II-VI INC (Form: 10-Q, Received: 02/08/2012 14:53:50)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2011

¨	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: 0-16195

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 Boulevard Saxonburg, PA		16056
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 724-352-4455

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

At February 1, 2012, 62,819,861 shares of Common Stock, no par value, of the registrant were outstanding.

II-VI INCORPORATED

INDEX


			Page No.

PART I - FINANCIAL INFORMATION

	Item 1.	Financial Statements:

		Condensed Consolidated Balance Sheets – December 31, 2011 and June 30, 2011 (Unaudited)		3

		Condensed Consolidated Statements of Earnings – Three and six months ended December 31, 2011 and 2010 (Unaudited)		4

		Condensed Consolidated Statements of Cash Flows – Six months ended December 31, 2011 and 2010 (Unaudited)		6

		Condensed Consolidated Statement of Shareholders’ Equity – Six months ended December 31, 2011 (Unaudited)		7

		Notes to Condensed Consolidated Financial Statements (Unaudited)		8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk		30

	Item 4.	Controls and Procedures		31

PART II - OTHER INFORMATION

	Item 1A.	Risk Factors		32

	Item 6.	Exhibits		32

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

II-VI Incorporated and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

($000)


	December 31, 2011		June 30, 2011
Assets
Current Assets
Cash and cash equivalents	$	123,833	$	149,460
Short-term investment		594		—
Accounts receivable – less allowance for doubtful accounts of $1,386 at December 31, 2011 and $766 at June 30, 2011		87,608		90,606
Inventories		142,578		126,430
Deferred income taxes		9,596		8,215
Prepaid and refundable income taxes		4,822		8,606
Prepaid and other current assets		9,708		12,223

Total Current Assets		378,739		395,540
Property, plant & equipment, net		150,000		138,135
Goodwill		84,785		64,262
Other intangible assets, net		42,819		28,732
Investments		15,938		15,458
Deferred income taxes		71		3
Other assets		6,145		5,072

Total Assets	$	678,497	$	647,202


Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable	$	26,581	$	25,065
Accrued compensation and benefits		25,162		33,889
Accrued income tax payable		2,251		5,290
Deferred income taxes		59		141
Other accrued liabilities		23,868		22,853
Current portion of long-term debt		3,888		3,729

Total Current Liabilities		81,809		90,967
Long-term debt		17,000		15,000
Deferred income taxes		4,968		6,641
Other liabilities		11,239		11,493

Total Liabilities		115,016		124,101

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 – 69,230,492 shares at December 31, 2011; 69,077,492 shares at June 30, 2011		168,902		159,186
Accumulated other comprehensive income		13,713		13,116
Retained earnings		410,231		378,365

		592,846		550,667
Treasury stock, at cost, 6,492,211 shares at December 31, 2011 and 6,393,659 shares at June 30, 2011		30,259		28,293

Total II-VI Incorporated Shareholders’ Equity		562,587		522,374
Noncontrolling Interest		894		727

Total Shareholders’ Equity		563,481		523,101

Total Liabilities and Shareholders’ Equity	$	678,497	$	647,202

- See notes to condensed consolidated financial statements.

II-VI Incorporated and Subsidiaries

Condensed Consolidated Statements of Earnings (Unaudited)

($000 except per share data)


	Three Months Ended December 31,
	2011			2010

Revenues (including contract research and development)
Domestic	$	50,156		$	48,764
International		76,601			72,123

Total Revenues		126,757			120,887


Costs, Expenses and Other Expense (Income)
Cost of goods sold (including contract research and development)		83,289			70,851
Internal research and development		5,016			3,357
Selling, general and administrative		24,214			21,991
Interest expense		77			25
Other expense (income), net		(1,506	)		460

Total Costs, Expenses, and Other Expense (Income)		111,090			96,684


Earnings Before Income Taxes		15,667			24,203

Income Taxes		2,147			4,948


Net Earnings		13,520			19,255
Less: Net Earnings Attributable to Noncontrolling Interest		233			98

Net Earnings Attributable to II-VI Incorporated	$	13,287		$	19,157


Net Earnings Attributable to II-VI Incorporated: Basic Earnings Per Share:	$	0.21		$	0.31
Net Earnings Attributable to II-VI Incorporated: Diluted Earnings Per Share:	$	0.21		$	0.30

- See notes to condensed consolidated financial statements.

