product of: (i) that same fraction; and (ii) the Average VWAP of our Common Stock over the five consecutive Trading Day period ending on, and including, the second Trading Day immediately preceding the relevant conversion date. In the event that we cannot pay cash in lieu of a fractional share, we will instead round up to the nearest whole share for each holder. The terms of our then-existing indebtedness, including our Credit Agreement, may not permit the payment of a cash amount in lieu of a fractional share.
Anti-dilution Adjustments
Each Fixed Conversion Rate will be adjusted as described below, except that we will not make any adjustments to the Fixed Conversion Rates if holders of the Mandatory Convertible Preferred Stock participate (other than in the case of a share split or share combination or a tender or exchange offer described in clause (5) below), at the same time and upon the same terms as holders of our Common Stock and solely as a result of holding the Mandatory Convertible Preferred Stock, in any of the transactions described below without having to convert their Mandatory Convertible Preferred Stock as if they held a number of shares of Common Stock equal to (i) the Maximum

Exhibit 4.03

Conversion Rate as of the record date for such transaction, multiplied by (ii) the number of shares of Mandatory Convertible Preferred Stock held by such holder.
(1) If we exclusively issue shares of our Common Stock as a dividend or distribution on shares of our Common Stock, or if we effect a share split or share combination, each Fixed Conversion Rate will be adjusted based on the following formula:
CR1 = CR0 × OS1
OS0
where,
CR0 = such Fixed Conversion Rate in effect immediately prior to the close of business on the record date (as defined below) of such dividend or distribution, or immediately prior to the open of business on the effective date of such share split or share combination, as applicable;
CR1 = such Fixed Conversion Rate in effect immediately after the close of business on such record date or immediately after the open of business on such effective date, as applicable;
OS0 = the number of shares of our Common Stock outstanding immediately prior to the close of business on such record date or immediately prior to the open of business on such effective date, as applicable, before giving effect to such dividend, distribution, share split or share combination; and
OS1 = the number of shares of our Common Stock outstanding immediately after giving effect to such dividend, distribution, share split or share combination.
Any adjustment made under this clause (1) shall become effective immediately after the close of business on the record date for such dividend or distribution, or immediately after the open of business on the effective date for such share split or share combination, as applicable. If any dividend or distribution of the type described in this clause (1) is declared but not so paid or made, each Fixed Conversion Rate shall be immediately readjusted, effective as of the date our board of directors or a committee thereof determines not to pay such dividend or distribution, to such Fixed Conversion Rate that would then be in effect if such dividend or distribution had not been declared. For the purposes of this clause (1), the number of shares of our Common Stock outstanding immediately prior to the close of business on the relevant record date or immediately prior to the open of business on the relevant effective date, as the case may be, and the number of shares of our Common Stock outstanding immediately after giving effect to such dividend, distribution, share split or share combination shall, in each case, not include shares that we hold in treasury. We will not pay any dividend or make any distribution on shares of our Common Stock that we hold in treasury.
“Effective date” as used in this clause (1) means the first date on which the shares of our Common Stock trade on the Relevant Stock Exchange, regular way, reflecting the relevant share split or share combination, as applicable.
“Record date” means, with respect to any dividend, distribution or other transaction or event in which the holders of our Common Stock (or other applicable security) have the right to receive any cash, securities or other property or in which our Common Stock (or such other security) is exchanged for or converted into any combination of cash, securities or other property, the date fixed for determination of holders of our Common Stock (or such other security) entitled to receive such cash, securities or other property (whether such date is fixed by our board of directors or a duly authorized committee thereof, statute, contract or otherwise).
(2) If we issue to all or substantially all holders of our Common Stock any rights, options or warrants entitling them, for a period of not more than 45 calendar days after the announcement date of such issuance, to subscribe for or purchase shares of our Common Stock at a price per share that is less than the Average VWAP per share of our Common Stock for the ten consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the date of announcement of such issuance, each Fixed Conversion Rate will be increased based on the following formula:

Exhibit 4.03

CR1 = CR0 × OS0 + X
OS0 + Y
where,
CR0 =
such Fixed Conversion Rate in effect immediately prior to the close of business on the record date for such issuance;
CR1 =
such Fixed Conversion Rate in effect immediately after the close of business on such record date;
OS0 =
the number of shares of our Common Stock outstanding immediately prior to the close of business on such record date;
X =
the total number of shares of our Common Stock issuable pursuant to such rights, options or warrants; and
Y =
the number of shares of our Common Stock equal to (i) the aggregate price payable to exercise such rights, options or warrants, divided by (ii) the Average VWAP per share of our Common Stock over the ten consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the date of announcement of the issuance of such rights, options or warrants.
Any increase made under this clause (2) will be made successively whenever any such rights, options or warrants are issued and shall become effective immediately after the close of business on the record date for such issuance. To the extent that such rights, options or warrants are not exercised prior to their expiration or shares of Common Stock are not delivered after the exercise of such rights, options or warrants, each Fixed Conversion Rate shall be decreased to such Fixed Conversion Rate that would then be in effect had the increase with respect to the issuance of such rights, options or warrants been made on the basis of delivery of only the number of shares of Common Stock actually delivered, if any. If such rights, options or warrants are not so issued, each Fixed Conversion Rate shall be immediately readjusted, effective as of the date our board of directors or a committee thereof determines not to issue such rights, options or warrants, to such Fixed Conversion Rate that would then be in effect if such record date for such issuance had not occurred.
For the purpose of this clause (2), in determining whether any rights, options or warrants entitle the holders of our Common Stock to subscribe for or purchase shares of our Common Stock at less than such Average VWAP per share for the ten consecutive trading day period ending on, and including, the Trading Day immediately preceding the date of announcement of such issuance, and in determining the aggregate offering price of such shares of our Common Stock, there shall be taken into account any consideration received by us for such rights, options or warrants and any amount payable on exercise or conversion thereof, the value of such consideration, if other than cash, to be determined by our board of directors or a committee thereof in good faith.
(3) If we distribute shares of our capital stock, evidences of our indebtedness, other assets or property of ours or rights, options or warrants to acquire our capital stock or other securities, to all or substantially all holders of our Common Stock, excluding:
•dividends, distributions or issuances as to which the provisions set forth in clause (1) or (2) shall apply;

•dividends or distributions paid exclusively in cash as to which the provisions set forth in clause (4) below shall apply;

•any dividends and distributions upon conversion of, or in exchange for, our Common Stock in connection with a recapitalization, reclassification, change, consolidation, merger or other combination, share exchange, or sale, lease or other transfer or disposition resulting in the change

Exhibit 4.03

in the consideration due upon conversion as described below under “—Recapitalizations, Reclassifications and Changes of Our Common Stock”;

•except as otherwise described below, rights issued pursuant to a shareholder rights plan adopted by us; and

•spin-offs as to which the provisions set forth below in this clause (3) shall apply;
then each Fixed Conversion Rate will be increased based on the following formula:
CR1 = CR0 ×
SP0
SP0 - FMV
where,
CR0 =
such Fixed Conversion Rate in effect immediately prior to the close of business on the record date for such distribution;
CR1 =
such Fixed Conversion Rate in effect immediately after the close of business on such record date;
SP0 =
the Average VWAP per share of our Common Stock over the ten consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the ex-date (as defined below) for such distribution; and
FMV =
the fair market value (as determined by our board of directors or a committee thereof in good faith) of the shares of capital stock, evidences of indebtedness, assets, property, rights, options or warrants so distributed, expressed as an amount per share of our Common Stock on the ex-date for such distribution.
“Ex-date” means the first date on which the shares of our Common Stock trade on the applicable exchange or in the applicable market, regular way, without the right to receive the issuance, dividend or distribution in question, from us or, if applicable, from the seller of our Common Stock on such exchange or market (in the form of due bills or otherwise) as determined by such exchange or market.
Any increase made under the portion of this clause (3) above will become effective immediately after the close of business on the record date for such distribution. If such distribution is not so paid or made, each Fixed Conversion Rate shall be immediately readjusted, effective as of the date our board of directors or a committee thereof determines not to pay such dividend or distribution, to be such Fixed Conversion Rate that would then be in effect if such distribution had not been declared.
Notwithstanding the foregoing, if “FMV” (as defined above) is equal to or greater than “SP0” (as defined above), or if the difference is less than $1.00, in lieu of the foregoing increase, each holder shall receive, in respect of each share of Mandatory Convertible Preferred Stock, at the same time and upon the same terms as holders of our Common Stock, the amount and kind of our capital stock, evidences of our indebtedness, other assets or property of ours or rights, options or warrants to acquire our capital stock or other securities that such holder would have received if such holder owned a number of shares of Common Stock equal to the Maximum Conversion Rate in effect on the record date for the distribution.
If we issue rights, options or warrants that are only exercisable upon the occurrence of certain triggering events, then:
•we will not adjust the Fixed Conversion Rates pursuant to the foregoing in this clause (3) until the earliest of these triggering events occurs; and

•we will readjust the Fixed Conversion Rates to the extent any of these rights, options or warrants are not exercised before they expire; provided that the rights, options or warrants trade together with our Common Stock and will be issued in respect of future issuances of the shares of our Common Stock.
With respect to an adjustment pursuant to this clause (3) where there has been a payment of a dividend or other distribution on our Common Stock of shares of capital stock of any class or series, or similar equity interest, of or relating to a subsidiary or other business unit, that are, or, when issued, will be, listed or

Exhibit 4.03

admitted for trading on a U.S. national securities exchange, which we refer to as a “spin-off,” each Fixed Conversion Rate will be increased based on the following formula:
CR1 = CR0 ×
FMV0 + MP0
MP0
where,
CR0 =
such Fixed Conversion Rate in effect immediately prior to the open of business on the ex-date for the spin-off;
CR1 =
such Fixed Conversion Rate in effect immediately after the open of business on the ex-date for the spin-off;
FMV0 =
the Average VWAP per share of the capital stock or similar equity interest distributed to holders of our Common Stock applicable to one share of our Common Stock over the ten consecutive Trading Day period commencing on, and including, the ex-date for the spin-off, or the “valuation period”; and
MP0 =
the Average VWAP per share of our Common Stock over the valuation period.
The increase to each Fixed Conversion Rate under the preceding paragraph will be calculated as of the close of business on the last Trading Day of the valuation period but will be given retroactive effect as of immediately after the open of business on the ex-date of the spin-off. Because we will make the adjustment to each Fixed Conversion Rate with retroactive effect, we will delay the settlement of any conversion of Mandatory Convertible Preferred Stock where any date for determining the number of shares of our Common Stock issuable to a holder occurs during the valuation period until the second Business Day after the last Trading Day of such valuation period. If such dividend or distribution is not so paid, each Fixed Conversion Rate shall be decreased, effective as of the date our board of directors or a committee thereof determines not to make or pay such dividend or distribution, to be such Fixed Conversion Rate that would then be in effect if such dividend or distribution had not been declared.
(4) If any cash dividend or distribution is made to all or substantially all holders of our Common Stock, each Fixed Conversion Rate will be adjusted based on the following formula:

CR1 = CR0 ×
SP0
SP0 - C
where,
CR0 =
such Fixed Conversion Rate in effect immediately prior to the close of business on the record date for such dividend or distribution;
CR1 =
such Fixed Conversion Rate in effect immediately after the close of business on the record date for such dividend or distribution;
SP0 =
the Average VWAP per share of our Common Stock over the ten consecutive Trading Day period ending on, and including, the Trading Day immediately preceding the ex-date for such dividend or distribution; and
C =
the amount in cash per share we distribute to all or substantially all holders of our Common Stock.
Any increase made under this clause (4) shall become effective immediately after the close of business on the record date for such dividend or distribution. If such dividend or distribution is not so paid, each Fixed Conversion Rate shall be decreased, effective as of the date our board of directors or a committee thereof determines not to make or pay such dividend or distribution, to be such Fixed Conversion Rate that would then be in effect if such dividend or distribution had not been declared.
Notwithstanding the foregoing, if “C” (as defined above) is equal to or greater than “SP0” (as defined above), or if the difference is less than $1.00, in lieu of the foregoing increase, each holder shall receive, in respect of each share of Mandatory Convertible Preferred Stock, at the same time and upon the same terms as holders of shares of our Common Stock, the amount of cash that such holder would have received if such holder owned a number of shares of our Common Stock equal to the Maximum Conversion Rate on the record date for such cash dividend or distribution.
(5) If we or any of our subsidiaries make a payment in respect of a tender or exchange offer for our Common Stock, to the extent that the cash and value of any other consideration included in the payment per share

Exhibit 4.03

of Common Stock exceeds the Average VWAP per share of our Common Stock over the ten consecutive Trading Day period commencing on, and including, the Trading Day next succeeding the last date on which tenders or exchanges may be made pursuant to such tender or exchange offer (the “expiration date”), each Fixed Conversion Rate will be increased based on the following formula:

CR1 = CR0 ×
AC + (SP1 × OS1)
OS0 × SP1
where,
CR0 =
such Fixed Conversion Rate in effect immediately prior to the close of business on the expiration date;
CR1 =
such Fixed Conversion Rate in effect immediately after the close of business on the expiration date;
AC =
the aggregate value of all cash and any other consideration (as determined by our board of directors or a committee thereof in good faith) paid or payable for shares purchased in such tender or exchange offer;
OS0 =
the number of shares of our Common Stock outstanding immediately prior to the expiration date (prior to giving effect to the purchase of all shares accepted for purchase or exchange in such tender or exchange offer);
OS1 =
the number of shares of our Common Stock outstanding immediately after the expiration date (after giving effect to the purchase of all shares accepted for purchase or exchange in such tender or exchange offer); and
SP1 =
the Average VWAP of our Common Stock over the ten consecutive Trading Day period commencing on, and including, the Trading Day next succeeding the expiration date (the “averaging period”).
The increase to each Fixed Conversion Rate under the preceding paragraph will be calculated at the close of business on the last Trading Day of the averaging period but will be given retroactive effect as of immediately after the close of business on the expiration date. Because we will make the adjustment to each Fixed Conversion Rate with retroactive effect, we will delay the settlement of any conversion of Mandatory Convertible Preferred Stock where any date for determining the number of shares of our Common Stock issuable to a holder occurs during the averaging period until the second Business Day after the last Trading Day of such averaging period. For the avoidance of doubt, no adjustment under this clause (5) will be made if such adjustment would result in a decrease in any Fixed Conversion Rate.
In the event that we or one of our subsidiaries is obligated to purchase shares of Common Stock pursuant to any such tender offer or exchange offer, but we or such subsidiary is permanently prevented by applicable law from effecting any such purchases, or all such purchases are rescinded, then each Fixed Conversion Rate shall again be adjusted to be such Fixed Conversion Rate that would then be in effect if such tender offer or exchange offer had not been made (or had been made only in respect of the purchases that have been made and not rescinded).
We may, to the extent permitted by law and the rules of The Nasdaq Global Select Market or any other securities exchange on which our Common Stock or the Mandatory Convertible Preferred Stock is then listed, increase each Fixed Conversion Rate by any amount for a period of at least 20 Business Days if such increase is irrevocable during such 20 Business Days and our board of directors (or a committee thereof) determines that such increase would be in our best interest. In addition, we may make such increases in each Fixed Conversion Rate as we deem advisable in order to avoid or diminish any income tax to holders of our Common Stock resulting from any dividend or distribution of shares of our Common Stock (or issuance of rights or warrants to acquire shares of our Common Stock) or from any event treated as such for income tax purposes or for any other reason. We may only make such a discretionary adjustment if we make the same proportionate adjustment to each Fixed Conversion Rate.
Holders of the Mandatory Convertible Preferred Stock may, in certain circumstances, including a distribution of cash dividends to holders of our shares of Common Stock, be deemed to have received a distribution subject to U.S. Federal income tax as a dividend as a result of an adjustment or the nonoccurrence of an adjustment to the Fixed Conversion Rates.
If we have a rights plan in effect upon conversion of the Mandatory Convertible Preferred Stock into Common Stock, a holder will receive, in addition to any shares of Common Stock received in connection with such conversion, the rights under the rights plan. However, if, prior to any conversion, the rights have separated from the shares of Common Stock in accordance with the provisions of the applicable rights plan, each Fixed Conversion Rate will be adjusted at the time of separation as if we distributed to all or substantially all holders of our Common Stock, shares of our capital stock, evidences of indebtedness, assets, property, rights, options or warrants as described in clause

Exhibit 4.03

(3) above, subject to readjustment in the event of the expiration, termination or redemption of such rights. We do not currently have a shareholder rights plan in effect.
Adjustments to the Fixed Conversion Rates will be calculated to the nearest 1/10,000th of a share of our Common Stock. No adjustment to any Fixed Conversion Rate will be required unless the adjustment would require an increase or decrease of at least 1% to each of the Fixed Conversion Rates; provided, however, that if an adjustment is not made because the adjustment does not change each of the Fixed Conversion Rates by at least 1%, then such adjustment will be carried forward and taken into account in any future adjustment. Notwithstanding the foregoing, on each date for determining the number of shares of our Common Stock issuable to a holder upon any conversion of the Mandatory Convertible Preferred Stock, and on each Trading Day during the Settlement Period or any other valuation period in connection with a conversion of the Mandatory Convertible Preferred Stock, we will give effect to all adjustments that we have otherwise deferred pursuant to this sentence, and those adjustments will no longer be carried forward and taken into account in any future adjustment.
The Fixed Conversion Rates will not be adjusted:
•upon the issuance of any shares of our Common Stock pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on our securities and the investment of additional optional amounts in Common Stock under any plan;

•upon the issuance of any shares of our Common Stock or options, restricted share units, performance share units, rights or warrants to purchase those shares pursuant to any present or future benefit or other incentive plan or program of or assumed by us or any of our subsidiaries;

•upon the issuance of any shares of our Common Stock pursuant to any option, warrant, right or exercisable, exchangeable or convertible security not described in the preceding bullet and outstanding as of the date the Mandatory Convertible Preferred Stock was first issued;

•for a change in the par value of our Common Stock;

•for sales of our Common Stock for cash, other than in a transaction described in clause (2) or clause (3) above;

•for stock repurchases that are not tender or exchange offers referred to in clause (5) of the adjustments above, including structured or derivative transactions or pursuant to a stock repurchase program approved by our board of directors; or

•for accumulated dividends on the Mandatory Convertible Preferred Stock, except as described above under “—Mandatory Conversion,” “—Early Conversion at the Option of the Holder” and “—Conversion at the Option of the Holder upon Fundamental Change; Fundamental Change Dividend Make-whole Amount.”
Except as otherwise provided above, we will be responsible for making all calculations called for under the Mandatory Convertible Preferred Stock. These calculations include, but are not limited to, determinations of the Fundamental Change Share Price, the VWAPs, the Average VWAPs and the Fixed Conversion Rates of the Mandatory Convertible Preferred Stock.
We will be required, within ten Business Days after the Fixed Conversion Rates are adjusted, to provide or cause to be provided written notice of the adjustment to the holders of the Mandatory Convertible Preferred Stock. We will also be required to deliver a statement setting forth in reasonable detail the method by which the adjustment to each Fixed Conversion Rate was determined and setting forth each adjusted Fixed Conversion Rate.