II-VI Incorporated and Subsidiaries

Condensed Consolidated Statements of Earnings (Unaudited)

($000 except per share data)


	Six Months Ended December 31,
	2011			2010

Revenues (including contract research and development)
Domestic	$	105,725		$	98,002
International		159,405			143,019

Total Revenues		265,130			241,021


Costs, Expenses and Other Expense (Income)
Cost of goods sold (including contract research and development)		166,652			141,749
Internal research and development		10,179			7,203
Selling, general and administrative		51,026			44,720
Interest expense		136			55
Other expense (income), net		(3,136	)		(1,602	)

Total Costs, Expenses, and Other Expense (Income)		224,857			192,125


Earnings Before Income Taxes		40,273			48,896

Income Taxes		8,039			11,240


Net Earnings		32,234			37,656
Less: Net Earnings Attributable to Noncontrolling Interest		368			132

Net Earnings Attributable to II-VI Incorporated	$	31,866		$	37,524


Net Earnings Attributable to II-VI Incorporated: Basic Earnings Per Share:	$	0.51		$	0.61
Net Earnings Attributable to II-VI Incorporated: Diluted Earnings Per Share:	$	0.50		$	0.59

- See notes to condensed consolidated financial statements.

II-VI Incorporated and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

($000)


	Six Months Ended December 31,
	2011			2010
Cash Flows from Operating Activities
Net earnings	$	32,234		$	37,656
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation		14,784			12,471
Amortization		2,048			1,208
Share-based compensation expense		7,176			5,956
Impairment of property, plant and equipment		434			—
Loss (gain) on foreign currency remeasurements and transactions		(595	)		(153	)
Earnings from equity investments		(484	)		(174	)
Gain from sale of equity investment		—			(168	)
Deferred income taxes		(433	)		(2,685	)
Excess tax benefits from share-based compensation expense		(122	)		(1,813	)
Increase (decrease) in cash from changes in:
Accounts receivable		7,694			(3,833	)
Inventories		(14,501	)		(16,627	)
Accounts payable		1,464			(1,275	)
Income taxes		797			2,320
Other operating net assets		(7,583	)		129

Net cash provided by operating activities		42,913			33,012


Cash Flows from Investing Activities
Additions to property, plant & equipment		(23,068	)		(14,668	)
Purchase of businesses, net of cash acquired		(46,141	)		(12,813	)
Investments in unconsolidated business		—			(1,180	)
Proceeds from the collection of notes receivable		—			2,000
Other investing activities		24			240

Net cash used in investing activities		(69,185	)		(26,421	)


Cash Flows from Financing Activities
Proceeds from long-term borrowings		7,000			—
Payment on long-term borrowings		(6,295	)		—
Proceeds from exercises of stock options		452			3,278
Excess tax benefits from share-based compensation expense		122			1,813

Net cash provided by financing activities		1,279			5,091


Effect of exchange rate changes on cash and cash equivalents		(634	)		(434	)

Net (decrease) increase in cash and cash equivalents		(25,627	)		11,248

Cash and Cash Equivalents at Beginning of Period		149,460			108,026

Cash and Cash Equivalents at End of Period	$	123,833		$	119,274


Cash paid for interest	$	119		$	44
Cash paid for income taxes	$	7,602		$	11,428

- See notes to condensed consolidated financial statements.

II-VI Incorporated and Subsidiaries

Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)

(000)


	Common Stock				Accumulated Other Comprehensive		Retained Earnings		Treasury Stock						Non-Controlling
	Shares		Amount		Income		Retained Earnings		Shares			Amount			Interests			Total

BALANCE – JUNE 30, 2011		69,077	$	159,186	$	13,116	$	378,365		(6,394	)	$	(28,293	)	$	727		$	523,101

Shares issued under share-based compensation plans		153		452		—		—		—			—			—			452
Share-based compensation expense		—		7,176		—		—		—			—			—			7,176
Net earnings		—		—		—		31,866		—			—			368			32,234
Treasury stock under deferred compensation arrangements		—		1,966		—		—		(98	)		(1,966	)		—			—
Excess tax benefits from share-based compensation		—		122		—		—		—			—			—			122
Distribution of noncontrolling interests		—		—		—		—		—			—			(202	)		(202	)
Foreign currency translation adjustment		—		—		597		—		—			—			1			598

BALANCE – DECEMBER 31, 2011		69,230	$	168,902	$	13,713	$	410,231		(6,492	)	$	(30,259	)	$	894		$	563,481

- See notes to condensed consolidated financial statements.