Exhibit 4.03

For the avoidance of doubt, if an adjustment is made to the Fixed Conversion Rates, no separate inversely proportionate adjustment will be made to the Initial Price or the Threshold Appreciation Price because the Initial Price is equal to $200.00 divided by the Maximum Conversion Rate (as adjusted in the manner described herein) and the Threshold Appreciation Price is equal to $200.00 divided by the Minimum Conversion Rate (as adjusted in the manner described herein).
Whenever the terms of the Mandatory Convertible Preferred Stock require us to calculate the VWAP per share of our Common Stock over a span of multiple days, our board of directors or a committee thereof will make appropriate adjustments in good faith (including, without limitation, to the Applicable Market Value, the Early Conversion Average Price, the Fundamental Change Share Price and the Average Price (as the case may be)) to account for any adjustments to the Fixed Conversion Rates (as the case may be) that become effective, or any event that would require such an adjustment if the record date, ex-date, effective date or Expiration Date (as the case may be) of such event occurs, during the relevant period used to calculate such prices or values (as the case may be).
If:
•the record date for a dividend or distribution on shares of our Common Stock occurs after the end of the 20 consecutive Trading Day period used for calculating the Applicable Market Value and before the Mandatory Conversion Date; and

•that dividend or distribution would have resulted in an adjustment of the number of shares issuable to the holders of the Mandatory Convertible Preferred Stock had such record date occurred on or before the last Trading Day of such 20-Trading Day period,
then we will deem the holders of the Mandatory Convertible Preferred Stock to be holders of record of our Common Stock for purposes of that dividend or distribution. In this case, the holders of the Mandatory Convertible Preferred Stock would receive the dividend or distribution on our Common Stock together with the number of shares of our Common Stock issuable upon mandatory conversion of the Mandatory Convertible Preferred Stock.
Recapitalizations, Reclassifications and Changes of Our Common Stock
In the event of:
•any consolidation or merger of us with or into another person;

•any sale, transfer, lease or conveyance to another person of all or substantially all of our property and assets;

•any reclassification of our Common Stock into securities (other than a share split or share combination), including securities other than our Common Stock; or

•any statutory exchange of our securities with another person (other than in connection with a merger or acquisition),
in each case, as a result of which our Common Stock would be converted into, or exchanged for, stock, other securities or other property or assets (including cash or any combination thereof) (each, a “Reorganization Event”), each share of the Mandatory Convertible Preferred Stock outstanding immediately prior to such Reorganization Event shall, without the consent of the holders of the Mandatory Convertible Preferred Stock, become convertible into the kind of stock, other securities or other property or assets (including cash or any combination thereof) that such holder would have been entitled to receive if such holder had converted its Mandatory Convertible Preferred Stock into Common Stock immediately prior to such Reorganization Event (such stock, other securities or other property or assets (including cash or any combination thereof), the “Exchange Property,” with each “Unit of Exchange Property” meaning the kind and amount of Exchange Property that a holder of one share of Common Stock is entitled to receive), and, at the effective time of such Reorganization Event, we shall amend the Statement

Exhibit 4.03

with Respect to Shares without the consent of any of the holders of the Mandatory Convertible Preferred Stock to provide for such change in the convertibility of the Mandatory Convertible Preferred Stock. If the transaction causes our Common Stock to be converted into, or exchanged for, the right to receive more than a single type of consideration (determined based in part upon any form of shareholder election), the Exchange Property into which the Mandatory Convertible Preferred Stock will be convertible will be deemed to be the weighted average of the types and amounts of consideration actually received by the holders of our Common Stock in such Reorganization Event.
The number of Units of Exchange Property we will deliver upon conversion of each share of the Mandatory Convertible Preferred Stock or as a payment of dividends on the Mandatory Convertible Preferred Stock, as applicable, following the effective date of such Reorganization Event will be determined as if references to our Common Stock in the description of the conversion rate applicable upon mandatory conversion, conversion at the option of the holder or conversion at the option of the holder upon a Fundamental Change and/or the description of the relevant dividend payment provisions, as the case may be, were to Units of Exchange Property (without interest thereon and without any right to dividends or distributions thereon which have a record date prior to the date on which holders of the Mandatory Convertible Preferred Stock become holders of record of the underlying shares of our Common Stock). For the purpose of determining which bullet of the definition of conversion rate in the second paragraph under “—Mandatory Conversion” will apply upon mandatory conversion, and for the purpose of calculating the conversion rate if the second bullet is applicable, the value of a Unit of Exchange Property will be determined in good faith by our board of directors or a committee thereof (which determination will be final), except that if a Unit of Exchange Property includes Common Stock or American Depositary Receipts (“ADRs”) that are traded on a U.S. national securities exchange, the value of such Common Stock or ADRs will be the average over the 20 consecutive Trading Day period used for calculating the Applicable Market Value of the volume-weighted average prices for such Common Stock or ADRs, as displayed on the applicable Bloomberg screen (as determined in good faith by our board of directors or a committee thereof (which determination will be final)); or, if such price is not available, the average market value per share of such Common Stock or ADRs over such period as determined, using a volume-weighted average method, by a nationally recognized independent investment banking firm retained by us for this purpose. The provisions of this paragraph will apply to successive Reorganization Events, and the provisions summarized under “—Anti-dilution Adjustments” will apply to any shares of common equity or ADRs of us or any successor received by the holders of shares of our Common Stock in any such Reorganization Event. We (or any successor to us) will, as soon as reasonably practicable (but in any event within 20 calendar days) after the occurrence of any Reorganization Event provide written notice to the holders of the Mandatory Convertible Preferred Stock of such occurrence and of the kind and amount of cash, securities or other property that constitute the Exchange Property. Failure to deliver such notice will not affect the operation of the provisions described in this section.
It is possible that certain consolidations, mergers, combinations or other transactions could result in tax gains or losses to the holders either as a result of the transaction or the conversion thereafter. Holders are encouraged to consult with their own tax advisors regarding the tax consequences of the ownership, disposition and conversion of the Mandatory Convertible Preferred Stock.
Reservation of Shares
We will at all times reserve and keep available out of the authorized and unissued shares of Common Stock, solely for issuance upon conversion of the Mandatory Convertible Preferred Stock, the maximum number of shares of our Common Stock as shall be issuable from time to time upon the conversion of all the shares of the Mandatory Convertible Preferred Stock then outstanding (assuming, for such purposes, the maximum increase in the conversion rate in connection with the Mandatory Conversion Additional Conversion Amount).
Transfer Agent, Registrar and Conversion and Dividend Disbursing Agent
American Stock Transfer & Trust Company LLC is the transfer agent and registrar of our Common Stock and serves as transfer agent, registrar, conversion and dividend disbursing agent for the Mandatory Convertible Preferred Stock.
Book-Entry, Delivery and Form
The Mandatory Convertible Preferred Stock is issued in global form. DTC or its nominee will be the sole registered holder of the Mandatory Convertible Preferred Stock. Ownership of beneficial interests in the Mandatory Convertible Preferred Stock in global form is limited to persons who have accounts with DTC (“participants”) or persons who hold interests through such participants. Ownership of beneficial interests in the Mandatory Convertible Preferred Stock in global form will be shown on, and the transfer of that ownership will be effected only through, records

Exhibit 4.03

maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of a global certificate representing the shares of the Mandatory Convertible Preferred Stock, DTC or such nominee, as the case may be, will be considered the sole holder of the shares of the Mandatory Convertible Preferred Stock represented by such global certificate for all purposes under the Statement with Respect to Shares. No beneficial owner of an interest in the shares of the Mandatory Convertible Preferred Stock in global form will be able to transfer that interest except in accordance with the applicable procedures of DTC in addition to those provided for under the Statement with Respect to Shares.
Payments of dividends on the global certificate representing the shares of the Mandatory Convertible Preferred Stock will be made to DTC or its nominee, as the case may be, as the registered holder thereof. None of us, the transfer agent, registrar, conversion or dividend disbursing agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in a global certificate representing the shares of the Mandatory Convertible Preferred Stock or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
We expect that DTC or its nominee, upon receipt of any payment of dividends in respect of a global certificate representing the shares of the Mandatory Convertible Preferred Stock, will credit participants’ accounts with payments in amounts proportionate to their respective beneficial ownership interests in the aggregate Liquidation Preference of such global certificate representing the shares of the Mandatory Convertible Preferred Stock as shown on the records of DTC or its nominee, as the case may be. We also expect that payments by participants to owners of beneficial interests in such global certificate representing the shares of the Mandatory Convertible Preferred Stock held through such participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way in accordance with DTC rules and will be settled in same-day funds. We understand that DTC is:
•a limited purpose trust company organized under the laws of the State of New York;

•a “banking organization” within the meaning of New York Banking Law;

•a member of the Federal Reserve System;

•a “clearing corporation” within the meaning of the Uniform Commercial Code; and

•a “Clearing Agency” registered pursuant to the provisions of Section 17A of the Exchange Act.
DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. Participants include:
•securities brokers and dealers;

•banks and trust companies; and

•clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly (indirect participants).

Exhibit 4.03

Although DTC is expected to follow the foregoing procedures in order to facilitate transfers of interests in a global security among its participants, it is under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. None of us, the transfer agent, registrar, conversion or dividend disbursing agent will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary for the shares of the Mandatory Convertible Preferred Stock in global form or DTC ceases to be registered as a clearing agency under the Exchange Act, and in either case a successor depositary is not appointed by us within 90 days, we will issue certificated shares in exchange for the global securities. Beneficial interests in Mandatory Convertible Preferred Stock in global form held by any direct or indirect participant may also be exchanged for certificated shares upon request to DTC by such direct participant (for itself or on behalf of an indirect participant), to the transfer agent in accordance with their respective customary procedures.
The information in this section concerning DTC and its book-entry system has been obtained from sources that we believe to be reliable, but we take no responsibility for the accuracy thereof.

Exhibit 10.20

II‑VI Incorporated Performance Unit SETTLED IN shares
AWARD AGREEMENT
THIS PERFORMANCE UNIT AWARD AGREEMENT, including any general and jurisdiction-specific terms and conditions for the Recipient’s jurisdiction set forth in the appendices attached hereto, (this “Agreement”) is dated as of the Grant Date, as specified in the applicable Employee Grant Details (as defined below), by and between II‑VI Incorporated, a Pennsylvania corporation (“II‑VI”), and the Recipient, as specified in the applicable Employee Grant Details, who is a director, employee or consultant of II‑VI or one of its Subsidiaries (the “Recipient”).
Reference is made to the Employee Grant Details (the “Employee Grant Details”) issued to the Recipient with respect to the applicable Award, which may be found on the Solium Shareworks system at https://Shareworks.Solium.com (or any successor system selected by II-VI) (the “Solium Shareworks System”). Reference further is made to the prospectus relating to the Plan (as defined below), which also may be found on the Solium Shareworks System.
All capitalized terms used herein, to the extent not defined herein, shall have the meanings set forth in the II‑VI 2012 Omnibus Incentive Plan (as amended and/or restated from time to time, the “Plan”), a copy of which can be found on the Solium Shareworks System, and/or the applicable Employee Grant Details. Terms of the Plan and the Employee Grant Details are incorporated herein by reference. This Agreement shall constitute an Award Agreement as that term is defined in the Plan.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Recipient and II-VI agree as follows:
1.Performance Unit Award. II-VI hereby grants to the Recipient an Award of Performance Units under the Plan, as specified in the Employee Grant Details, to be earned based upon achievement of the Performance Objectives in accordance with Section 2 and Section 3 (this “Award”). For the purposes of this Award: (1) “Performance Period” shall mean the period from July 1, 2018 through and including June 30, 2021; (2) “Target Award” shall mean the Target Award set forth in the Employee Grant Details; and (3) “Maximum Award” means the maximum number of Performance Units allowable under this Agreement as set forth in the Employee Grant Details representing 200% of the Target Award.
2.Determination of Units Earned/Shares Delivered. Subject to Section 5 and Section 6, The Performance Units shall be subject to a series of performance evaluations for Cash Flow from Operations and Relative Total Shareholder Return (TSR) (the “Performance Measures”). The number of Performance Units that can potentially be earned/vested (i.e., credited) is evaluated based on the Corporation’s Cash Flow from Operations performance (as such term is defined below), and may then be subject to potential modification based upon Relative TSR Modifier results (as such term is defined below).


Performance Units Earned as a Percentage of Target Award
If II-VI Consolidated Cash Flow from Operations is less than 74.99% of the Cash Flow Target —%
If II-VI Consolidated Cash Flow from Operations is greater than or equal to 75.00% and less than 100.0% of the Cash Flow Target 50.0% to 99.99%(1)
If II-VI Consolidated Cash Flow from Operations equals 100.0% of the Cash Flow Target 100%
If II-VI Consolidated Cash Flow from Operations is greater than 100.0% and less than 140.0% of the Cash Flow Target 100.01% to 199.99%(2)
If II-VI Consolidated Cash Flow from Operations is greater than or equal to 140.0% of the Cash Flow Target 200.0% (Maximum Award)

Exhibit 10.20
(1) In the event that the II-VI Consolidated Cash Flow from Operations is greater than or equal to 75.0% and less than 100.0% of the Cash Flow Target, the Performance Units earned as a percentage of the Target Award will be a percentage determined on a linear basis between 50.0% and 99.99% by adding 50.0% to the product of (A) 50.0% and (B)(i) the II-VI Consolidated Cash Flow from Operations as a percentage of the Cash Flow Target less 75.0% divided by (ii) 25.0% (which product cannot exceed 49.99%).
(2) In the event that the II-VI Consolidated Cash Flow from Operations is greater than 100.0% and less than 140.0% of the Cash Flow Target, the Performance Units earned as a percentage of the Target Award will be a percentage determined on a linear basis between 100.01% and 199.99% by adding 100.0% to the product of (A) 100.0% and (B)(i) the II-VI Consolidated Cash Flow from Operations as a percentage of the Cash Flow Target less 100.0% divided by (ii) 40.0% (which product cannot exceed 99.99%).
For the purposes of this Award: (i) “II-VI Consolidated Cash Flow from Operations” shall mean the “Total Cash Flow” of II-VI for the Performance Period, determined in accordance with generally accepted accounting principles in the United States, consistently applied; (ii) all targets are expressed in US dollars and performance for II-VI businesses that do not use US dollars as their reporting currency will be translated into US dollars via II-VI’s financial consolidation system at the appropriate exchange rates; and (iii) “Cash Flow Target” shall mean $717,328,000.00.

3.Relative TSR Modifier. The Performance Units to be credited from Cash Flow from Operations results for the Performance Period are subject to a potential Relative TSR Modifier. The TSR performance of II-VI will be measured against the components of Russell 2000 Index. If TSR performance is aligned with the 75th percentile TSR performance of the Russell 2000 Index, the Performance Units credited based on the Cash Flow from Operations results will be multiplied by 125%. For every two percentage points below the 75th percentile TSR of the Russell 2000 Index, the multiplier will be reduced by 1% to a minimum of 100% and for every two percentage points above the 75th percentile TSR of the Russell 2000 Index, the multiplier will be increased by 1%. If II-VI’s TSR is negative for the three-year performance period, the multiplier will be fixed at 100%. See the table below for further illustration.
Multiplier Applied to Performance Units Earned based on Cash Flow from Operations
If Cumulative TSR is equal to or more than 50 percentage points below Market 75th Percentile or there is an absolute negative Cumulative TSR 100%
If Cumulative TSR is below Market 75th Percentile by less than 50 percentage points and there is an absolute positive Cumulative TSR Subtract 1% from 125% for each 2% below Market 75th Percentile
If Cumulative TSR equals Market 75th Percentile 125%
If Cumulative TSR is above Market 75th Percentile by less than 50 percentage points Add 1% to 125% for each 2% above Market 75th Percentile
If Cumulative TSR is above Market 75th Percentile by more than 50 percentage points 150%
Definitions:
“Market” is the Russell 2000 as published on June 26, 2018. If a listing is removed from the Russell 2000 during the Performance Period, it will not be replaced, nor will any listing be added for any other reason. The Russell 2000 shall be a closed group for purposes of this Program.
“Cumulative TSR” shall be based on the 30-day average closing stock price of the Shares prior to July 1, 2018 ($46.58) (“Beginning Stock Price”) and the 30 day average closing stock price of the Shares prior to July 1, 2021 (“Ending Stock Price”). Cumulative TSR shall be calculated as follows:

Exhibit 10.20
((Ending Stock Price minus Beginning Stock Price ($46.58) plus dividends) divided by Beginning Stock Price ($46.58))

4.Payment; Dividend Equivalents. The amount determined under Section 2 and Section 3 will be paid to the Recipient in Shares no later than the seventy fifth (75th) calendar day following the end of the Performance Period. In addition, the Recipient shall be entitled to receive, following the completion of the Performance Period but in no event later than March 15th of the calendar year following the completion of the Performance Period, a cash payment equal to the cash dividends that would have been paid during the Performance Period on the applicable number of Shares underlying the Performance Units earned as provided in Section 2 and Section 3 if such Shares had been issued and outstanding during the Performance Period. Notwithstanding the foregoing, the Company, at its sole discretion, may settle the Award in cash if necessary or appropriate for legal or administrative reasons based on laws in the Recipient’s jurisdiction, in which case the Company shall pay to the Recipient an amount in cash equal to the product of (a) the number of Performance Units earned in accordance with Section 2 and Section 3 and (b) the Fair Market Value on the day prior to the Committee’s approval of the number of Performance Units earned following completion of the Performance Period, with such cash payment being made to the Recipient no later than the seventy fifth (75th) calendar day following the end of the Performance Period.
5.Separation from Service.
(a) Except as provided in Section 5(b) or Section 6 or as may be otherwise determined by the Committee, if the Recipient incurs a Separation from Service before the end of the Performance Period, this Award shall be forfeited on the date of such Separation from Service.
(b) Prorating in Certain Circumstances. Notwithstanding Section 5(a), if the Recipient’s Separation from Service occurs during the Performance Period due to the Recipient’s (i) normal retirement, as defined in II-VI’s Global Retirement Policy, (ii) death, (iii) permanent and total disability, as defined in Code Section 22(e)(3) (a “Disability”), (iv) termination by the Company or a Subsidiary that the Recipient is employed by or provides services to (the “Employer”) other than for Cause (as defined below) other than within two years following a Change in Control or (v) termination by the Recipient for Good Reason (as defined below) other than within two years following a Change in Control, but only if the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company or the Employer provides for severance upon Separation from Service for Good Reason (or a similar term), then in each case under clauses (i) - (v) of this paragraph the Recipient shall be entitled to a prorated portion of the Performance Units to the extent earned pursuant to Section 2 and Section 3, determined at the end of the Performance Period and based on the ratio of the number of complete months the Recipient was employed or served (as applicable) during the Performance Period to the total number of months in the Performance Period. In the event of the death of the Recipient, amounts due pursuant to Section 2 and Section 3 shall be paid to the Recipient’s estate as soon as administratively practicable after the end of the Performance Period.
Notwithstanding any provision of this Agreement, if the Company receives a legal opinion that, due to a legal judgment and/or development in the Recipient’s jurisdiction, the potential pro-rated vesting that applies to this Award upon a Recipient’s normal retirement would be deemed unlawful or discriminatory, the provisions of this Section 5(b)(i) regarding the vesting of this Award if the Recipient’s Separation from Service is as a result of normal retirement will not be applicable to the Recipient and the remaining provisions of this Agreement will govern.
6.Change in Control; Adjustments to Payments.
(a) Change in Control. Notwithstanding any provision to the contrary in this Agreement or in any offer letter, employment agreement or other applicable employment or service agreement between the Recipient and the Company or the Employer that discusses the effect of a Change in Control on the Recipient’s Awards, in the event of a Change in Control during the Performance Period, the following provisions shall apply, unless provided otherwise by the Committee prior to the date of the Change in Control:

Exhibit 10.20
(i) To the extent this Award is assumed, converted or replaced by the resulting entity in the Change in Control, if within two (2) years after the date of the Change in Control the Recipient has a Separation from Service either (A) by the Company or the Employer other than for Cause (as defined below) or (B) by the Recipient for Good Reason (as defined below), then the target payout opportunities attainable under this Award shall be deemed to have been earned as of the applicable Separation from Service based upon the greater of: (1) an assumed achievement of all relevant performance goals at their “target” level, or (2) the actual level of achievement of all relevant performance goals against target as of the Company’s fiscal quarter end preceding the Change in Control. This Award, as adjusted for such deemed performance, shall become vested in full and shall be paid as soon as administratively practicable (not more than thirty (30) days) after the date of such Separation from Service.
(ii) To the extent this Award is not assumed, converted or replaced by the resulting entity in the Change in Control, then the target payout opportunities attainable under this Award shall be deemed to have been earned as of the Change in Control based upon the greater of: (1) an assumed achievement of all relevant performance goals at their “target” level, or (2) the actual level of achievement of all relevant performance goals against target as of the Company’s fiscal quarter end preceding the Change in Control. This Award, as adjusted for such deemed performance, shall become vested in full and shall be paid as soon as administratively practicable (not more than thirty (30) days) after the date of such Change in Control.
(b) “Cause” shall be defined as that term is defined in the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company; or, if there is no such definition, “Cause” shall mean a determination by the Company that any of the following has occurred:
(i) the willful failure by the Recipient to perform the Recipient’s duties and responsibilities to the Company or the Employer (other than any such failure resulting from the Recipient’s Disability), which is not cured within ten (10) business days of receiving written notice from the Company or the Employer specifying in reasonable detail the duties or responsibilities that the Company or the Employer believes are not being adequately performed;
(ii) the willful engaging by the Recipient in any act that is damaging to the Company or the Employer;
(iii) the conviction of the Recipient of, or a plea of “guilty” or “no contest” to, (A) any felony or (B) a criminal offense involving fraud, dishonesty or other moral turpitude;
(iv) any breach by the Recipient of the terms of any written agreement between the Recipient and the Company relating to proprietary information, confidentiality, non-disclosure, ownership of inventions, non-competition, non-solicitation, non-interference or non-disparagement;
(v) the engaging by the Recipient in any willful act of dishonesty resulting or intended to result, directly or indirectly, in personal gain to the Recipient; or
(vi) the commission of any act by the Recipient that is in violation of the Company’s Code of Business Conduct and Ethics.
(c) “Good Reason” shall be defined as that term is defined in the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company; or, if there is no such definition, “Good Reason” shall mean that any of the following has occurred, without the Recipient’s express written consent:
(i) a material reduction of the Recipient’s employment responsibilities from those immediately prior to the Change in Control;
(ii) a material reduction by the Company or the Employer of the Recipient’s eligibility for Total Target Compensation as in effect immediately prior to the Change in Control, with “Total Target Compensation” defined as the Recipient’s annual base salary plus the cash and stock compensation the Recipient is eligible to receive from the Company or the Employer at one hundred percent (100%) performance, whether sales incentive, bonus or otherwise;

Exhibit 10.20
(iii) a material increase in the amount of the Recipient’s business travel that produces a constructive relocation of the Recipient;
(iv) a material reduction by the Company or the Employer in the kind or level of employee benefits to which the Recipient is entitled immediately prior to the Change in Control, with the result that the Recipient’s overall benefits package is materially reduced; or
(v) the relocation of the Recipient to a facility or a location more than thirty (30) miles from the Recipient’s principal place of employment immediately prior to the Change in Control.
In order for the Recipient to incur a Separation from Service for Good Reason, (A) the Company must be notified by the Recipient in writing within ninety (90) days of the event constituting Good Reason, (B) the event must remain uncorrected by the Company or the Employer (as applicable) for thirty (30) days following such notice (the “Notice Period”), and (C) such Separation from Service must occur within sixty (60) days after the expiration of the Notice Period.
(d) Adjustments to Payments.
(i) Notwithstanding any provision to the contrary in this Agreement, if it is determined that any payment or distribution by the Company or the Employer to the Recipient or for the Recipient’s benefit (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (the “Payments”) would be subject to the excise tax imposed by Code Section 4999, or any interest or penalty is incurred by the Recipient with respect to such excise tax (such excise tax, together with any such interest and penalties, collectively referred to as the “Excise Tax”), then the Payments shall be reduced (but not below zero) if and to the extent that such reduction would result in the Recipient retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the imposition of the Excise Tax), than if the Recipient received all of the Payments. The Payments shall be reduced or eliminated by first reducing or eliminating the portion of the Payments that are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits that are to be paid the farthest in time from the determination.
(ii) All determinations required to be made under this Section 6(d), including whether and when an adjustment to any Payments is required and, if applicable, which Payments are to be so adjusted, shall be made by an independent accounting firm selected by II-VI from among the four (4) largest accounting firms in the United States or any nationally-recognized financial planning and benefits consulting company (the “Accounting Firm”), which shall provide detailed supporting calculations both to II-VI and to the Recipient within fifteen (15) business days of the receipt of notice from the Recipient that there has been a Payment, or such earlier time as is requested by II-VI. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, II-VI shall appoint another nationally-recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by II-VI. If the Accounting Firm determines that no Excise Tax is payable by the Recipient, it shall furnish the Recipient with a written opinion that failure to report the Excise Tax on the Recipient’s applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Recipient.
7.Nontransferability. Except as otherwise provided in the Plan, the Performance Units shall not be sold, pledged, assigned, hypothecated, transferred or disposed of (a “Transfer”) in any manner, other than by will or the laws of descent and distribution. Any attempt to Transfer the Performance Units in violation of this Section or the Plan shall render this Award null and void.
8.Adjustments. Upon any event described in Section 12 of the Plan (entitled “Adjustments”) or any successor provision thereto, the terms of such Section 12 of the Plan or any successor provision thereto shall apply to this Award.
9.Fractional Shares. II-VI shall not be required to issue any fractional Shares pursuant to this Award, and II-VI may round fractional Shares down to the nearest whole Share.
10.Responsibility for Taxes.

Exhibit 10.20
(a) Regardless of any action the Company or the Employer takes with respect to any or all income tax, social insurance, payroll tax, fringe benefit tax, payment on account or other tax-related items related to the Recipient’s participation in the Plan (“Tax-Related Items”), the Recipient acknowledges that the ultimate liability for all Tax-Related Items owed by the Recipient is and remains the Recipient’s responsibility and that the Company (i) makes no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of this Award, including the grant or vesting of this Award or the subsequent sale of Shares acquired pursuant to this Award; and (ii) does not commit to structure the terms of the grant or any aspect of this Award to reduce or eliminate the Recipient’s liability for Tax-Related Items or achieve a particular tax result. Further, if the Recipient is subject to Tax-Related Items in more than one jurisdiction, the Recipient acknowledges and agrees that the Company or the Employer may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
(b) Prior to any relevant taxable or tax withholding event, as applicable the Recipient agrees to make adequate arrangements satisfactory to the Company to satisfy all Tax-Related Items. In this regard, the Recipient authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy any applicable withholding obligations with regard to Tax-Related Items by one or a combination of the following: (i) withholding from the Recipient’s wages or other cash compensation paid to the Recipient by the Company or the Employer; (ii) withholding from the proceeds of the sale of Shares acquired upon vesting of this Award either through a voluntary sale or through a mandatory sale arranged by the Company (on the Recipient’s behalf pursuant to this authorization) without further consent; (iii) withholding Shares to be issued upon vesting of this Award; or (iv) any other method determined by the Committee and permitted by applicable laws. Notwithstanding the foregoing, if the Recipient is subject to the short-swing profit rules of Section 16(b) of the Exchange Act, the Company will withhold in Shares issuable at vesting of the Award upon the relevant withholding event, unless otherwise determined by the Committee.
(c) The Company may withhold or account for Tax-Related Items by considering applicable minimum statutory withholding amounts or other applicable withholding rates, including maximum applicable rates, in which case the Recipient may receive a refund of any over-withheld amount in cash (with no entitlement to the equivalent in Shares), or, if not refunded, the Recipient may seek a refund from the local tax authorities. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, the Recipient is deemed to have been issued the full number of Shares, notwithstanding that a number of Shares are held back solely for the purpose of paying the Tax-Related Items.
(d) Finally, the Recipient shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of the Recipient’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver Shares or the proceeds from the sale of Shares, if the Recipient fails to comply with the Recipient’s obligations in connection with the Tax-Related Items, as described in this Section 10.
11.Plan Provisions. In the event of any conflict between the provisions of this Agreement and the Plan, the Plan shall control, except that capitalized terms specifically defined in this Agreement shall have the meaning given to them in this Agreement with respect to their usage in this Agreement, notwithstanding the definitions given to such terms in the Plan (which definitions shall control as they relate to the usage of such terms in the Plan).
12.No Continued Rights. The granting of this Award shall not give the Recipient any rights to similar grants in future years or any right to continuance of employment or other service with II-VI or its Subsidiaries, nor shall it interfere in any way with any right that the Company or the Employer would otherwise have to terminate the Recipient’s employment or other service at any time, or the right of the Recipient to terminate his or her employment or other service at any time.
13.Rights Unsecured. The Recipient shall have only II-VI’s unfunded, unsecured promise to pay pursuant to the terms of this Agreement. The rights of the Recipient hereunder shall be that of a general unsecured creditor of II-VI and the Recipient shall not have any security interest in any assets of II-VI.
14.Non-Competition; Non-Solicitation; Confidentiality.

Exhibit 10.20
(a) While the Recipient is employed by the Company (including its Subsidiaries) and for a period of one (1) year after the Recipient’s Separation from Service for any reason (the “Restricted Period”), the Recipient will not directly or indirectly:

(i) engage in any business or enterprise (whether as owner, partner, officer, director, employee, consultant, investor, lender or otherwise, except as the holder of not more than one percent (1%) of the outstanding stock of a publicly-held company), that develops, manufactures, markets or sells any product or service that competes with any product or service developed, manufactured, marketed or sold or, to the Recipient’s knowledge, planned to be developed, manufactured, marketed or sold, by II-VI or its Subsidiaries while the Recipient was employed by the Company or a Subsidiary, within the United States of America and/or any other country within which II-VI or its Subsidiaries have customers or prospective customers as of the date of such Separation from Service.

(ii) (A) solicit for the purpose of selling or distributing any products or services that are the same or similar to those developed, manufactured, marketed or sold by II-VI or its Subsidiaries, (1) any customers of II-VI or its Subsidiaries, (2) any prospective customers known by the Recipient to have been solicited by II-VI or its Subsidiaries within the twelve (12) months prior to the Recipient’s Separation from Service, or (3) any distributors, sales agents or other third-parties who sell to or refer potential customers in need of the types of products and services produced, marketed, licensed, sold or provided by II-VI or its Subsidiaries who have become known to the Recipient as a result of his/her employment with the Company (including its Subsidiaries), or (B) induce or attempt to induce any vendor, supplier, licensee or other business relation of II-VI or its Subsidiaries to cease or restrict doing business with II-VI or its Subsidiaries, or in any way interfere with the relationship between any such vendor, supplier, licensee or business relation and II-VI or its Subsidiaries.

(iii) either alone or in association with others (A) solicit, or permit any organization directly or indirectly controlled by the Recipient to solicit, any employee of II-VI or its Subsidiaries to leave the employ of II-VI or its Subsidiaries, or (B) solicit for employment, hire or engage as an independent contractor, or permit any organization directly or indirectly controlled by the Recipient to solicit for employment, hire or engage as an independent contractor, any person who was employed by II-VI or its Subsidiaries at any time during the term of the Recipient’s employment with the Company or a Subsidiary; provided that this clause (B) shall not apply to any individual whose employment with II-VI or its Subsidiaries has been terminated for a period of one year or longer.

(b) The Recipient acknowledges that certain materials, including information, data, technology and other materials relating to customers, programs, costs, marketing, investment, sales activities, promotion, credit and financial data, manufacturing processes, financing methods, plans or the business and affairs of II-VI and its Subsidiaries constitute proprietary confidential information and trade secrets. Accordingly, the Recipient will not at any time during or after the Recipient’s employment with the Company or a Subsidiary disclose or use for the Recipient’s own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise, other than the Company (including its Subsidiaries), any proprietary confidential information or trade secrets; provided that the foregoing shall not apply to information which is not unique to II-VI and its Subsidiaries or which is generally known to the industry or the public other than as a result of the Recipient’s breach of this covenant. The Recipient agrees that, upon the Recipient’s Separation from Service for any reason, the Recipient will immediately return to II-VI all property of II-VI and its Subsidiaries including all memoranda, books, technical and/or lab notebooks, customer product and pricing data, papers, plans, information, letters and other data, and all copies thereof or therefrom, which in any way relate to the business of II-VI and its Subsidiaries, except that the Recipient may retain personal items. The Recipient further agrees that the Recipient will not retain or use for the Recipient’s account at any time any trade names, trademark or other proprietary business designation used or owned in connection with the business of II-VI and its Subsidiaries.

Exhibit 10.20
(c) The Restricted Period will be tolled during and for any period of time during which the Recipient is in violation of the restrictive covenants contained in this Section 14 and for any period of time which may be necessary to secure an order of court or injunction, either preliminary or permanent, to enforce such covenants, such that the cumulative time period during which the Recipient is in compliance with the restrictive covenants contained in Section 14 will not exceed the one (1)-year period set forth above.

(d) Nothing herein is intended to or shall limit, prevent, impede or interfere with the Recipient’s non-waivable right, without prior notice to the Company, to provide information to the government, participate in investigations, testify in proceedings regarding the Company’s past or future conduct, or engage in any activities protected under whistleblower statutes, or to receive and fully retain a monetary award from a government-administered whistleblower award program for providing information directly to a government agency. Further, the Recipient understands that pursuant to the Defend Trade Secrets Act of 2016, the Recipient shall not be held criminally, or civilly, liable under any Federal or State Trade secret law for the disclosure of a trade secret that is made in confidence either directly or indirectly to a Federal, State, or local government official, or an attorney, for the sole purpose of reporting, or investigating, a violation of law. Moreover, the Recipient understands that he or she may disclose trade secrets in a complaint, or other document, filed in a lawsuit, or other proceeding, if such filing is made under seal. Finally, the Recipient understands that if he or she
files a lawsuit alleging retaliation by the Company for reporting a suspected violation of the law, the Recipient may disclose the trade secret to the attorney and use the trade secret in the court proceeding.
15.Remedies; Clawback.
(a) II-VI and the Recipient acknowledge and agree that that any violation by the Recipient of any of the restrictive covenants contained in Section 14 would cause immediate, material and irreparable harm to II-VI and its Subsidiaries which may not adequately be compensated by money damages and, therefore, II-VI and its Subsidiaries shall be entitled to injunctive relief (including one (1) or more preliminary injunctions and/or ex parte restraining orders) in addition to, and not in derogation of, any other remedies provided by law, in equity or otherwise for such a violation, including the right to have such covenants specifically enforced by any court of competent jurisdiction, the rights under Section 14(b), and the right to require the Recipient to account for and pay over to II-VI all benefits derived or received by the Recipient as a result of any such breach of covenant together with interest thereon, from the date of such initial violation until such sums are received by II-VI.