II-VI Incorporated and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1.

Basis of Presentation

The condensed consolidated financial statements of II-VI Incorporated (sometimes referred to herein as “II-VI” or the “Company”) for the three and six months ended December 31, 2011 and 2010 are unaudited. In the opinion of management, all adjustments considered necessary for a fair presentation for the periods presented have been included. All adjustments are of a normal recurring nature unless disclosed otherwise. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended June 30, 2011. The consolidated results of operations for the three and six months ended December 31, 2011 are not necessarily indicative of the results to be expected for the full fiscal year. The June 30, 2011 Condensed Consolidated Balance Sheet information was derived from the Company’s audited financial statements. Effective July 1, 2011, the Company renamed its former Compound Semiconductor Group reporting segment the Advanced Products Group. This name change has been reflected in this Form 10-Q and had no financial impact on the Company’s consolidated financial statements and footnote disclosures.

Note 2.

Recent Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update related to goodwill impairment testing. The objective of the accounting standard update is to simplify how entities test goodwill for impairment by permitting an assessment of qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. This update also allows entities an unconditional option to bypass this qualitative assessment and proceed directly to performing the first step of the goodwill impairment test. An entity may resume performing the qualitative assessment in any subsequent period. This accounting standard update is effective for annual and interim goodwill impairment tests performed for fiscal years beginning on or after December 15, 2011, with early adoption permitted. The Company is currently assessing the impact of this update but does not expect it to have a significant impact on the consolidated financial statements.

In June 2011, the FASB issued changes to the presentation of comprehensive income which requires entities to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Additionally, these changes require an entity to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statements where the components of net income and the components of other comprehensive income are presented. The option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity, which is the method of presentation used by the Company, will no longer be permitted. In addition, these changes will have no impact on the calculation and presentation of earnings per share. This guidance, as amended in December 2011, with retrospective application, becomes effective for the Company for interim and annual periods beginning in fiscal year 2013. Other than the change in presentation, these changes will not have an impact on the consolidated financial statements.

In May 2011, the FASB issued an accounting standard update on fair value measurement and disclosure requirements. The update amends certain fair value measurement guidance and expands disclosure requirements primarily for fair value measurements utilizing significant unobservable inputs (Level 3) and items not measured at fair value but for which fair value must be disclosed. This update becomes effective for the Company for interim and annual reporting periods beginning in the third quarter of fiscal year 2012. The adoption of this standard is not expected to have a significant impact on the Company’s consolidated financial statements.

In January 2010, the FASB issued amended standards requiring additional fair value disclosures. The amended standards require disclosures of transfers in and out of Levels 1 and 2 of the fair value hierarchy, as well as requiring gross basis disclosures for purchases, sales, issuances and settlements within the Level 3 reconciliation. Additionally, the update clarifies the requirement to determine the level of disaggregation for fair value measurement disclosures and to disclose valuation techniques and inputs used for both recurring and nonrecurring fair value measurements in either Level 2 or Level 3. The Company adopted the new guidance in the third quarter of fiscal 2010, except for the disclosures related to purchases, sales,

issuance and settlements, which was adopted in the first quarter of fiscal 2012. Because these new standards are related primarily to disclosures, their adoption did not have a significant impact on the Company’s consolidated financial statements.

Note 3.

Stock Split

On May 17, 2011, the Company’s Board of Directors declared a two-for-one stock split, in the form of a stock dividend, of the Company’s common stock for shareholders of record on June 3, 2011. The stock split was distributed on June 24, 2011, issuing one additional share of common stock for every share of common stock held. The applicable share and per share data for all periods included herein have been restated to give effect to this stock split.

Note 4.

Acquisitions

Aegis Lightwave, Inc.

In July 2011, the Company acquired all of the outstanding shares of Aegis Lightwave, Inc. (“Aegis”), a privately-held company based in Woburn, Massachusetts with additional locations in New Jersey and Australia, for approximately $46.1 million, net of cash acquired of $8.4 million. Aegis supplies tunable optical devices required for high speed optical networks that provide the bandwidth expansion necessary for increasing Internet traffic. As a result of the acquisition, the Company will enhance its product portfolio for the increasing deployments of 40G and 100G in flexible and reconfigurable optical networks, including those aimed at delivering fiber to the home services over passive optical networks. Aegis will work cooperatively with Photop Technologies, Inc. (“Photop”) to achieve synergies by leveraging and expanding combined optical communication product offerings around the world. The Company is in the process of completing its fair market valuation, including the valuation of certain tangible and intangible assets. The following table presents the preliminary allocation of the purchase price of the assets acquired and liabilities assumed at the date of acquisition, as the Company intends to finalize its accounting for the acquisition of Aegis during fiscal year 2012 ($000):


Assets
Short-term investment	$	565
Accounts receivable, net		4,572
Inventories		2,853
Prepaid and other assets		238
Deferred income taxes		9,976
Property, plant & equipment		2,933
Intangible assets		15,792
Goodwill		20,016


Total assets acquired	$	56,945


Liabilities
Accounts payable	$	1,375
Deferred income taxes		6,294
Long-term debt		1,295
Other accrued liabilities		1,840


Total liabilities assumed	$	10,804


Net assets acquired	$	46,141

The goodwill of Aegis of approximately $20.0 million is included in the Near-Infrared Optics segment and is attributed to the expected synergies and the assembled workforce of Aegis. None of the goodwill is deductible for income tax purposes. The approximately $10.0 million of deferred tax assets of Aegis are primarily related to net operating loss and tax credit carryforwards. The Company has considered any carryforward limitations and expirations and expects to fully utilize these carryforwards to offset future income taxes.

The amount of revenues and earnings of Aegis included in the Company’s Condensed Consolidated Statement of Earnings for the three and six months ended December 31, 2011 were revenues of $3.0 million and $7.8 million, respectively, and net losses of $1.4 million and $1.7 million, respectively. In conjunction with the acquisition of Aegis, the Company incurred approximately $0.9 million of transaction costs, which were expensed in fiscal year 2011 in accordance with current accounting standards.

The following unaudited pro-forma consolidated results of operations for fiscal year 2011 have been prepared as if the acquisition of Aegis had occurred on July 1, 2010, the beginning of the Company’s fiscal year 2011, which is the fiscal year prior to acquisition ($000 except per share data).


	Three Months Ended December 31,				Six Months Ended December 31,
	2011		2010		2011		2010
Net revenues	$	126,757	$	129,644	$	265,130	$	256,648
Net earnings attributable to II-VI Incorporated		13,287		21,125		31,866		41,120
Basic earnings per share		0.21		0.34		0.51		0.65
Diluted earnings per share		0.21		0.33		0.50		0.63

The pro-forma results are not necessarily indicative of what actually would have occurred if the transaction had taken place at the beginning of the period, are not intended to be a projection of future results and do not reflect any cost savings that might be achieved from the combined operations.

Max Levy Autograph, Inc.

In December 2010, the Company acquired all of the outstanding shares of Max Levy Autograph, Inc. (“MLA”), a privately-held company based in Philadelphia, Pennsylvania, for approximately $12.8 million, net of cash acquired. MLA manufactures micro-fine conductive mesh patterns for optical, mechanical and ceramic components for applications such as circuitry, metrology standards, targeting calibration and suppression of electro-magnetic interference. As a result of the acquisition, the companies have combined efforts to enhance product offerings for their military-based customers. The following table presents the allocation of the purchase price of the assets acquired and liabilities assumed at the date of acquisition ($000):


Assets
Accounts receivable, net	$	586
Inventories		275
Prepaid and other current assets		91
Deferred income taxes		171
Property, plant and equipment		2,845
Intangible assets		5,610
Goodwill		6,485


Total assets acquired	$	16,063


Liabilities
Accounts payable	$	154
Deferred income taxes		2,625
Other accrued liabilities		471


Total liabilities assumed	$	3,250


Net assets acquired	$	12,813

The goodwill of MLA of approximately $6.5 million is included in the Military & Materials segment. The goodwill recognized is attributed to the expected synergies and the assembled workforce of MLA. None of the goodwill is deductible for income tax purposes.

The operating results of MLA since the date of acquisition have been included in the Company’s results of operations in the Company’s Military & Materials segment and are insignificant. Pro-forma financial information has not been provided for the acquisition of MLA as it was not material to the Company’s overall financial results of operations.

Note 5.

Investments

Langfang Haobo Diamond Co., Ltd.