(b) In the event that the Recipient violates or breaches any of the covenants set forth in Section 14, the Performance Units and the right to receive Shares in exchange for such Performance Units shall be forfeited. II-VI shall also have the right, in its sole discretion, in addition to any other remedies or damages provided by law, in equity or otherwise, to demand and require the Recipient (i) to the extent that any cash payment was received with respect to such Performance Units, to return and transfer to II-VI any such cash payment, (ii) to the extent that any Shares were received with respect to such Performance Units, to return and transfer to II-VI any such shares directly or beneficially owned by the Recipient, and (iii) to the extent that the Recipient sold or transferred any such Shares, disgorge and/or repay to II-VI any profits or other economic value (as determined by II-VI) made or realized by the Recipient with respect to such Shares, including the value of any gift thereof.

(c) This Award, and any amounts or benefits received or outstanding under the Plan, as well as any other incentive awards previously granted to the Recipient by the Company, shall be subject to potential clawback, cancellation, recoupment, rescission, payback, reduction, or other similar action in accordance with the terms or conditions of any applicable Company clawback or similar policy or any applicable law related to such actions, as may be in effect from time to time, including the requirements of (a) Section 304 of the Sarbanes Oxley Act and Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, (b) similar rules under the laws of any other jurisdiction, and (c) any policies adopted by the Company to implement such requirements. The Recipient acknowledges and consents to the Company’s application, implementation and enforcement of any applicable Company clawback or similar policy that may apply to the Recipient, whether adopted prior to or

Exhibit 10.20
following the Grant Date, and any provision of applicable law relating to clawback, cancellation, recoupment, rescission, payback, or reduction of compensation, and agrees that the Company may take such actions as may be necessary to effectuate any such policy or applicable law, without further consideration or action.

16.Recipient Acknowledgments. The Recipient acknowledges and agrees that (a) as a result of the Recipient’s previous, current and future employment with the Company or the Employer, the Recipient has had access to, will have access to and/or possesses or will possess confidential and proprietary information of II-VI and its Subsidiaries, (b) II-VI and its Subsidiaries are engaged in a highly competitive business and conduct such business worldwide, (c) this Agreement does not constitute a contract of employment, does not imply that the Company or the Employer will continue the Recipient’s employment for any period of time and does not change the at-will nature of the Recipient’s employment, except as set forth in a separate written employment agreement between the Company or the Employer and the Recipient, (d) the restrictive covenants set forth in Section 14 are necessary and reasonable in time and scope (including the period, geographic, product and service and other restrictions) to protect the legitimate business interests of II-VI and its Subsidiaries, (e) the remedy, forfeiture and payment provisions contained in Section 15 are reasonable and necessary to protect the legitimate business interests of II-VI and its Subsidiaries, (f) acceptance of the Performance Units and agreement to be bound by the provisions hereof is not a condition of the Recipient’s employment and (g) the Recipient’s receipt of the benefits provided under this Agreement is adequate consideration for the enforcement of the provisions contained in Section 14 and Section 15.
17.Severability; Waiver. If any term, provision, covenant or restriction contained in this Agreement is held by a court or a federal regulatory agency of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions contained in this Agreement shall remain in full force and effect, and shall in no way be affected, impaired or invalidated. In particular, in the event that any of such provisions shall be adjudicated to exceed the time, geographic, product and service or other limitations permitted by applicable law in any jurisdiction, then such provisions shall be deemed reformed in such jurisdiction to the maximum time, geographic, product and service or other limitations permitted by applicable law. No delay or omission by II-VI in exercising any right under this Agreement will operate as a waiver of that or any other right. A waiver or consent given by II-VI on any one occasion is effective only in that instance and will not be construed as a bar to or waiver of any right on any other occasion.
18.Notice. II‑VI may require any notice required or permitted under this Agreement to be transmitted, submitted or received, by II‑VI or the Recipient, via the Solium Shareworks System in accordance with the procedures established by II‑VI for such notice. Otherwise, any written notice required or permitted by this Agreement shall be mailed, certified mail (return receipt requested) or by overnight carrier, to II‑VI at the following address:
II‑VI Incorporated Attention: Chief Financial Officer 375 Saxonburg Boulevard Saxonburg, Pennsylvania 16056

or to the Recipient at his or her most recent home address on record with II‑VI. Notices are effective upon receipt.
19.Controlling Law. The validity, construction and effect of this Agreement will be determined in accordance with the internal laws of the Commonwealth of Pennsylvania without giving effect to the conflict of laws principles thereof. The Recipient and II‑VI hereby irrevocably submit to the exclusive jurisdiction of the state and Federal courts located in the Commonwealth of Pennsylvania and consent to the jurisdiction of any such court, provided, however, that, notwithstanding anything to the contrary set forth above, II‑VI may file an action to enforce the covenants contained in Section 14 by seeking injunctive or other equitable relief in any appropriate court having jurisdiction, including where the Recipient resides or where the Recipient was employed by the Company or the Employer. The Recipient and II‑VI also both irrevocably waive, to the fullest extent permitted by applicable law, any objection either may now or hereafter have to the laying of venue of any such dispute brought or injunctive or equitable relief sought in such court or any defense of inconvenient forum for the maintenance of such dispute and consent to the personal jurisdiction

Exhibit 10.20
of any such court. For purposes of this Section 19, the Employer shall be a third-party beneficiary of this Agreement.
20.Entire Agreement. This Agreement (including the Plan and the Employee Grant Details) contains the entire understanding between the parties and supersedes any prior understanding and agreements between them regarding the subject matter hereof with respect to this Award, and there are no other representations, agreements, arrangements or understandings, oral or written, between the parties relating to this Award which are not fully expressed herein. Notwithstanding anything to the contrary set forth in this Agreement, any restrictive covenants contained in this Agreement are independent, and are not intended to limit the enforceability, of any restrictive or other covenants contained in any other agreement between the Company or the Employer and the Recipient.
21.Captions; Section References. Section and other headings contained in this Agreement are for reference purposes only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. Unless expressly provided otherwise, any reference in this Agreement to any Section refers to the corresponding Section of this Agreement.
22.Limitation of Actions. Any lawsuit commenced by the Recipient with respect to any matter arising out of or relating to this Agreement must be filed no later than one (1) year after the date that a denial of any claim hereunder is made or any earlier date that the claim otherwise accrues.
23.Section 409A. This Agreement and this Award are intended to satisfy all applicable requirements of Section 409A or an exception thereto and shall be construed accordingly. II‑VI may, in its sole discretion and without the consent of the Recipient, take any action it deems necessary to comply with the requirements of Section 409A or an exception thereto, including amending the terms of this Award and this Agreement in any manner it deems necessary to cause this Award and this Agreement to be excepted from Section 409A (or to comply therewith to the extent that II-VI determines it is not excepted). Notwithstanding, the Recipient recognizes and acknowledges that Section 409A may affect the timing and recognition of payments due hereunder, and may impose upon the Recipient certain taxes or other charges for which the Recipient is and shall remain solely responsible.
24.Assignment. Except as provided in Section 7, the Recipient’s rights and obligations under this Agreement shall not be transferable by the Recipient, by assignment or otherwise, and any purported assignment, transfer or delegation thereof by the Recipient shall be void. The Company may assign/delegate all or any portion of this Agreement and its rights hereunder without prior notice to the Recipient and without the Recipient providing any additional consent thereto, whereupon the Recipient shall continue to be bound hereby with respect to such assignee/delegatee.
25.Electronic Delivery. II‑VI may, in its sole discretion, deliver any documents or correspondence related to this Agreement, the Performance Units, the Plan, the Recipient’s participation in the Plan or future awards that may be granted to the Recipient under the Plan, by electronic means. The Recipient hereby consents to receive such documents by electronic delivery and to the Recipient’s participation in the Plan through an on-line or electronic system established and maintained by II‑VI or another third party designated by II‑VI, including the Solium Shareworks System. Likewise, II‑VI may require the Recipient to deliver or receive any documents or correspondence related to this Agreement by such electronic means.
26.Further Assurances. The Company and the Recipient shall use commercially reasonable efforts to, from time to time at the request of the other party, without any additional consideration, furnish the other party such further information or assurances, execute and deliver such additional documents and take such other actions and do such other things, as may be necessary to carry out the provisions of this Agreement.
27.Compliance with Legal Requirements. Notwithstanding any other provisions of the Plan or this Agreement, unless there is an exemption from any registration, qualification or other legal requirement applicable to the Shares, the Company shall not be required to deliver any Shares issuable upon vesting of this Award prior to the completion of any registration or qualification of the Shares under any local, state, federal or foreign securities or exchange control law or under rulings or regulations of the U.S. Securities and Exchange Commission (“SEC”) or of any other governmental regulatory body, or prior to obtaining any approval or other clearance from any local, state, federal or foreign governmental agency, which

Exhibit 10.20
registration, qualification or approval the Company shall, in its absolute discretion, deem necessary or advisable. Further, the Company is under no obligation to register or qualify the Shares with the SEC or any state or foreign securities commission or to seek approval or clearance from any governmental authority for the issuance or sale of Shares. Subject to Section 409A, the Committee may postpone the issuance or delivery of Shares under this Award as the Committee may consider appropriate and may require the Recipient to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of Shares in compliance with applicable laws, rules and regulations. The Recipient understands and agrees that the Company shall have unilateral authority to amend this Agreement without his or her consent to the extent necessary to comply with securities or other laws applicable to the issuance of Shares.
28.Appendices. The Recipient acknowledges and agrees that, if the Recipient resides outside the U.S., this Award is subject to the general terms applicable to Awards granted to recipients outside the U.S. set forth in Appendix A hereto. Further, this Award is subject to any additional terms and conditions set forth for the Recipient’s U.S. state or country in Appendix B hereto. Appendix A and Appendix B constitute part of this Agreement.
29.Imposition of Other Requirements. The Company reserves the right to impose other requirements on this Award to the extent that the Company determines that it is necessary or advisable in order to comply with local law or facilitate the administration of this Award and to require the Recipient to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.
30.No Advice Regarding Grant. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Recipient’s participation in the Plan or the Recipient’s acquisition or sale of Shares. The Recipient understands and agrees that the Recipient should consult with his or her own personal legal and financial advisors regarding the Recipient’s participation in the Plan before taking any action related to the Plan.
31.Amendments. This Agreement may be amended or modified at any time by an instrument in writing signed by the parties hereto, or as otherwise provided under the Plan or this Agreement.


















Exhibit 10.20
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Grant Date set forth above. Electronic acceptance of this Agreement by the Recipient pursuant to II‑VI’s instructions to the Recipient (including through the Solium Shareworks System) shall constitute execution of this Agreement by the Recipient.
The Recipient agrees that his or her electronic acceptance of this Agreement, including via the Solium Shareworks System, shall constitute his or her signature, and that he or she agrees to be bound by all of the terms and conditions of this Agreement.
II‑VI INCORPORATED

By: Name: David G. Wagner Title: Vice President, Human Resources

PARTICIPANT
Electronic Acceptance via the Solium Shareworks System
























Exhibit 10.20

Appendix A
General Terms Applicable to Awards Granted to Recipients Outside the U.S.

This Appendix A includes additional terms and conditions applicable to all grants of Awards under the Plan to employees or other grant recipients who reside outside the United States. Capitalized terms used but not defined in this Appendix A shall have the meanings given to them in this Agreement or the Plan.
1. DATA PRIVACY INFORMATION AND CONSENT

The Company is located at 375 Saxonburg Blvd., Saxonburg, PA 16056, USA and grants employees of the Company and its Subsidiaries the opportunity to participate in the Plan at the Company’s sole discretion. If the Recipient would like to participate in the Plan, the Recipient should review the following information about the Company’s data processing practices and declare his or her consent.

(a) Data Collection and Usage. The Company collects, processes and uses the Recipient’s personal data, including the Recipient’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, citizenship, job title, any Shares or directorships held in the Company, and details of all awards canceled, vested, or outstanding in the Recipient’s favor, which the Company receives from the Recipient or the Employer. If the Company offers the Recipient an opportunity to participate in the Plan, then the Company will collect the Recipient’s personal data for purposes of allocating stock and implementing, administering and managing the Plan. The Company’s legal basis for the processing of the Recipient’s personal data would be the Recipient’s consent.

(b) Stock Plan Administration Service Providers. The Company transfers participant data to Solium Capital, an independent service provider based in the United States, which assists the Company with the implementation, administration and management of the Plan. In the future, the Company may select a different service provider and share the Recipient’s data with another company that serves in a similar manner. The Company’s service provider will open an account for the Recipient. The Recipient will be asked to agree on separate terms and data processing practices with the service provider, which is a condition to the Recipient’s ability to participate in the Plan.

(c) International Data Transfers. The Company and its service providers are based in the United States. If the Recipient is outside the United States, the Recipient should note that his or her country has enacted data privacy laws that are different from the United States. For example, the European Commission has issued a limited adequacy finding with respect to the United States that applies only to the extent a company registers for the EU-U.S. Privacy Shield program, which is open to companies subject to Federal Trade Commission jurisdiction, and which the Company does not participate in with respect to employee data. The Company’s legal basis for the transfer of the Recipient’s personal data is the Recipient’s consent.

(d) Data Retention. The Company will use the Recipient’s personal data only as long as is necessary to implement, administer and manage the Recipient’s participation in the Plan or as required to comply with legal or regulatory obligations, including under tax and security laws. When the Company no longer needs the Recipient’s personal data, which will generally be seven years after the Recipient participates in the Plan, the Company will remove it from its systems. If the Company keeps the data longer, it would be to satisfy legal or regulatory obligations and the Company’s legal basis would be relevant laws or regulation.


Exhibit 10.20
(e) Voluntariness and Consequence of Consent Denial or Withdrawal. The Recipient’s participation in the Plan and his or her grant of consent is purely voluntary. The Recipient may deny or withdraw his or her consent at any time. If the Recipient does not consent, or if the Recipient withdraws his or her consent, the Recipient cannot participate in the Plan. This would not affect the Recipient’s salary as an employee; the Recipient would merely forfeit the opportunities associated with the Plan.

(f) Data Subject Rights. The Recipient has a number of rights under data privacy laws in the Recipient’s country. Depending on where the Recipient is based, the Recipient’s rights may include the right to (i) request access or copies of personal data the Company processes, (ii) rectification of incorrect data, (iii) deletion of data, (iv) restrictions on processing, (v) portability of data, (vi) to lodge complaints with competent authorities in the Recipient’s country, and/or (vii) a list with the names and addresses of any potential recipients of the Recipient’s personal data. To receive clarification regarding the Recipient’s rights or to exercise such rights, the Recipient should contact the Company at HR Department, Director of Compensation and Benefits, 375 Saxonburg Blvd., Saxonburg, PA 16056, USA.

If the Recipient agrees with the data processing practices as described in this notice and would like to participate in the Plan, please declare the Recipient’s consent by clicking “Accept” on the Solium Shareworks system award acceptance page or by signing this Agreement.

2. ADDITIONAL ACKNOWLEDGEMENTS

By entering into this Agreement and accepting this Award, the Recipient acknowledges, understands and agrees that:

(a) the Plan is established voluntarily by the Company, it is discretionary in nature, and may be amended, suspended or terminated by the Company at any time;

(b) the grant of this Award is exceptional, voluntary and occasional and does not create any contractual or other right to receive future awards or benefits in lieu of awards, even if such awards have been awarded in the past;

(c) all decisions with respect to future awards, if any, will be at the sole discretion of the Company;

(d) the Recipient is voluntarily participating in the Plan;

(e) this Award, any Shares acquired under the Plan and the income from and value of same, are not intended to replace any pension right or compensation;
(f) this Award, any Shares acquired under the Plan and the income from and value of same, are not part of normal or expected compensation or salary for any purposes, including but not limited to calculating any severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;


Exhibit 10.20
(g) unless otherwise agreed with the Company in writing, this Award and any Shares acquired under the Plan, and the income from and value of same, are not granted in consideration for, or in connection with, the service the Recipient may provide as an officer or director of a Subsidiary;

(h) in accepting this Award, the Recipient expressly recognizes that this Award is made solely by II-VI, with principal offices at 375 Saxonburg Boulevard; Saxonburg, Pennsylvania 16056; U.S.A.; II-VI is solely responsible for the administration of the Plan and the Recipient’s participation in the Plan; in the event that the Recipient is an employee of a Subsidiary, this Award and the Recipient’s participation in the Plan will not create a right to employment or be interpreted to form an employment or service contract or relationship with II-VI; and this Award will not be interpreted to form an employment or service contract with any Subsidiary;

(i) the future value of the underlying Shares is unknown and cannot be predicted with certainty;

(j) no claim or entitlement to compensation or damages shall arise from the forfeiture of the Recipient’s Award resulting from the Recipient’s Separation from Service (for any reason whatsoever and whether or not in breach of local labor laws);

(k) for purposes of this Award, a Separation from Service will be deemed to have occurred as of the date the Recipient is no longer providing services to the Company or any Subsidiary (regardless of the reason for such termination and whether or not later found to be invalid or in breach of labor laws in the jurisdiction where the Recipient is employed or the terms of the Recipient’s employment agreement, if any). Unless otherwise determined by the Committee, the Recipient’s right to vest in this Award will terminate as of such date and will not be extended by any notice period (e.g., the Recipient’s period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under labor laws in the jurisdiction where the Recipient is employed or the terms of the Recipient’s employment agreement, if any). The Committee shall have the exclusive discretion to determine when the Recipient is no longer actively providing services for purposes of this Award (including whether the Recipient may still be considered to be providing services while on a leave of absence); and

(l) the Recipient is solely responsible for investigating and complying with any exchange control laws applicable to the Recipient in connection with his or her participation in the Plan;

(m) neither the Company, the Employer nor any Subsidiary shall be liable for any foreign exchange rate fluctuation between the Recipient’s local currency and the United States Dollar that may affect the value of this Award or any amounts due to the Recipient pursuant to the settlement of this Award or subsequent sale of Shares acquired under the Plan.

3. LANGUAGE

The Recipient acknowledges that he or she is sufficiently proficient in English to understand the terms and conditions of this Agreement. Furthermore, if the Recipient has received this Agreement or any other document related to this Award and/or the Plan translated into a language other than English and if the meaning of the translated version is different than the English version , the English version will control.