In July 2009, the Company acquired a 40% non-controlling interest in Langfang Haobo Diamond Co. Ltd. (“Haobo”) to form a joint venture in Beijing, China. The total carrying value of the investment recorded as of December 31, 2011 and June 30, 2011 was $5.1 million and $5.3 million, respectively. This investment is accounted for under the equity method of accounting. During the three and six months ended December 31, 2011 and 2010, the Company’s pro-rata share of losses from this investment was immaterial.

Fuxin Electronic Technology Company

The Company has a total equity investment in Fuxin of 20.2%, which is accounted for under the equity method of accounting. The total carrying value of the investment recorded at December 31, 2011 and June 30, 2011 was $10.8 million and $10.1 million, respectively. During the three and six months ended December 31, 2011, the Company’s pro-rata share of earnings from this investment was $0.3 million and $0.7 million, respectively, and was recorded in other expense (income), net in the Condensed Consolidated Statements of Earnings. During the three and six months ended December 31, 2010, the Company’s pro-rata share of earnings from this investment was $0.1 million and $0.4 million, respectively, and was recorded in other expense (income), net in the Condensed Consolidated Statements of Earnings.

Note 6.

Inventories

The components of inventories for the periods indicated were as follows ($000):


	December 31, 2011		June 30, 2011

Raw materials	$	59,693	$	53,108
Work in progress		41,008		36,265
Finished goods		41,877		37,057


	$	142,578	$	126,430

Note 7.

Property, Plant and Equipment

Property, plant and equipment for the periods indicated consist of the following ($000):


	December 31, 2011			June 30, 2011

Land and land improvements	$	2,150		$	2,043
Buildings and improvements		74,746			72,474
Machinery and equipment		219,030			197,136
Construction in progress		13,530			12,862

		309,456			284,515
Less accumulated depreciation		(159,456	)		(146,380	)


	$	150,000		$	138,135

Note 8.

Goodwill and Intangible Assets

Changes in the carrying amount of goodwill are as follows for the six months ended December 31, 2011 ($000):


	Six Months Ended December 31, 2011
	Infrared Optics			Near- Infrared Optics		Military & Materials		Advanced Products Group		Total

Balance – beginning of period	$	10,038		$	33,511	$	10,399	$	10,314	$	64,262
Goodwill acquired – Aegis		—			20,016		—		—		20,016
Foreign currency translation		(342	)		849		—		—		507


Balance – end of period	$	9,696		$	54,376	$	10,399	$	10,314	$	84,785

In connection with the acquisition of Aegis in July 2011, the Company recorded the excess purchase price over the net assets of the business acquired as goodwill in the accompanying December 31, 2011 Condensed Consolidated Balance Sheet, which was based on the preliminary purchase price allocation. The Company intends to finalize its accounting for the acquisition of Aegis during fiscal year 2012.

The Company reviews the recoverability of goodwill at least annually and any time business conditions indicate a potential change in recoverability. 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 model (“DCF model”) and a market analysis to determine the current fair value of its reporting units. A number of significant 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. However, actual fair values that could be realized could differ from those used to evaluate the impairment of goodwill.

The gross carrying amount and accumulated amortization of the Company’s intangible assets other than goodwill as of December 31, 2011 and June 30, 2011 was as follows ($000):


	December 31, 2011							June 30, 2011
	Gross Carrying Amount		Accumulated Amortization			Net Book Value		Gross Carrying Amount		Accumulated Amortization			Net Book Value

Patents	$	21,502	$	(6,751	)	$	14,751	$	16,009	$	(5,843	)	$	10,166
Trademarks		13,187		(851	)		12,336		11,074		(811	)		10,263
Customer Lists		22,652		(6,920	)		15,732		14,327		(6,024	)		8,303
Other		1,387		(1,387	)		—		1,387		(1,387	)		—

Total	$	58,728	$	(15,909	)	$	42,819	$	42,797	$	(14,065	)	$	28,732

In connection with the acquisition of Aegis, the Company recorded identifiable intangible assets of $15.8 million as a result of the preliminary valuation. The Company intends to finalize its identifiable intangible asset valuation for Aegis during fiscal year 2012.