4. INSIDER TRADING/MARKET ABUSE LAWS

Exhibit 10.20

The Recipient acknowledges that, depending on his or her country of residence, or the designated broker’s country or where the Shares are listed, the Recipient may be subject to insider trading restrictions and/or market abuse laws, which may affect the Recipient’s ability to accept, acquire, sell, attempt to sell or otherwise dispose of Shares or right to Shares (e.g., Awards) or rights linked to the value of Shares during such times as the Recipient is considered to have “inside information” regarding the Company (as defined by or determined under the laws in the applicable jurisdiction). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders placed by the Recipient before possessing inside information. Furthermore, the Recipient could be prohibited from (i) disclosing the inside information to any third party, which may include fellow employees (other than on a “need to know” basis) and (ii) “tipping” third parties or causing them to otherwise buy or sell securities. Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. The Recipient is responsible for ensuring compliance with any applicable restrictions and should consult with his or her personal legal advisor on this matter.
5. EXCHANGE CONTROL, TAX AND/OR FOREIGN ASSET/ACCOUNT REPORTING

The Recipient acknowledges that there may be exchange control, tax, foreign asset and/or account reporting requirements which may affect the Recipient’s ability to hold Shares acquired under the Plan or cash received from participating in the Plan in a brokerage/bank account or legal entity outside the Recipient’s country. The Recipient may be required to report such accounts, assets, the balances therein, the value thereof and/or the transactions related thereto to the tax or other authorities in the Recipient’s country. The Recipient may also be required to repatriate sale proceeds or other funds received as a result of participation in the Plan to the Recipient’s country through a designated bank or broker within a certain time after receipt. The Recipient acknowledges that it is his or her responsibility to be compliant with such regulations and that the Recipient should consult with his or her personal legal advisor for any details.



















Exhibit 10.20
Appendix B

Jurisdiction-Specific Terms and Conditions

Capitalized terms used but not defined in this Appendix B shall have the meanings given to them in the Agreement or the Plan.

Terms and Conditions

This Appendix B includes additional terms and conditions that govern the Award grants to the Recipient under the Plan if the Recipient works and/or resides in one of the countries or other jurisdictions listed below.

If the Recipient is a citizen or resident of a jurisdiction other than the one in which the Recipient is currently working and/or residing, is considered a resident of another jurisdiction for local law purposes or transfers employment and/or residency between countries or other jurisdictions after the Grant Date, the Company shall, in its sole discretion, determine to what extent the terms and conditions contained herein apply to the Recipient under these circumstances.

Notifications

This Appendix B also includes information regarding country-specific securities laws, exchange controls and certain other issues of which the Recipient should be aware with respect to the Recipient’s participation in the Plan. The information is based on the securities, exchange control and other laws in effect in the respective countries as of May 2018. Such laws are often complex and change frequently. As a result, the Company strongly recommends that the Recipient not rely on the information noted herein as the only source of information relating to the consequences of the Recipient’s participation in the Plan because the information may be out of date at the time this Award vests or the Shares acquired under the Plan are sold.

In addition, the information is general in nature and may not apply to the Recipient’s particular situation, and the Company is not in a position to assure the Recipient of any particular result. Accordingly, the Recipient should seek appropriate professional advice as to how the relevant laws in the Recipient’s country may apply to his or her situation.

Finally, if the Recipient is a citizen or resident of country other than the one in which the Recipient is currently working and/or residing, is considered a resident of another country for local law purposes or transfers employment and/or residence between countries after the Grant Date, the information contained herein may not be applicable in the same manner to the Recipient.






Exhibit 10.20
AUSTRALIA
Terms and Conditions
Australia Offer Document. This Award is intended to comply with the provisions of the Corporations Act 2011, Australia Securities and Investments Commission (“ASIC”) Regulatory Guide 49 and ASIC Class Order CO 14/1000. Additional details are set forth in the Offer Document which will be provided to the Recipient.
Notifications
Tax Information. Subdivision 83A-C of the Income Tax Assessment Act 1997 applies to this Award granted in accordance with the terms and conditions of the Plan and the Agreement (subject to the requirements of the Income Tax Assessment Act 1997).
Exchange Control Information. Exchange control reporting is required for cash transactions exceeding AUD 10,000 and international fund transfers. If an Australian bank is assisting the Recipient with the transaction, the bank will file the report on the Recipient’s behalf. If there is no Australian bank involved in the transfer, the Recipient will be required to file the report.
BELGIUM
Notifications
Foreign Asset and Account Reporting Information. Belgian residents are required to report any securities (e.g., Shares) or bank accounts (including brokerage accounts) opened or maintained outside of Belgium on their annual tax return. In a separate report, residents will be required to provide the Central Contact Point of the National Bank of Belgium with certain details regarding such foreign accounts (including the account number, bank name and country in which any such account was opened). The forms to complete this report are available on the website of the National Bank of Belgium. Belgian residents should consult with their personal tax advisor to determine their personal reporting obligations.
Stock Exchange Act. From January 1, 2017, a stock exchange tax applies to transactions executed through a non-Belgian financial intermediary. The stock exchange tax will likely apply when Shares are sold. The Recipient should consult with his or her personal tax advisor to determine the Recipient’s obligations with respect to the stock exchange tax.
GERMANY
Notifications
Exchange Control Information. Cross-border payments in excess of €12,500 must be reported monthly to the German Federal Bank. If the Recipient receives a payment in excess of this amount, the Recipient is responsible for electronically reporting to the German Federal Bank by the fifth day of the month following the month in which the payment occurs. The form of the report (Allgemeines Meldeportal Statistik) can be accessed via the German Federal Bank’s website (www.bundesbank.de) and is available in both German and English.
HONG KONG
Terms and Conditions
Share Sale Restriction. Shares received at vesting are accepted as a personal investment. In the event that this Award vests and Shares are issued to the Recipient (or the Recipient’s heirs) within six months of the Grant Date, the Recipient (or the Recipient’s heirs) agrees that the Shares will not be offered to the public or otherwise disposed of prior to the six-month anniversary of the Grant Date.
Notifications
Securities Law Information. WARNING. The contents of this document have not been reviewed by any regulatory authority in Hong Kong. The Recipient is advised to exercise caution in relation to the offer. If the Recipient is in any doubt about any of the contents of this document, the Recipient should obtain independent professional advice. Neither the grant of this Award nor the Shares acquired upon vesting constitutes a public offering of securities under Hong Kong law and is available only to employees of the Company and its Subsidiaries. This Agreement, the

Exhibit 10.20
Plan and other incidental communication materials distributed in connection with this Award (i) have not been prepared in accordance with and are not intended to constitute a “prospectus” for a public offering of securities under the applicable securities legislation in Hong Kong, and (ii) are intended only for the personal use of each eligible employee of the Company or its Subsidiaries and may not be distributed to any other person.
ITALY
Terms and Conditions
Plan Document Acknowledgement. In accepting this Award, the Recipient acknowledges that he or she has received a copy of the Plan and the Agreement and has reviewed the Plan and the Agreement in their entirety and fully understands and accepts all provisions of the Plan and the Agreement. The Recipient further acknowledges that he or she has read and specifically and expressly approves the following sections of this Agreement: Section 1, Section 2, Section 3, Section 6, Section 12, Section 27, Section 28 and Section 31, as well as the entire Appendix A.
Notifications
Foreign Asset and Account Reporting Information. If the Recipient is an Italian resident and holds investments or financial assets outside of Italy (e.g., cash, Shares) during any fiscal year which may generate income tax liability in Italy, the Recipient is required to report such investments or assets on his or her annual tax return for such fiscal year (on UNICO Form, RW Schedule, or on a special form if the Recipient is not required to file a tax return). These reporting obligations will also apply to Italian residents who are the beneficial owners of foreign financial assets under Italian money laundering provisions. The Recipient should consult his or her personal advisor to ensure compliance with applicable reporting obligations.
Foreign Asset Tax. The value of financial assets held outside of Italy by individual residents of Italy is subject to a foreign asset tax. The taxable amount will be the fair market value of the financial assets (e.g., Shares) assessed at the end of the calendar year. The value of the financial assets held abroad must be reported in Form RM of the annual tax return. The Recipient should consult his or her personal tax advisor for additional information about the foreign financial assets tax.
JAPAN
Notifications
Foreign Asset and Account Reporting Information. Japanese residents who hold assets outside of Japan with a value exceeding ¥50,000,000 (as of December 31 each year) are required to comply with annual tax reporting obligations with respect to such assets. Japanese residents are advised to consult with their personal tax advisor to ensure that they are properly complying with applicable reporting requirements.
SINGAPORE
Terms and Conditions
Sale Restriction. The Recipient agrees that any Shares acquired pursuant to the Awards will not be offered for sale in Singapore prior to the six-month anniversary of the Grant Date, unless such sale or offer is made pursuant to the exemptions under Part XIII Division (1) Subdivision (4) (other than section 280) of the Securities and Futures Act (Chapter 289, 2006 Ed.) (“SFA”).
Notifications
Securities Law Information. The grant of this Award is being made pursuant to the “Qualifying Person” exemption under section 273(1)(f) of the SFA under which it is exempt from the prospectus and registration requirements and is not made with a view to the underlying Shares being subsequently offered for sale to any other party. The Plan has not been and will not be lodged or registered as a prospectus with the Monetary Authority of Singapore.
Chief Executive Officer and Director Notification Requirement. The Chief Executive Officer (“CEO”) and the directors of a Singapore Subsidiary are subject to certain notification requirements under the Singapore Companies Act. The CEO and directors must notify the Singapore Subsidiary in writing of an interest (e.g., Awards, Shares) in the Company or any related company within two business days of (i) its acquisition or disposal, (ii) any change in a

Exhibit 10.20
previously-disclosed interest (e.g., upon vesting of the Award or when Shares acquired under the Plan are subsequently sold), or (iii) becoming the CEO/a director.
SWITZERLAND
Notifications
Securities Law Information. The grant of this Award and any Shares acquired under the Plan are not intended to be publicly offered in or from Switzerland. Neither this document nor any other materials related to this Award (i) constitutes a prospectus as such term is understood pursuant to article 652a of the Swiss Code of Obligations, (ii) may be publicly distributed or otherwise made publicly available in Switzerland, or (iii) have been or will be filed with, approved or supervised by any Swiss regulatory authority (in particular, the Swiss Financial Market Supervisory Authority (FINMA)).
TAIWAN
Notifications
Securities Law Information. The offer of participation in the Plan is available only for employees of the Company and its Subsidiaries. The offer of participation in the Plan is not a public offer of securities by a Taiwanese company.
Exchange Control Information. Taiwanese residents may acquire and remit foreign currency (including proceeds from the sale of Shares) up to US$5,000,000 per year without justification. If the transaction amount is TWD500,000 or more in a single transaction, the resident must submit a Foreign Exchange Transaction Form and provide supporting documentation to the satisfaction of the remitting bank.
UNITED KINGDOM
Responsibility for Taxes. The following provision supplements Section 10 of the Agreement.
Without limitation to Section 10 of the Agreement, the Recipient agrees that he or she is liable for all Tax-Related Items and hereby covenants to pay all such Tax-Related Items, as and when requested by the Company or the Employer or by Her Majesty’s Revenue and Customs (“HMRC”) (or any other tax authority or any other relevant authority). The Recipient also agrees to indemnify and keep indemnified the Company and the Employer against any Tax-Related Items that they are required to pay or withhold or have paid or will pay to HMRC on the Recipient’s behalf (or any other tax authority or other relevant authority).
Notwithstanding the foregoing, if the Recipient is a director or executive officer of the Company (within the meaning of Section 13(k) of the Exchange Act), the Recipient understands that he or she may not be able to indemnify the Company for the amount of any Tax-Related Items not collected from or paid by the Recipient, if the indemnification could be considered to be a loan. In this case, the Tax-Related Items not collected or paid may constitute a benefit to the Recipient on which additional income tax and National Insurance Contributions (“NICs”) may be payable. The Recipient understands that he or she will be responsible for reporting and paying any income tax due on this additional benefit directly to HMRC under the self-assessment regime and for paying to the Company and/or the Employer (as appropriate) the amount of any NICs due on this additional benefit, which may also be recovered from the Recipient by any of the means referred to in Section 10 of the Agreement.



UNITED STATES - CALIFORNIA

Terms and Conditions

Non-Solicitation; Confidentiality


Exhibit 10.20
The following provisions replace Sections 14(a), (b) and (c) of the Agreement in their entirety.

(a) While the Recipient is employed by the Company (including its Subsidiaries) and for a period of one (1) year after the Recipient’s Separation from Service for any reason (the “Restricted Period”), the Recipient will not directly or indirectly either alone or in association with others solicit, or permit any organization directly or indirectly controlled by the Recipient to solicit, any employee or independent contractor of II-VI or its Subsidiaries to leave the employ or service of II-VI or its Subsidiaries. The Restricted Period will be tolled during and for any period of time during which the Recipient is in violation of the restrictive covenants contained in this Section 14(a) and for any period of time which may be necessary to secure an order of court or injunction, either preliminary or permanent, to enforce such covenants, such that the cumulative time period during which the Recipient is in compliance with the restrictive covenants contained in this Section 14(a) will not exceed the one (1)-year period set forth above.

(b) The Recipient acknowledges that certain materials, including information, data, technology and other materials relating to customers, programs, costs, marketing, investment, sales activities, promotion, credit and financial data, manufacturing processes, financing methods, plans or the business and affairs of II-VI and its Subsidiaries constitute proprietary confidential information and trade secrets. Accordingly, the Recipient will not at any time during or after the Recipient’s employment with the Company or a Subsidiary disclose or use for the Recipient’s own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise, other than the Company (including its Subsidiaries), any proprietary confidential information or trade secrets; provided that the foregoing shall not apply to information which is not unique to II-VI and its Subsidiaries or which is generally known to the industry or the public other than as a result of the Recipient’s breach of this covenant. The Recipient agrees that, upon the Recipient’s Separation from Service for any reason, the Recipient will immediately return to II-VI all property of II-VI and its Subsidiaries including all memoranda, books, technical and/or lab notebooks, customer product and pricing data, papers, plans, information, letters and other data, and all copies thereof or therefrom, which in any way relate to the business of II-VI and its Subsidiaries, except that the Recipient may retain personal items. The Recipient further agrees that the Recipient will not retain or use for the Recipient’s account at any time any trade names, trademark or other proprietary business designation used or owned in connection with the business of II-VI and its Subsidiaries.


Exhibit 10.28
II‑VI Incorporated Performance Share UNIT Award AGREEMENT
(SHARE-SETTLED)
THIS PERFORMANCE SHARE UNIT AWARD AGREEMENT, including any general and jurisdiction-specific terms and conditions for the Recipient’s jurisdiction set forth in the appendices attached hereto, (this “Agreement”) is dated as of the Grant Date, as specified in the applicable Employee Grant Details (as defined below), by and between II-VI Incorporated, a Pennsylvania corporation (“II-VI”), and the Recipient, as specified in the applicable Employee Grant Details, who is a director, employee or consultant of II-VI or one of its Subsidiaries (the “Recipient”).
Reference is made to the Employee Grant Details (the “Employee Grant Details”) issued to the Recipient with respect to the applicable Award, which may be found on the Solium Shareworks system at https://Shareworks.Solium.com (or any successor system selected by II-VI) (the “Solium Shareworks System”). Reference further is made to the prospectus relating to the Plan (as defined below), which also may be found on the Solium Shareworks System.
All capitalized terms used herein, to the extent not defined herein, shall have the meanings set forth in the II-VI 2018 Omnibus Incentive Plan (as amended and/or restated from time to time, the “Plan”), a copy of which can be found on the Solium Shareworks System, and/or the applicable Employee Grant Details. Terms of the Plan and the Employee Grant Details are incorporated herein by reference. This Agreement shall constitute an Award Agreement as that term is defined in the Plan.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Recipient and II-VI agree as follows:

1.Performance Share Unit Award. II-VI hereby grants to the Recipient an Award of Performance Share Units under the Plan, as specified in the Employee Grant Details, to be earned based upon achievement of the Performance Objectives in accordance with Section 2 (this “Award”). For the purposes of this Award: (1) “Performance Period” shall mean the period from July 1, 2019 through and including June 30, 2022; (2) “Target Award” shall mean the Target Award set forth in the Employee Grant Details; (3) “Maximum Award” means the maximum number of Performance Shares that may be earned under this Agreement as set forth in the Employee Grant Details, which number represents 200% of the Target Award; and (4) “Performance Share Unit” or “Unit” means the contingent right to receive the equivalent of one (1) Share, in the event the Unit vests and becomes payable pursuant to the terms of this Agreement. Units shall be payable and settled solely in Shares, except as otherwise provided in this Agreement.
2.Determination of Units Earned. Subject to Section 4 and Section 5, the Units shall be earned in accordance with the following schedule:

Exhibit 10.28
Units Earned as a Percentage of Target Award
If Cumulative TSR is below Market 50th Percentile by more than 40 percentage points —%
If Cumulative TSR is equal to 40 percentage points below Market 50th Percentile and there is an absolute positive Cumulative TSR 50.00% (Threshold)
If Cumulative TSR is below Market 50th Percentile by less than 40 percentage points and there is an absolute positive Cumulative TSR Subtract 1.25% from 100.00% for each1% below Market 50th Percentile
If Cumulative TSR equals Market 50th Percentile 100%
If Cumulative TSR is above Market 50th Percentile by less than 40 percentage points Add 2.50% to 100.00% for each1% above Market 50th Percentile1
If Cumulative TSR is above Market 50th Percentile by more than 40 percentage points 200.00%1 (Maximum Award)