Amortization expense recorded on these intangible assets was $1.0 million and $2.0 million, for the three and six months ended December 31, 2011, respectively, and was $0.6 million and $1.2 million for the three and six months ended December 31, 2010, respectively. The patents are being amortized over a range of 120 to 240 months with a weighted average remaining life of approximately 127 months. The customer lists are being amortized over approximately 120 months with a weighted average remaining life of approximately 102 months. The gross carrying amount of trademarks includes $11.4 million of acquired trade names resulting from the acquisitions of Marlow Industries, Inc., Photop, MLA and Aegis. These trade names have indefinite lives and are not amortized but tested annually for impairment or more frequently if a triggering event occurs. Included in the gross carrying amount and accumulated amortization of the Company’s intangible assets is the effect of foreign currency translation of the portion relating to the Company’s German subsidiaries and Photop.

At December 31, 2011, the estimated amortization expense for existing intangible assets for each of the five succeeding fiscal years is as follows ($000):


Year Ending June 30,

Remaining 2012	$	2,107
2013		3,749
2014		3,371
2015		3,115
2016		3,048

Note 9.

Debt

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


	December 31, 2011		June 30, 2011
Line of credit, interest at the LIBOR Rate, as defined, plus 0.625%	$	17,000	$	15,000
Yen denominated term note, interest at the Japanese Yen Base Rate, as defined, plus 1.49%		3,888		3,729

Total debt		20,888		18,729
Current portion of long-term debt		3,888		3,729

Long-term debt, less current portion	$	17,000	$	15,000

The Company’s credit facility is a $50.0 million unsecured line of credit which, under certain conditions, may be expanded to $80.0 million. The credit facility has a five-year term through June 2016 and has an interest rate of LIBOR, as defined in the agreement, plus 0.625% to 1.50%. Additionally, the facility is subject to certain covenants, including those relating to minimum interest coverage and maximum leverage ratios. As of December 31, 2011, the Company was in compliance with all financial covenants. The Company had available $32.1 million and $34.1 million under its line of credit as of December 31, 2011 and June 30, 2011, respectively. The amounts available under the Company’s line of credit are reduced by outstanding letters of credit. As of December 31, 2011 and June 30, 2011, total outstanding letters of credit supported by the credit facilities were $0.9 million.

At December 31, 2011 and June 30, 2011, the Company had 300 million Yen borrowed under its Yen loan. Interest is at a rate equal to the Japanese Yen Base Rate, as defined in the loan agreement, plus 1.49%. The Japanese Yen Base Rate was 0.33% and 0.35% at December 31, 2011 and June 30, 2011, respectively.

The weighted average interest rate of total borrowings was 1.03% and 1.02%, respectively, for the three and six months ended December 31, 2011. The weighted average of total borrowings was $24.0 million and $22.8 million, respectively, for the three and six months ended December 31, 2011.

Note 10.

Income Taxes

The Company’s year-to-date effective income tax rate at December 31, 2011 is 20.0% compared to an effective income tax rate of 23.0% for the same period last fiscal year. The variation between the Company’s effective tax rate and the U.S. statutory rate of 35.0% is primarily due to the consolidation of the Company’s foreign operations, which are subject to income taxes at lower statutory rates. A change in the mix of pretax income from these various tax jurisdictions could have a material impact on our periodic effective tax rate. During the three months ended December 31, 2011, certain of the Company’s Photop subsidiaries received notification of approval of high-technology status in China for calendar year 2011 through 2013. As a result, these subsidiaries will be subject to a preferential income tax rate of 15% for these periods, resulting in an income tax benefit of $1.3 million that was recorded in the quarter ended December 31, 2011.

U.S. GAAP clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.

As of December 31, 2011 and June 30, 2011, the gross unrecognized income tax benefit was $3.7 million and $5.0 million, 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. If recognized, substantially all of the gross unrecognized tax benefits at December 31, 2011 would impact the effective tax rate. The Company recognizes interest and penalties related to uncertain tax positions in the income tax provision on the Condensed Consolidated Statements of Earnings. Included in the $3.7 million and $5.0 million of gross unrecognized income tax benefit at December 31, 2011 and June 30, 2011, was $0.2 million of accrued interest and penalties. The Company expects a decrease of approximately $0.9 million of unrecognized tax benefits within the next twelve months.