1 If there is an absolute negative Cumulative TSR for the Performance Period and Cumulative TSR is above Market 50th Percentile, the percentage of the Target Award earned shall be capped at 100.00%.
Definitions:
“Market” is the Russell 2000 as published on July 1, 2019. If a listing is removed from the Russell 2000 during the Performance Period, it will not be replaced, nor will any listing be added for any other reason. The Russell 2000 shall be a closed group for purposes of this Program.
“Cumulative TSR” shall be based on the 30-day average closing stock price of the Shares prior to July 1, 2019 ($34.26) (“Beginning Stock Price”) and the 30-day average closing stock price of the Shares prior to July 1, 2022 (“Ending Stock Price”). Cumulative TSR shall be calculated as follows:
((Ending Stock Price minus Beginning Stock Price ($34.26) plus dividends) divided by Beginning Stock Price ($34.26))
Only whole Units shall be earned in accordance with this Section 2. By way of example and not limitation, earning 66.67% of a Target Award of 100 Units would result in 66 Units being earned and payable.
3.Payment; Dividend Equivalents. The amount determined under Section 2 will be paid to the Recipient in Shares no later than the seventy-fifth (75th) calendar day following the end of the Performance Period. II-VI shall cause a stock certificate (or equivalent electronic book entry) representing Shares equal to the number of Units vested and payable under this Agreement to be issued to the Recipient by such date. In addition, the Recipient shall be entitled to receive, following the completion of the Performance Period but in no event later than March 15th of the calendar year following the completion of the Performance Period, a cash payment equal to the cash dividends that would have been paid during the Performance Period on the applicable number of Shares underlying the Units earned as provided in Section 2 if such Shares had been issued and outstanding during the Performance Period. Such cash dividend equivalents will not vest or be paid prior to the vesting of the Units to which they relate, as specified in this Agreement, and will be subject to cancellation and forfeiture to the same extent that the related Units do not vest or are forfeited. Notwithstanding the foregoing, the Company, at its sole discretion, may settle the Award in cash if necessary or appropriate for legal or administrative reasons based on laws in the Recipient’s jurisdiction, in which case the Company shall pay to the Recipient an amount in cash equal to the product of (a) the number of Units earned in accordance with Section 2 and (b) the Fair Market Value on the day prior to the Committee’s approval of the number of Units earned following completion of the Performance Period, with

Exhibit 10.28
such cash payment being made to the Recipient no later than the seventy fifth (75th) calendar day following the end of the Performance Period.
4. Separation from Service.
(a) General. Except as provided in Section 4(b) or Section 5 or as may be otherwise determined by the Committee, if the Recipient’s Separation from Service occurs before the end of the Performance Period, this Award shall be forfeited on the date of such Separation from Service.
(b) Prorating in Certain Circumstances. Notwithstanding Section 4(a), if the Recipient’s Separation from Service occurs during the Performance Period due to the Recipient’s (i) normal retirement, as defined in II-VI’s Global Retirement Policy, (ii) death, (iii) permanent and total disability, as defined in Code Section 22(e)(3) (a “Disability”), (iv) termination by the Company or a Subsidiary that the Recipient is employed by or provides services to (the “Employer”) other than for Cause (as defined below) other than within two years following a Change in Control or (v) termination by the Recipient for Good Reason (as defined below) other than within two years following a Change in Control, but only if the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company or the Employer provides for severance upon Separation from Service for Good Reason (or similar term), then in each case under clauses (i) - (v) of this paragraph the Recipient shall be entitled to a prorated portion of the Units to the extent earned pursuant to Section 2, determined at the end of the Performance Period and based on the ratio of the number of complete months the Recipient was employed or served (as applicable) during the Performance Period to the total number of months in the Performance Period. In the event of the death of the Recipient, delivery of the applicable number of Shares shall be made to the Recipient’s estate as soon as administratively practicable after the end of the Performance Period. Notwithstanding any provision of this Agreement, if the Company receives a legal opinion that, due to a legal judgment and/or development in the Recipient’s jurisdiction, the potential pro-rated vesting that applies to this Award upon a Recipient’s normal retirement would be deemed unlawful or discriminatory, the provisions of this Section 4(b)(i) regarding the vesting of this Award if the Recipient’s Separation from Service is as a result of normal retirement will not be applicable to the Recipient and the remaining provisions of this Agreement will govern.
5. Change in Control; Adjustments to Payments.
(a) Change in Control. Upon a Change in Control, the Award shall be subject to Section 10 of the Plan, with “Cause” and “Good Reason” for such purpose as defined below.
(b) “Cause” shall be defined as that term is defined in the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company; or, if there is no such definition, “Cause” shall mean a determination by the Company that any of the following has occurred:
(i) the willful failure by the Recipient to perform the Recipient’s duties and responsibilities to the Company or the Employer (other than any such failure resulting from the Recipient’s Disability), which is not cured within ten (10) business days of receiving written notice from the Company or the Employer specifying in reasonable detail the duties or responsibilities that the Company or the Employer believes are not being adequately performed;
(ii) the willful engaging by the Recipient in any act that is damaging to the Company or the Employer;
(iii) the conviction of the Recipient of, or a plea of “guilty” or “no contest” to, (A) any felony or (B) a criminal offense involving fraud, dishonesty or other moral turpitude;
(iv) any breach by the Recipient of the terms of any written agreement between the Recipient and the Company relating to proprietary information, confidentiality, non-disclosure, ownership of inventions, non-competition, non-solicitation, non-interference or non-disparagement;
(v) the engaging by the Recipient in any willful act of dishonesty resulting or intended to result, directly or indirectly, in personal gain to the Recipient; or
(vi) the commission of any act by the Recipient that is in violation of the Company’s Code of Business Conduct and Ethics.

Exhibit 10.28
(c) “Good Reason” shall be defined as that term is defined in the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company; or, if there is no such definition, “Good Reason” shall mean that any of the following has occurred, without the Recipient’s express written consent:
(i) a material reduction of the Recipient’s employment responsibilities from those immediately prior to the Change in Control;
(ii) a material reduction by the Company or the Employer of the Recipient’s eligibility for Total Target Compensation as in effect immediately prior to the Change in Control, with “Total Target Compensation” defined as the Recipient’s annual base salary plus the cash and stock compensation the Recipient is eligible to receive from the Company or the Employer at one hundred percent (100%) performance, whether sales incentive, bonus or otherwise;
(iii) a material increase in the amount of the Recipient’s business travel that produces a constructive relocation of the Recipient;
(iv) a material reduction by the Company or the Employer in the kind or level of employee benefits to which the Recipient is entitled immediately prior to the Change in Control, with the result that the Recipient’s overall benefits package is materially reduced; or
(v) the relocation of the Recipient to a facility or a location more than thirty (30) miles from the Recipient’s principal place of employment immediately prior to the Change in Control.
In order for the Recipient to incur a Separation from Service for Good Reason, (A) the Company must be notified by the Recipient in writing within ninety (90) days of the event constituting Good Reason, (B) the event must remain uncorrected by the Company or the Employer (as applicable) for thirty (30) days following such notice (the “Notice Period”), and (C) such Separation from Service must occur within sixty (60) days after the expiration of the Notice Period.
(d) Adjustments to Payments.
(i) Notwithstanding any provision to the contrary in this Agreement, if it is determined that any payment or distribution by the Company or the Employer to the Recipient or for the Recipient’s benefit (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (the “Payments”) would be subject to the excise tax imposed by Code Section 4999, or any interest or penalty is incurred by the Recipient with respect to such excise tax (such excise tax, together with any such interest and penalties, collectively referred to as the “Excise Tax”), then the Payments shall be reduced (but not below zero) if and to the extent that such reduction would result in the Recipient retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the imposition of the Excise Tax), than if the Recipient received all of the Payments. The Company shall reduce or eliminate the Payments by first reducing or eliminating the portion of the Payments that are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits that are to be paid the farthest in time from the determination.
(ii) All determinations required to be made under this Section 5(d), including whether and when an adjustment to any Payments is required and, if applicable, which Payments are to be so adjusted, shall be made by an independent accounting firm selected by II-VI from among the four (4) largest accounting firms in the United States or any nationally-recognized financial planning and benefits consulting company (the “Accounting Firm”), which shall provide detailed supporting calculations both to II-VI and to the Recipient within fifteen (15) business days of the receipt of notice from the Recipient that there has been a Payment, or such earlier time as is requested by II-VI. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, II-VI shall appoint another nationally-recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by II-VI. If the Accounting Firm determines that no Excise Tax is payable by the Recipient, it shall furnish the Recipient with a written opinion that failure to report the Excise Tax on the Recipient’s applicable federal income

Exhibit 10.28
tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Recipient.

6. Nontransferability. Except as otherwise provided in the Plan, the Units shall not be sold, pledged, assigned, hypothecated, transferred or disposed of (a “Transfer”) in any manner, other than by will or the laws of descent and distribution. Any attempt to Transfer the Units in violation of this Section or the Plan shall render this Award null and void.
7. Adjustments. Upon any event described in Section 12 of the Plan (entitled “Adjustments”) or any successor provision thereto, the terms of such Section 12 of the Plan or any successor provision thereto shall apply to this Award.
8. Fractional Shares. II-VI shall not be required to issue any fractional Shares pursuant to this Award, and II-VI may round fractional Shares down to the nearest whole Share.
9. Responsibility for Taxes.
i.Regardless of any action the Company or the Employer takes with respect to any or all income tax, social insurance, payroll tax, fringe benefit tax, payment on account or other tax-related items related to the Recipient’s participation in the Plan (“Tax-Related Items”), the Recipient acknowledges that the ultimate liability for all Tax-Related Items owed by the Recipient is and remains the Recipient’s responsibility and that the Company (i) makes no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of this Award, including the grant or vesting of this Award or the subsequent sale of Shares acquired pursuant to this Award; and (ii) does not commit to structure the terms of the grant or any aspect of this Award to reduce or eliminate the Recipient’s liability for Tax-Related Items or achieve a particular tax result. Further, if the Recipient is subject to Tax-Related Items in more than one jurisdiction, the Recipient acknowledges and agrees that the Company or the Employer may be required to withhold or account for Tax-Related Items in more than one jurisdiction.
ii.Prior to any relevant taxable or tax withholding event, as applicable the Recipient agrees to make adequate arrangements satisfactory to the Company to satisfy all Tax-Related Items. In this regard, the Recipient authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy any applicable withholding obligations with regard to Tax-Related Items by one or a combination of the following: (i) withholding from the Recipient’s wages or other cash compensation paid to the Recipient by the Company or the Employer; (ii) withholding from the proceeds of the sale of Shares acquired upon vesting of this Award either through a voluntary sale or through a mandatory sale arranged by the Company (on the Recipient’s behalf pursuant to this authorization) without further consent; (iii) withholding Shares to be issued upon vesting of this Award; or (iv) any other method determined by the Committee and permitted by applicable laws. Notwithstanding the foregoing, if the Recipient is subject to the short-swing profit rules of Section 16(b) of the Exchange Act, the Company will withhold in Shares issuable at vesting of the Award upon the relevant withholding event, unless otherwise determined by the Committee.
iii.The Company may withhold or account for Tax-Related Items by considering applicable withholding rates, including maximum applicable rates, in which case the Recipient may receive a refund of any over-withheld amount in cash (with no entitlement to the equivalent in Shares), or, if not refunded, the Recipient may seek a refund from the local tax authorities. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, the Recipient is deemed to have been issued the full number of Shares, notwithstanding that a number of Shares are held back solely for the purpose of paying the Tax-Related Items.
iv.Finally, the Recipient shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of the Recipient’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver Shares or the proceeds from the sale of Shares, if the

Exhibit 10.28
Recipient fails to comply with the Recipient’s obligations in connection with the Tax-Related Items, as described in this Section 9.
10. Plan Provisions. In the event of any conflict between the provisions of this Agreement and the Plan, the Plan shall control, except that capitalized terms specifically defined in this Agreement shall have the meaning given to them in this Agreement with respect to their usage in this Agreement, notwithstanding the definitions given to such terms in the Plan (which definitions shall control as they relate to the usage of such terms in the Plan).
11. No Continued Rights. The granting of this Award shall not give the Recipient any rights to similar grants in future years or any right to continuance of employment or other service with II-VI or its Subsidiaries, nor shall it interfere in any way with any right that the Company or the Employer would otherwise have to terminate the Recipient’s employment or other services at any time, or the right of the Recipient to terminate his or her employment or other service at any time.
12. Rights Unsecured. The Recipient shall have only II-VI’s unfunded, unsecured promise to pay pursuant to the terms of this Agreement. The rights of the Recipient hereunder shall be that of a general unsecured creditor of II-VI and the Recipient shall not have any security interest in any assets of II-VI.
13. Non-Competition; Non-Solicitation; Confidentiality.

(a) While the Recipient is employed by the Company (including its Subsidiaries) and for a period of one (1) year after the Recipient’s Separation from Service for any reason (the “Restricted Period”), the Recipient will not directly or indirectly:

(i) engage in any business or enterprise (whether as owner, partner, officer, director, employee, consultant, investor, lender or otherwise, except as the holder of not more than one percent (1%) of the outstanding stock of a publicly-held company), that develops, manufactures, markets or sells any product or service that competes with any product or service developed, manufactured, marketed or sold or, to the Recipient’s knowledge, planned to be developed, manufactured, marketed or sold, by II-VI or its Subsidiaries while the Recipient was employed by the Company or a Subsidiary, within the United States of America, and/or any other country within which II-VI or its Subsidiaries have customers or prospective customers as of the date of such Separation from Service;

(ii) (A) solicit for the purpose of selling or distributing any products or services that are the same or similar to those developed, manufactured, marketed or sold by II-VI or its Subsidiaries, (1) any customers of II-VI or its Subsidiaries, (2) any prospective customers known by the Recipient to have been solicited by II-VI or its Subsidiaries within the twelve (12) months prior to the Recipient’s Separation from Service, or (3) any distributors, sales agents or other third-parties who sell to or refer potential customers in need of the types of products and services produced, marketed, licensed, sold or provided by II-VI or its Subsidiaries who have become known to the Recipient as a result of his/her employment with the Company (including its Subsidiaries), or (B) induce or attempt to induce any vendor, supplier, licensee or other business relation of II-VI or its Subsidiaries to cease or restrict doing business with II-VI or its Subsidiaries, or in any way interfere with the relationship between any such vendor, supplier, licensee or business relation and II-VI or its Subsidiaries; or

(iii) either alone or in association with others (A) solicit, or permit any organization directly or indirectly controlled by the Recipient to solicit, any employee of II-VI or its Subsidiaries to leave the employ of II-VI or its Subsidiaries, or (B) solicit for employment, hire or engage as an independent contractor, or permit any organization directly or indirectly controlled by the Recipient to solicit for employment, hire or engage as an independent contractor, any person who was employed by II-VI or its Subsidiaries at any time during the term of the Recipient’s employment with the Company or a Subsidiary; provided that this clause (B) shall not apply to any individual whose employment with II-VI or its Subsidiaries has been terminated for a period of one (1) year or longer.

Exhibit 10.28

(b) The Recipient acknowledges that certain materials, including information, data, technology and other materials relating to customers, programs, costs, marketing, investment, sales activities, promotion, credit and financial data, manufacturing processes, financing methods, plans or the business and affairs of II-VI and its Subsidiaries constitute proprietary confidential information and trade secrets. Accordingly, the Recipient will not at any time during or after the Recipient’s employment with the Company or a Subsidiary disclose or use for the Recipient’s own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise, other than the Company (including its Subsidiaries), any proprietary confidential information or trade secrets; provided that the foregoing shall not apply to information which is not unique to II-VI and its Subsidiaries or which is generally known to the industry or the public other than as a result of the Recipient’s breach of this covenant. The Recipient agrees that, upon the Recipient’s Separation from Service for any reason, the Recipient will immediately return to II-VI all property of II-VI and its Subsidiaries, including all memoranda, books, technical and/or lab notebooks, customer product and pricing data, papers, plans, information, letters and other data, and all copies thereof or therefrom, which in any way relate to the business of II-VI and its Subsidiaries, except that the Recipient may retain personal items. The Recipient further agrees that the Recipient will not retain or use for the Recipient’s account at any time any trade names, trademark or other proprietary business designation used or owned in connection with the business of II-VI and its Subsidiaries.

(c) The Restricted Period will be tolled during and for any period of time during which the Recipient is in violation of the restrictive covenants contained in this Section 13 and for any period of time which may be necessary to secure an order of court or injunction, either preliminary or permanent, to enforce such covenants, such that the cumulative time period during which the Recipient is in compliance with the restrictive covenants contained in Section 13 will not exceed the one (1)-year period set forth above.

(d) Nothing herein is intended to or shall limit, prevent, impede or interfere with the Recipient’s non-waivable right, without prior notice to the Company, to provide information to the government, participate in investigations, testify in proceedings regarding the Company’s past or future conduct, or engage in any activities protected under whistleblower statutes, or to receive and fully retain a monetary award from a government-administered whistleblower award program for providing information directly to a government agency. Further, the Recipient understands that pursuant to the Defend Trade Secrets Act of 2016, the Recipient shall not be held criminally, or civilly, liable under any Federal or State Trade secret law for the disclosure of a trade secret that is made in confidence either directly or indirectly to a Federal, State, or local government official, or an attorney, for the sole purpose of reporting, or investigating, a violation of law. Moreover, the Recipient understands that he or she may disclose trade secrets in a complaint, or other document, filed in a lawsuit, or other proceeding, if such filing is made under seal. Finally, the Recipient understands that if he or she files a lawsuit alleging retaliation by the Company for reporting a suspected violation of the law, the Recipient may disclose the trade secret to the attorney and use the trade secret in the court proceeding.

14. Remedies; Clawback.

(a) II-VI and the Recipient acknowledge and agree that that any violation by the Recipient of any of the restrictive covenants contained in Section 13 would cause immediate, material and irreparable harm to the II-VI and its Subsidiaries which may not adequately be compensated by money damages and, therefore, II-VI and its Subsidiaries shall be entitled to injunctive relief (including one (1) or more preliminary injunctions and/or ex parte restraining orders) in addition to, and not in derogation of, any other remedies provided by law, in equity or otherwise for such a violation, including the right to have such covenants specifically enforced by any court of competent jurisdiction, the rights under Section 14(b), and the right to require the Recipient to account for and pay

Exhibit 10.28
over to II-VI all benefits derived or received by the Recipient as a result of any such breach of covenant together with interest thereon, from the date of such initial violation until such sums are received by II-VI.

(b) In the event that the Recipient violates or breaches any of the covenants set forth in Section 13, the Units and the right to receive Shares in exchange for such Units shall be forfeited. II-VI shall also have the right, in its sole discretion, in addition to any other remedies or damages provided by law, in equity or otherwise, to demand and require the Recipient (i) to the extent that any cash payment was received with respect to such Performance Units, to return and transfer to II-VI any such cash payment, (ii) to the extent that any Shares were received with respect to such Units, to return and transfer to II-VI any such shares directly or beneficially owned by the Recipient, and (iii) to the extent that the Recipient sold or transferred any such Shares, to disgorge and/or repay to II-VI any profits or other economic value (as determined by II-VI) made or realized by the Recipient with respect to such shares, including the value of any gift thereof.