Fiscal years 2008, 2010 and 2011 remain open to examination by the United States Internal Revenue Service, fiscal years 2007 to 2011 remain open to examination by certain state jurisdictions, and fiscal years 2005 to 2011 remain open to examination by certain foreign taxing jurisdictions. During the three months ended December 31, 2011, the examination by the United States Internal Revenue Service of the Company’s fiscal year 2009 federal income tax return was closed with no significant findings. As a result, the Company recorded an income tax benefit of $0.7 million from the reversal of a tax liability related to uncertain tax positions related to fiscal year 2009. The Company’s fiscal years 2007, 2008, and 2009 California state income tax returns are under examination by the State of California’s Franchise Tax Board.

Note 11.

Earnings Per Share

The following table sets forth the computation of earnings per share attributable to II-VI Incorporated for the periods indicated. Weighted average shares issuable upon the exercises of stock options that were not included in the calculation were approximately 147,000 and 209,000 for the three and six months ended December 31, 2011, respectively, and 234,000 and 364,000 for the three and six months ended December 31, 2010, respectively, because they were anti-dilutive ($000 except per share data):


	Three Months Ended December 31,				Six Months Ended December 31,
	2011		2010		2011		2010
Net earnings attributable to II-VI Incorporated	$	13,287	$	19,157	$	31,866	$	37,524
Divided by:
Weighted average shares		62,720		62,078		62,709		61,944


Basic earnings attributable to II-VI Incorporated per common share	$	0.21	$	0.31	$	0.51	$	0.61

Net earnings attributable to II-VI Incorporated	$	13,287	$	19,157	$	31,866	$	37,524
Divided by:
Weighted average shares		62,720		62,078		62,709		61,944
Dilutive effect of common stock equivalents		1,474		1,702		1,457		1,546

Diluted weighted average common shares		64,194		63,780		64,166		63,490


Diluted earnings attributable to II-VI Incorporated per common share	$	0.21	$	0.30	$	0.50	$	0.59

Note 12.

Segment Reporting

The Company reports its business segments using the “management approach” model for segment reporting. 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.

The Company has four reportable segments. The Company’s chief operating decision maker receives and reviews financial information in this format. The Company evaluates business segment performance based upon reported business segment earnings, which is defined as earnings before income taxes, interest and other income or expense. The segments are managed separately due to the production requirements and facilities that are unique to each segment. The Company has the following reportable segments at December 31, 2011: (i) Infrared Optics, which is the Company’s infrared optics and material products businesses, HIGHYAG Lasertechnologie GmbH (“HIGHYAG”) and remaining corporate activities, primarily corporate assets and capital expenditures; (ii) Near-Infrared Optics, which is the Company’s VLOC Incorporated subsidiary, and Vietnam near-infrared operations, Photop, and Aegis; (iii) Military & Materials, which is the Company’s Exotic Electro-Optics, Inc. (“EEO”) subsidiary, Pacific Rare Specialty Metals & Chemicals, Inc. subsidiary (“PRM”), and MLA; and (iv) Advanced Products Group (formerly the Compound Semiconductor Group), which is comprised of the Company’s Marlow Industries, Inc. (“Marlow”) subsidiary, the Wide Bandgap Materials Group (“WBG”) and the Worldwide Materials Group (“WMG”); WMG is responsible for the corporate research and development activities.

The Infrared Optics segment is divided into geographic locations in the U.S., Singapore, China, Germany, Switzerland, Japan, Belgium, the U.K. and Italy. The Infrared Optics segment is directed by a general manager, while each geographic location is also directed by a general manager, and is further divided into production and administrative units that are directed by managers. The Infrared Optics segment designs, manufactures and markets optical and electro-optical components and materials sold under the II-VI brand name and used primarily in high-power CO ₂ lasers. The Infrared Optics segment also manufactures fiber-delivered beam delivery systems and processing tools for industrial lasers sold under the HIGHYAG brand name.

The Near-Infrared Optics segment is located in the U.S., China, Vietnam, Australia, Germany, Japan, the U.K., Italy, and Hong Kong. The Near-Infrared Optics segment is directed by a Corporate Executive Vice President and is further divided into production and administrative units that are directed by managers. The Near-Infrared Optics segment manufactures crystal materials, optics, microchip lasers and optoelectronic modules for use in optical communication networks and other diverse consumer and commercial applications sold under the Photop brand name and manufactures tunable optical devices and couplers and combiners required for high speed optical networks sold under the Aegis and AOFR brand names, respectively. The Near-Infrared Optics segment also designs, manufactures and markets near-infrared and visible-light products for industrial, scientific, military and medical instruments and laser gain material and products for solid-state yttrium aluminum garnet (“YAG”) lasers, yttrium lithium fluoride (“YLF”) lasers and Ultra-Violet (“UV”) Filter components sold under the VLOC brand name.