(c) This Award, and any amounts or benefits received or outstanding under the Plan, as well as any other incentive awards previously granted to the Recipient by the Company, shall be subject to potential clawback, cancellation, recoupment, rescission, payback, reduction, or other similar action in accordance with the terms or conditions of any applicable Company clawback or similar policy or any applicable law related to such actions, as may be in effect from time to time, including the requirements of (a) Section 304 of the Sarbanes Oxley Act and Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, (b) similar rules under the laws of any other jurisdiction, and (c) any policies adopted by the Company to implement such requirements. The Recipient acknowledges and consents to the Company’s application, implementation and enforcement of any applicable Company clawback or similar policy that may apply to the Recipient, whether adopted prior to or following the Grant Date, and any provision of applicable law relating to clawback, cancellation, recoupment, rescission, payback, or reduction of compensation, and agrees that the Company may take such actions as may be necessary to effectuate any such policy or applicable law, without further consideration or action.
15. Recipient Acknowledgments. The Recipient acknowledges and agrees that (a) as a result of the Recipient’s previous, current and future employment with the Company or the Employer, the Recipient has had access to, will have access to and/or possesses or will possess confidential and proprietary information of II-VI and its Subsidiaries, (b) II-VI and its Subsidiaries are engaged in a highly competitive business and conduct such business worldwide, (c) this Agreement does not constitute a contract of employment, does not imply that the Company or the Employer will continue the Recipient’s employment for any period of time and does not change the at-will nature of the Recipient’s employment, except as set forth in a separate written employment agreement between the Company or the Employer and the Recipient, (d) the restrictive covenants set forth in Section 13 are necessary and reasonable in time and scope (including the period, geographic, product and service and other restrictions) to protect the legitimate business interests of II-VI and its Subsidiaries, (e) the remedy, forfeiture and payment provisions contained in Section 14 are reasonable and necessary to protect the legitimate business interests of II-VI and its Subsidiaries, (f) acceptance of these Units and agreement to be bound by the provisions hereof is not a condition of the Recipient’s employment and (g) the Recipient’s receipt of the benefits provided under this Agreement is adequate consideration for the enforcement of the provisions contained in Section 13 and Section 14.

16. Severability; Waiver. If any term, provision, covenant or restriction contained in this Agreement is held by a court or a federal regulatory agency of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions contained in this Agreement shall remain in full force and effect, and shall in no way be affected, impaired or invalidated. In particular, in the event that any of such provisions shall be adjudicated to exceed the time, geographic, product and service or other limitations permitted by applicable law in any jurisdiction, then such provisions shall be deemed reformed in such jurisdiction to the maximum time, geographic, product and service or other limitations permitted by applicable law. No delay or omission by II-VI in exercising any right under this Agreement will operate as a waiver of that or any other right. A waiver or consent given by II-VI on any one occasion is effective only in that instance and will not be construed as a bar to or waiver of any right on any other occasion.

Exhibit 10.28
17. Notice. II-VI may require any notice required or permitted under this Agreement to be transmitted, submitted or received, by II-VI or the Recipient, via the StockPlan Connect System in accordance with the procedures established by II-VI for such notice. Otherwise, any written notice required or permitted by this Agreement shall be mailed, certified mail (return receipt requested) or by overnight carrier, to II-VI at the following address:

II-VI Incorporated
Attention: Chief Financial Officer
375 Saxonburg Boulevard
Saxonburg, Pennsylvania 16056

or to the Recipient at his or her most recent home address on record with II-VI. Notices are effective upon receipt.

18. Controlling Law. The validity, construction and effect of this Agreement will be determined in accordance with the internal laws of the Commonwealth of Pennsylvania without giving effect to the conflict of laws principles thereof. The Recipient and II-VI hereby irrevocably submit to the exclusive jurisdiction of the state and Federal courts located in the Commonwealth of Pennsylvania and consent to the jurisdiction of any such court, provided, however, that, notwithstanding anything to the contrary set forth above, II-VI may file an action to enforce the covenants contained in Section 13 by seeking injunctive or other equitable relief in any appropriate court having jurisdiction, including where the Recipient resides or where the Recipient was employed by the Company or the Employer. The Recipient and II-VI also both irrevocably waive, to the fullest extent permitted by applicable law, any objection either may now or hereafter have to the laying of venue of any such dispute brought or injunctive or equitable relief sought in such court or any defense of inconvenient forum for the maintenance of such dispute and consent to the personal jurisdiction of any such court. For purposes of this Section 18, the Employer shall be a third-party beneficiary of this Agreement.
19. Entire Agreement. This Agreement (including the Plan and the Employee Grant Details) contains the entire understanding between the parties and supersedes any prior understanding and agreements between them regarding the subject matter hereof with respect to this Award, and there are no other representations, agreements, arrangements or understandings, oral or written, between the parties relating to this Award which are not fully expressed herein. Notwithstanding anything to the contrary set forth in this Agreement, any restrictive covenants contained in this Agreement are independent, and are not intended to limit the enforceability, of any restrictive or other covenants contained in any other agreement between the Company or the Employer and the Recipient.
20. Captions; Section References. Section and other headings contained in this Agreement are for reference purposes only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. Unless expressly provided otherwise, any reference in this Agreement to any Section refers to the corresponding Section of this Agreement.
21. Limitation of Actions. Any lawsuit commenced by the Recipient with respect to any matter arising out of or relating to this Agreement must be filed no later than one (1) year after the date that a denial of any claim hereunder is made or any earlier date that the claim otherwise accrues.
22. Section 409A. This Agreement and this Award are intended to satisfy all applicable requirements of Section 409A or an exception thereto and shall be construed accordingly. II-VI may in its sole discretion, and without the consent of the Recipient, take any action it deems necessary to comply with the requirements of Section 409A or an exception thereto, including amending the terms of this Award and this Agreement, in any manner it deems necessary to cause this Award and this Agreement to be excepted from Section 409A (or to comply therewith to the extent that II-VI determines that it is not excepted). Notwithstanding, the Recipient recognizes and acknowledges that Section 409A may affect the timing and recognition of payments due hereunder, and may impose upon the Recipient certain taxes or other charges for which the Recipient is and shall remain solely responsible.

Exhibit 10.28

23. Assignment. Except as provided in Section 6, the Recipient’s rights and obligations under this Agreement shall not be transferable by the Recipient, by assignment or otherwise, and any purported assignment, transfer or delegation thereof by the Recipient shall be void. II-VI and the Company may assign/delegate all or any portion of this Agreement and its rights hereunder without prior notice to the Recipient and without the Recipient providing any additional consent thereto, whereupon the Recipient shall continue to be bound hereby with respect to such assignee/delegatee.

24. Electronic Delivery. II-VI may, in its sole discretion, deliver any documents or correspondence related to this Agreement, the Units, the Plan, the Recipient’s participation in the Plan or future awards that may be granted to the Recipient under the Plan, by electronic means. The Recipient hereby consents to receive such documents by electronic delivery and to the Recipient’s participation in the Plan through an on-line or electronic system established and maintained by II-VI or another third party designated by II-VI, including the Solium Shareworks System. Likewise, II-VI may require the Recipient to deliver or receive any documents or correspondence related to this Agreement by such electronic means.

25. Further Assurances. The Company and the Recipient shall use commercially reasonable efforts to, from time to time at the request of the other party, without any additional consideration, furnish the other party such further information or assurances, execute and deliver such additional documents and take such other actions and do such other things, as may be necessary to carry out the provisions of this Agreement.
26. Compliance with Legal Requirements. Notwithstanding any other provisions of the Plan or this Agreement, unless there is an exemption from any registration, qualification or other legal requirement applicable to the Shares, the Company shall not be required to deliver any Shares issuable upon vesting of this Award prior to the completion of any registration or qualification of the Shares under any local, state, federal or foreign securities or exchange control law or under rulings or regulations of the U.S. Securities and Exchange Commission (“SEC”) or of any other governmental regulatory body, or prior to obtaining any approval or other clearance from any local, state, federal or foreign governmental agency, which registration, qualification or approval the Company shall, in its absolute discretion, deem necessary or advisable. Further, the Company is under no obligation to register or qualify the Shares with the SEC or any state or foreign securities commission or to seek approval or clearance from any governmental authority for the issuance or sale of Shares. Subject to Section 409A, the Committee may postpone the issuance or delivery of Shares under this Award as the Committee may consider appropriate and may require the Recipient to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of Shares in compliance with applicable laws, rules and regulations. The Recipient understands and agrees that the Company shall have unilateral authority to amend this Agreement without his or her consent to the extent necessary to comply with securities or other laws applicable to the issuance of Shares.
27. Appendices. The Recipient acknowledges and agrees that, if the Recipient resides outside the U.S., this Award is subject to the general terms applicable to Awards granted to recipients outside the U.S. set forth in Appendix A hereto. Further, this Award is subject to any additional terms and conditions set forth for the Recipient’s U.S. state or country in Appendix B hereto. Appendix A and Appendix B constitute part of this Agreement.
28. Imposition of Other Requirements. The Company reserves the right to impose other requirements on this Award to the extent that the Company determines that it is necessary or advisable in order to comply with local law or facilitate the administration of this Award and to require the Recipient to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.
29. No Advice Regarding Grant. The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Recipient’s participation in the Plan or the Recipient’s acquisition or sale of Shares. The Recipient understands and agrees that the Recipient should consult with his or her own personal legal and financial advisors regarding the Recipient’s participation in the Plan before taking any action related to the Plan.

Exhibit 10.28
30. Amendments. This Agreement may be amended or modified at any time by an instrument in writing signed by the parties hereto, or as otherwise provided under the Plan or this Agreement.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the Grant Date set forth above. Electronic acceptance of this Agreement by the Recipient pursuant to II-VI’s instructions to the Recipient (including through the Solium Shareworks System) shall constitute execution of this Agreement by the Recipient.

The Recipient agrees that his or her electronic acceptance of this Agreement, including via the Solium Shareworks System, shall constitute his or her signature, and that he or she agrees to be bound by all of the terms and conditions of this Agreement.


II-VI INCORPORATED


By:
Name: David G. Wagner
Title: Vice President, Human Resources


PARTICIPANT

Electronic Acceptance via the Solium Shareworks System















Exhibit 10.28

Appendix A
General Terms Applicable to Awards Granted to Recipients Outside the U.S.
This Appendix A includes additional terms and conditions applicable to all grants of Awards under the Plan to employees or other grant recipients who reside outside the United States. Capitalized terms used but not defined in this Appendix A shall have the meanings given to them in this Agreement or the Plan.
1. DATA PRIVACY INFORMATION AND CONSENT
The Company is located at 375 Saxonburg Blvd., Saxonburg, PA 16056, USA and grants employees of the Company and its Subsidiaries the opportunity to participate in the Plan at the Company’s sole discretion. If the Recipient would like to participate in the Plan, the Recipient should review the following information about the Company’s data processing practices and declare his or her consent.
i.Data Collection and Usage. The Company collects, processes and uses the Recipient’s personal data, including the Recipient’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, citizenship, job title, any Shares or directorships held in the Company, and details of all awards canceled, vested, or outstanding in the Recipient’s favor, which the Company receives from the Recipient or the Employer. If the Company offers the Recipient an opportunity to participate in the Plan, then the Company will collect the Recipient’s personal data for purposes of allocating stock and implementing, administering and managing the Plan. The Company’s legal basis for the processing of the Recipient’s personal data would be the Recipient’s consent.
ii.Stock Plan Administration Service Providers. The Company transfers participant data to Solium Capital, an independent service provider based in the United States, which assists the Company with the implementation, administration and management of the Plan. In the future, the Company may select a different service provider and share the Recipient’s data with another company that serves in a similar manner. The Company’s service provider will open an account for the Recipient. The Recipient will be asked to agree on separate terms and data processing practices with the service provider, which is a condition to the Recipient’s ability to participate in the Plan.
iii.International Data Transfers. The Company and its service providers are based in the United States. If the Recipient is outside the United States, the Recipient should note that his or her country has enacted data privacy laws that are different from the United States. For example, the European Commission has issued a limited adequacy finding with respect to the United States that applies only to the extent a company registers for the EU-U.S. Privacy Shield program, which is open to companies subject to Federal Trade Commission jurisdiction, and which the Company does not participate in with respect to employee data. The Company’s legal basis for the transfer of the Recipient’s personal data is the Recipient’s consent.
iv.Data Retention. The Company will use the Recipient’s personal data only as long as is necessary to implement, administer and manage the Recipient’s participation in the Plan or as required to comply with legal or regulatory obligations, including under tax and security laws. When the Company no longer needs the Recipient’s personal data, which will generally be seven years after the Recipient participates in the Plan, the Company will remove it from its systems. If the Company keeps the data longer, it would be to satisfy legal or regulatory obligations and the Company’s legal basis would be relevant laws or regulation.
v.Voluntariness and Consequence of Consent Denial or Withdrawal. The Recipient’s participation in the Plan and his or her grant of consent is purely voluntary. The Recipient may deny or withdraw his or her consent at any time. If the Recipient does not consent, or if the Recipient withdraws his or her consent, the Recipient cannot participate in the Plan. This would not affect the Recipient’s salary as an employee; the Recipient would merely forfeit the opportunities associated with the Plan.

Exhibit 10.28
vi.Data Subject Rights. The Recipient has a number of rights under data privacy laws in the Recipient’s country. Depending on where the Recipient is based, the Recipient’s rights may include the right to (i) request access or copies of personal data the Company processes, (ii) rectification of incorrect data, (iii) deletion of data, (iv) restrictions on processing, (v) portability of data, (vi) to lodge complaints with competent authorities in the Recipient’s country, and/or (vii) a list with the names and addresses of any potential recipients of the Recipient’s personal data. To receive clarification regarding the Recipient’s rights or to exercise such rights, the Recipient should contact the Company at HR Department, Director of Compensation and Benefits, 375 Saxonburg Blvd., Saxonburg, PA 16056, USA.
If the Recipient agrees with the data processing practices as described in this notice and would like to participate in the Plan, please declare the Recipient’s consent by clicking “Accept” on the Solium Shareworks system award acceptance page or by signing this Agreement.
a. ADDITIONAL ACKNOWLEDGEMENTS
By entering into this Agreement and accepting this Award, the Recipient acknowledges, understands and agrees that:
i.the Plan is established voluntarily by the Company, it is discretionary in nature, and may be amended, suspended or terminated by the Company at any time;
ii.the grant of this Award is exceptional, voluntary and occasional and does not create any contractual or other right to receive future awards or benefits in lieu of awards, even if such awards have been awarded in the past;
iii.all decisions with respect to future awards, if any, will be at the sole discretion of the Company;
iv.the Recipient is voluntarily participating in the Plan;
v.this Award, any Shares acquired under the Plan and the income from and value of same, are not intended to replace any pension right or compensation;
vi.this Award, any Shares acquired under the Plan and the income from and value of same, are not part of normal or expected compensation or salary for any purposes, including but not limited to calculating any severance, resignation, termination, redundancy, dismissal, end of service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;
vii.unless otherwise agreed with the Company in writing, this Award and any Shares acquired under the Plan, and the income from and value of same, are not granted in consideration for, or in connection with, the service the Recipient may provide as an officer or director of a Subsidiary;
viii.in accepting this Award, the Recipient expressly recognizes that this Award is made solely by II-VI, with principal offices at 375 Saxonburg Boulevard; Saxonburg, Pennsylvania 16056; U.S.A.; II-VI is solely responsible for the administration of the Plan and the Recipient’s participation in the Plan; in the event that the Recipient is an employee of a Subsidiary, this Award and the Recipient’s participation in the Plan will not create a right to employment or be interpreted to form an employment or service contract or relationship with II-VI; and this Award will not be interpreted to form an employment or service contract with any Subsidiary;
ix.the future value of the underlying Shares is unknown and cannot be predicted with certainty;
x.no claim or entitlement to compensation or damages shall arise from the forfeiture of the Recipient’s Award resulting from the Recipient’s Separation from Service (for any reason whatsoever and whether or not in breach of local labor laws);
xi.for purposes of this Award, a Separation from Service will be deemed to have occurred as of the date the Recipient is no longer providing services to the Company or any Subsidiary (regardless of the reason for such termination and whether or not later found to be invalid or in breach of labor laws in the jurisdiction where the Recipient is employed or the terms of the Recipient’s

Exhibit 10.28
employment agreement, if any). Unless otherwise determined by the Committee, the Recipient’s right to vest in this Award will terminate as of such date and will not be extended by any notice period (e.g., the Recipient’s period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under labor laws in the jurisdiction where the Recipient is employed or the terms of the Recipient’s employment agreement, if any). The Committee shall have the exclusive discretion to determine when the Recipient is no longer actively providing services for purposes of this Award (including whether the Recipient may still be considered to be providing services while on a leave of absence); and
xii.the Recipient is solely responsible for investigating and complying with any exchange control laws applicable to the Recipient in connection with his or her participation in the Plan;
xiii. neither the Company, the Employer nor any Subsidiary shall be liable for any foreign exchange rate fluctuation between the Recipient’s local currency and the United States Dollar that may affect the value of this Award or any amounts due to the Recipient pursuant to the settlement of this Award or subsequent sale of Shares acquired under the Plan.
b. LANGUAGE
The Recipient acknowledges that he or she is sufficiently proficient in English to understand the terms and conditions of this Agreement. Furthermore, if the Recipient has received this Agreement or any other document related to this Award and/or the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
a. INSIDER TRADING/MARKET ABUSE LAWS
The Recipient acknowledges that, depending on his or her country of residence, or the designated broker’s country or where the Shares are listed, the Recipient may be subject to insider trading restrictions and/or market abuse laws, which may affect the Recipient’s ability to accept, acquire, sell, attempt to sell or otherwise dispose of Shares or right to Shares (e.g., Awards) or rights linked to the value of Shares during such times as the Recipient is considered to have “inside information” regarding the Company (as defined by or determined under the laws in the applicable jurisdiction). Local insider trading laws and regulations may prohibit the cancellation or amendment of orders placed by the Recipient before possessing inside information. Furthermore, the Recipient could be prohibited from (i) disclosing the inside information to any third party, which may include fellow employees (other than on a “need to know” basis) and (ii) “tipping” third parties or causing them to otherwise buy or sell securities. Any restrictions under these laws or regulations are separate from and in addition to any restrictions that may be imposed under any applicable Company insider trading policy. The Recipient is responsible for ensuring compliance with any applicable restrictions and should consult with his or her personal legal advisor on this matter.
a. EXCHANGE CONTROL, TAX AND/OR FOREIGN ASSET/ACCOUNT REPORTING
The Recipient acknowledges that there may be exchange control, tax, foreign asset and/or account reporting requirements which may affect the Recipient’s ability to hold Shares acquired under the Plan or cash received from participating in the Plan in a brokerage/bank account or legal entity outside the Recipient’s country. The Recipient may be required to report such accounts, assets, the balances therein, the value thereof and/or the transactions related thereto to the tax or other authorities in the Recipient’s country. The Recipient may also be required to repatriate sale proceeds or other funds received as a result of participation in the Plan to the Recipient’s country through a designated bank or broker within a certain time after receipt. The Recipient acknowledges that it is his or her responsibility to be compliant with such regulations and that the Recipient should consult with his or her personal legal advisor for any details.