The Military & Materials segment is located in the U.S. and the Philippines. The Military & Materials segment is directed by a Corporate Vice President, while each geographic location is directed by a general manager. The Military & Materials segment is further divided into production and administrative units that are directed by managers. The Military & Materials segment designs, manufactures and markets infrared products for military applications under the EEO brand name, refines specialty metals, primarily selenium and tellurium under the PRM brand name, and manufactures and markets micro-fine conductive mesh patterns for optical, mechanical, and ceramic components for applications under the MLA brand name.

The Advanced Products Group is located in the U.S., Japan, China, Vietnam and Germany and is directed by a Corporate Executive Vice President. In the Advanced Products Group segment, Marlow designs and manufactures thermoelectric cooling and power generation solutions for use in defense and space, telecommunications, medical, consumer and industrial markets. The WBG Group manufactures and markets single crystal silicon carbide substrates for use in solid-state lighting, wireless infrastructure, radio frequency (“RF”) electronics and power switching industries. The WMG Group directs the corporate research and development initiatives.

The accounting policies of the segments are the same as those of the Company. All of the Company’s corporate expenses are allocated to the segments. The Company evaluates segment performance based upon reported segment earnings, which is defined as earnings before income taxes, interest and other income or expense. Inter-segment sales and transfers have been eliminated.

In July 2011, the Company completed its acquisition of Aegis. See “Note 4. Acquisitions.” Aegis is combined with the Company’s Near-Infrared Optics segment for financial reporting purposes. Segment earnings for the Near-Infrared Optics segment include the operating results of Aegis for the three and six months ended December 31, 2011.

In December 2010, the Company completed its acquisition of MLA. See “Note 4. Acquisitions.” MLA is combined with the Company’s Military & Materials segment for financial reporting purposes. Segment earnings for the Military & Materials segment include the operating results of MLA for the three and six months ended December 31, 2011, and for one month only, for the three and six months ended December 31, 2010.

The following table summarizes selected financial information of the Company’s operations for the periods indicated by segment ($000):

		Eliminatio		Eliminatio		Eliminatio			Eliminatio		Eliminatio			Eliminatio
	Three Months Ended December 31, 2011
	Infrared Optics		Near- Infrared Optics		Military & Materials			Advanced Products Group		Eliminations			Total
Revenues	$	46,762	$	39,468	$	23,703		$	16,824	$	—		$	126,757
Inter-segment revenues		1,046		190		2,629			1,133		(4,998	)		—
Segment earnings (loss)		11,470		1,684		(386	)		1,470		—			14,238
Interest expense		—		—		—			—		—			(77	)
Other income, net		—		—		—			—		—			1,506
Income taxes		—		—		—			—		—			(2,147	)
Net earnings		—		—		—			—		—			13,520
Depreciation and amortization		2,139		4,349		991			1,043		—			8,522
Segment assets		206,543		277,875		90,573			103,506		—			678,497
Expenditures for property, plant and equipment		2,127		3,011		2,104			3,114		—			10,356
Equity investments		—		—		—			15,938		—			15,938
Goodwill		9,696		54,376		10,399			10,314		—			84,785

		Eliminations		Eliminations		Eliminations		Eliminations		Eliminations			Eliminations
	Three Months Ended December 31, 2010
	Infrared Optics		Near- Infrared Optics		Military & Materials		Advanced Products Group		Eliminations			Total
Revenues	$	40,642	$	41,418	$	19,467	$	19,360	$	—		$	120,887
Inter-segment revenues		857		72		1,444		1,010		(3,383	)		—
Segment earnings		9,420		8,068		3,425		3,775		—			24,688
Interest expense		—		—		—		—		—			(25	)
Other expense, net		—		—		—		—		—			(460	)
Income taxes		—		—		—		—		—			(4,948	)
Net earnings		—		—		—		—		—			19,255
Depreciation and amortization		2,065		3,346		622		812		—			6,845
Segment assets		213,072		195,902		71,088		86,773		—			566,835
Expenditures for property, plant and equipment		1,799		3,845		1,441		2,302		—			9,387
Equity investments		—		—		—		15,436		—			15,436
Goodwill		9,800		32,364		13,657		10,314		—			66,135

		Eliminations		Eliminations		