Exhibit 10.28
Appendix B
Jurisdiction-Specific Terms and Conditions
Capitalized terms used but not defined in this Appendix B shall have the meanings given to them in the Agreement or the Plan.
Terms and Conditions
This Appendix B includes additional terms and conditions that govern the Award grants to the Recipient under the Plan if the Recipient works and/or resides in one of the countries or other jurisdictions listed below.
If the Recipient is a citizen or resident of a jurisdiction other than the one in which the Recipient is currently working and/or residing, is considered a resident of another jurisdiction for local law purposes or transfers employment and/or residency between countries or other jurisdictions after the Grant Date, the Company shall, in its sole discretion, determine to what extent the terms and conditions contained herein apply to the Recipient under these circumstances.
Notifications
This Appendix B also includes information regarding country-specific securities laws, exchange controls and certain other issues of which the Recipient should be aware with respect to the Recipient’s participation in the Plan. The information is based on the securities, exchange control and other laws in effect in the respective countries as of May 2018. Such laws are often complex and change frequently. As a result, the Company strongly recommends that the Recipient not rely on the information noted herein as the only source of information relating to the consequences of the Recipient’s participation in the Plan because the information may be out of date at the time this Award vests or the Shares acquired under the Plan are sold.
In addition, the information is general in nature and may not apply to the Recipient’s particular situation, and the Company is not in a position to assure the Recipient of any particular result. Accordingly, the Recipient should seek appropriate professional advice as to how the relevant laws in the Recipient’s country may apply to his or her situation.
Finally, if the Recipient is a citizen or resident of country other than the one in which the Recipient is currently working and/or residing, is considered a resident of another country for local law purposes or transfers employment and/or residence between countries after the Grant Date, the information contained herein may not be applicable in the same manner to the Recipient.
AUSTRALIA
Terms and Conditions
Australia Offer Document. This Award is intended to comply with the provisions of the Corporations Act 2011, Australia Securities and Investments Commission (“ASIC”) Regulatory Guide 49 and ASIC Class Order CO 14/1000. Additional details are set forth in the Offer Document which will be provided to the Recipient.
Notifications
Tax Information. Subdivision 83A-C of the Income Tax Assessment Act 1997 applies to this Award granted in accordance with the terms and conditions of the Plan and the Agreement (subject to the requirements of the Income Tax Assessment Act 1997).
Exchange Control Information. Exchange control reporting is required for cash transactions exceeding AUD 10,000 and international fund transfers. If an Australian bank is assisting the Recipient with the transaction, the bank will file the report on the Recipient’s behalf. If there is no Australian bank involved in the transfer, the Recipient will be required to file the report.
BELGIUM
Notifications
Foreign Asset and Account Reporting Information. Belgian residents are required to report any securities (e.g., Shares) or bank accounts (including brokerage accounts) opened or maintained outside of Belgium on their annual

Exhibit 10.28
tax return. In a separate report, residents will be required to provide the Central Contact Point of the National Bank of Belgium with certain details regarding such foreign accounts (including the account number, bank name and country in which any such account was opened). The forms to complete this report are available on the website of the National Bank of Belgium. Belgian residents should consult with their personal tax advisor to determine their personal reporting obligations.
Stock Exchange Act. From January 1, 2017, a stock exchange tax applies to transactions executed through a non-Belgian financial intermediary. The stock exchange tax will likely apply when Shares are sold. The Recipient should consult with his or her personal tax advisor to determine the Recipient’s obligations with respect to the stock exchange tax.
GERMANY
Notifications
Exchange Control Information. Cross-border payments in excess of €12,500 must be reported monthly to the German Federal Bank. If the Recipient receives a payment in excess of this amount, the Recipient is responsible for electronically reporting to the German Federal Bank by the fifth day of the month following the month in which the payment occurs. The form of the report (Allgemeines Meldeportal Statistik) can be accessed via the German Federal Bank’s website (www.bundesbank.de) and is available in both German and English.
HONG KONG
Terms and Conditions
Share Sale Restriction. Shares received at vesting are accepted as a personal investment. In the event that this Award vests and Shares are issued to the Recipient (or the Recipient’s heirs) within six months of the Grant Date, the Recipient (or the Recipient’s heirs) agrees that the Shares will not be offered to the public or otherwise disposed of prior to the six-month anniversary of the Grant Date.
Notifications
Securities Law Information. WARNING. The contents of this document have not been reviewed by any regulatory authority in Hong Kong. The Recipient is advised to exercise caution in relation to the offer. If the Recipient is in any doubt about any of the contents of this document, the Recipient should obtain independent professional advice. Neither the grant of this Award nor the Shares acquired upon vesting constitutes a public offering of securities under Hong Kong law and is available only to employees of the Company and its
Subsidiaries. This Agreement, the Plan and other incidental communication materials distributed in connection with this Award (i) have not been prepared in accordance with and are not intended to constitute a “prospectus” for a public offering of securities under the applicable securities legislation in Hong Kong, and (ii) are intended only for the personal use of each eligible employee of the Company or its Subsidiaries and may not be distributed to any other person.
ITALY
Terms and Conditions
Plan Document Acknowledgement. In accepting this Award, the Recipient acknowledges that he or she has received a copy of the Plan and the Agreement and has reviewed the Plan and the Agreement in their entirety and fully understands and accepts all provisions of the
Plan and the Agreement. The Recipient further acknowledges that he or she has read and specifically and expressly approves the following sections of this Agreement: Section 1, Section 2, Section 5, Section 11, Section 26, Section 27 and Section 30, as well as the entire Appendix A.
Notifications
Foreign Asset and Account Reporting Information. If the Recipient is an Italian resident and holds investments or financial assets outside of Italy (e.g., cash, Shares) during any fiscal year which may generate income tax liability in Italy, the Recipient is required to report such investments or assets on his or her annual tax return for such fiscal year (on UNICO Form, RW Schedule, or on a special form if the Recipient is not required to file a tax return). These

Exhibit 10.28
reporting obligations will also apply to Italian residents who are the beneficial owners of foreign financial assets under Italian money laundering provisions. The Recipient should consult his or her personal advisor to ensure compliance with applicable reporting obligations.
Foreign Asset Tax. The value of financial assets held outside of Italy by individual residents of Italy is subject to a foreign asset tax. The taxable amount will be the fair market value of the financial assets (e.g., Shares) assessed at the end of the calendar year. The value of the financial assets held abroad must be reported in Form RM of the annual tax return. The Recipient should consult his or her personal tax advisor for additional information about the foreign financial assets tax.
JAPAN
Notifications
Foreign Asset and Account Reporting Information. Japanese residents who hold assets outside of Japan with a value exceeding ¥50,000,000 (as of December 31 each year) are required to comply with annual tax reporting obligations with respect to such assets. Japanese residents are advised to consult with their personal tax advisor to ensure that they are properly complying with applicable reporting requirements.
SINGAPORE
Terms and Conditions
Sale Restriction. The Recipient agrees that any Shares acquired pursuant to the Awards will not be offered for sale in Singapore prior to the six-month anniversary of the Grant Date, unless such sale or offer is made pursuant to the exemptions under Part XIII Division (1) Subdivision (4) (other than section 280) of the Securities and Futures Act (Chapter 289, 2006 Ed.) (“SFA”).
Notifications
Securities Law Information. The grant of this Award is being made pursuant to the “Qualifying Person” exemption under section 273(1)(f) of the SFA under which it is exempt from the prospectus and registration requirements and is not made with a view to the underlying Shares being subsequently offered for sale to any other party. The Plan has not been and will not be lodged or registered as a prospectus with the Monetary Authority of Singapore.
Chief Executive Officer and Director Notification Requirement. The Chief Executive Officer (“CEO”) and the directors of a Singapore Subsidiary are subject to certain notification requirements under the Singapore Companies Act. The CEO and directors must notify the Singapore Subsidiary in writing of an interest (e.g., Awards, Shares) in the Company or any related company within two business days of (i) its acquisition or disposal, (ii) any change in a previously-disclosed interest (e.g., upon vesting of the Award or when Shares acquired under the Plan are subsequently sold), or (iii) becoming the CEO/a director.
SWITZERLAND
Notifications
Securities Law Information. The grant of this Award and any Shares acquired under the Plan are not intended to be publicly offered in or from Switzerland. Neither this document nor any other materials related to this Award (i) constitutes a prospectus as such term is understood pursuant to article 652a of the Swiss Code of Obligations, (ii) may be publicly distributed or otherwise made publicly available in Switzerland, or (iii) have been or will be filed with, approved or supervised by any Swiss regulatory authority (in particular, the Swiss Financial Market Supervisory Authority (FINMA)).
TAIWAN
Notifications
Securities Law Information. The offer of participation in the Plan is available only for employees of the Company and its Subsidiaries. The offer of participation in the Plan is not a public offer of securities by a Taiwanese company.

Exhibit 10.28
Exchange Control Information. Taiwanese residents may acquire and remit foreign currency (including proceeds from the sale of Shares) up to US$5,000,000 per year without justification. If the transaction amount is TWD500,000 or more in a single transaction, the resident must submit a Foreign Exchange Transaction Form and provide supporting documentation to the satisfaction of the remitting bank.
UNITED KINGDOM
Responsibility for Taxes. The following provision supplements Section 9 of the Agreement.
Without limitation to Section 9 of the Agreement, the Recipient agrees that he or she is liable for all Tax-Related Items and hereby covenants to pay all such Tax-Related Items, as and when requested by the Company or the Employer or by Her Majesty’s Revenue and Customs (“HMRC”) (or any other tax authority or any other relevant authority). The Recipient also agrees to indemnify and keep indemnified the Company and the Employer against any Tax-Related Items that they are required to pay or withhold or have paid or will pay to HMRC on the Recipient’s behalf (or any other tax authority or other relevant authority).
Notwithstanding the foregoing, if the Recipient is a director or executive officer of the Company (within the meaning of Section 13(k) of the Exchange Act), the Recipient understands that he or she may not be able to indemnify the Company for the amount of any Tax-Related Items not collected from or paid by the Recipient, if the indemnification could be considered to be a loan. In this case, the Tax-Related Items not collected or paid may constitute a benefit to the Recipient on which additional income tax and National Insurance Contributions (“NICs”) may be payable. The Recipient understands that he or she will be responsible for reporting and paying any income tax due on this additional benefit directly to HMRC under the self-assessment regime and for paying to the Company and/or the Employer (as appropriate) the amount of any NICs due on this additional benefit, which may also be recovered from the Recipient by any of the means referred to in Section 9 of the Agreement.
UNITED STATES – CALIFORNIA
Terms and Conditions
Non-Solicitation; Confidentiality
The following provisions replace Sections 13(a), (b) and (c) of the Agreement in their entirety.
i.While the Recipient is employed by the Company (including its Subsidiaries) and for a period of one (1) year after the Recipient’s Separation from Service for any reason (the “Restricted Period”), the Recipient will not directly or indirectly either alone or in association with others solicit, or permit any organization directly or indirectly controlled by the Recipient to solicit, any employee or independent contractor of II-VI or its Subsidiaries to leave the employ or service of II-VI or its Subsidiaries. The Restricted Period will be tolled during and for any period of time during which the Recipient is in violation of the restrictive covenants contained in this Section 13(a) and for any period of time which may be necessary to secure an order of court or injunction, either preliminary or permanent, to enforce such covenants, such that the cumulative time period during which the Recipient is in compliance with the restrictive covenants contained in this Section 13(a) will not exceed the one (1)-year period set forth above.
ii.The Recipient acknowledges that certain materials, including information, data, technology and other materials relating to customers, programs, costs, marketing, investment, sales activities, promotion, credit and financial data, manufacturing processes, financing methods, plans or the business and affairs of II-VI and its Subsidiaries constitute proprietary confidential information and trade secrets. Accordingly, the Recipient will not at any time during or after the Recipient’s employment with the Company or a Subsidiary disclose or use for the Recipient’s own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise, other than the Company (including its Subsidiaries), any proprietary confidential information or trade secrets; provided that the foregoing shall not apply to information which is not unique to II-VI and its Subsidiaries or which is generally known to the industry or the public other than as a result of the Recipient’s breach of this covenant. The Recipient agrees that, upon the Recipient’s Separation from Service for any reason, the Recipient will immediately return to II-VI all property of II-VI

Exhibit 10.28
and its Subsidiaries including all memoranda, books, technical and/or lab notebooks, customer product and pricing data, papers, plans, information, letters and other data, and all copies thereof or therefrom, which in any way relate to the business of II-VI and its Subsidiaries, except that the Recipient may retain personal items. The Recipient further agrees that the Recipient will not retain or use for the Recipient’s account at any time any trade names, trademark or other proprietary business designation used or owned in connection with the business of II-VI and its Subsidiaries.



Exhibit 21.01



LIST OF SUBSIDIARIES OF II-VI INCORPORATED



Subsidiary Jurisdiction of
Incorporation
CoAdna Photonics, Inc. Delaware
Finisar Corporation Delaware
Finisar Malaysia Sdn. Bhd. Malaysia
Finisar Sherman RE Holdco, LLC Texas
Finisar Wuxi Peoples Republic of China
Fuzhou Photop Optics Co., Ltd. Peoples Republic of China
II-VI Advanced Materials, Inc. Pennsylvania
II-VI Aerospace & Defense, Inc. California
II-VI Compound Semiconductors Limited United Kingdom
II-VI Delaware, Inc. Delaware
II-VI Holdings B.V. Netherlands
II-VI Japan Incorporated Japan
II-VI Laser Enterprise GmbH Switzerland
II-VI Laser Enterprise Ltd. United Kingdom
II-VI Photonics (Shenzhen) Inc. Peoples Republic of China
II-VI Photonics, Inc. Peoples Republic of China
II-VI Singapore Pte., Ltd. Singapore
II-VI Vietnam Co., Ltd. Vietnam
M Cubed Technologies, Inc. Delaware
Marlow Industries, Inc. Texas
Optimal Coatech (Guangzhou) Co., Ltd. Peoples Republic of China
Photop Technologies, Inc. Cayman Islands
Photop Technologies, Inc. California



Exhibit 23.01

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements:

1.Registration Statement (Form S-8 No. 333-12737) pertaining to the II-VI Incorporated Deferred Compensation Plan,
2.Registration Statement (Form S-8 No. 333-129675) pertaining to the II-VI Incorporated 2005 Omnibus Incentive Plan,
3.Registration Statement (Form S-8 No. 333-164827) pertaining to the II-VI Incorporated 2009 Omnibus Incentive Plan,
4.Registration Statement (Form S-8 No. 333-184805) pertaining to the II-VI Incorporated 2012 Omnibus Incentive Plan,
5.Registration Statement (Form S-8 No. 333-199855) pertaining to the Amended and Restated II-VI Incorporated 2012 Omnibus Incentive Plan,
6.Registration Statement (Form S-8 No. 333-228367) pertaining to the II-VI Incorporated 2018 Employee Stock Purchase Plan,
7.Registration Statement (Form S-8 No. 333-228368) pertaining to the II-VI Incorporated 2018 Omnibus Incentive Plan,
8.Registration Statement (Form S-8 No. 333-233949) pertaining to the Amended and Restated Finisar Corporation 2005 Stock Incentive Plan and Finisar Corporation 401(k) Profit Sharing Plan, and
9.Registration Statement (Form S-3 No. 333-239549) pertaining to II-VI Incorporated’s common stock and preferred stock;

of our reports dated August 26, 2020, with respect to the consolidated financial statements and the financial statement schedule of II-VI Incorporated and Subsidiaries and the effectiveness of internal control over financial reporting of II-VI Incorporated and Subsidiaries included in this Annual Report (Form 10-K) of II-VI Incorporated for the year ended June 30, 2020.

/s/ Ernst & Young LLP

Pittsburgh, Pennsylvania
August 26, 2020


Exhibit 31.01
CERTIFICATIONS
I, Vincent D. Mattera Jr., certify that:
1.I have reviewed this Annual Report on Form 10-K of II-VI Incorporated;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 26, 2020
By: /s/ Vincent D. Mattera Jr.
Vincent D. Mattera Jr.
Chief Executive Officer



Exhibit 31.02
CERTIFICATIONS
I, Mary Jane Raymond, certify that:
1.I have reviewed this Annual Report on Form 10-K of II-VI Incorporated;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 26, 2020
By: /s/ Mary Jane Raymond
Mary Jane Raymond
Chief Financial Officer and Treasurer



Exhibit 32.01
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of II-VI Incorporated (the “Corporation”) on Form 10-K for the year ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned officer of the Corporation certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.
Date: August 26, 2020
/s/ Vincent D. Mattera Jr.
Vincent D. Mattera Jr.
Chief Executive Officer
*This certification is made solely for purposes of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose.



Exhibit 32.02
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of II-VI Incorporated (the “Corporation”) on Form 10-K for the year ended June 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned officer of the Corporation certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.
Date: August 26, 2020
/s/ Mary Jane Raymond
Mary Jane Raymond
Chief Financial Officer and Treasurer
*This certification is made solely for purposes of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose.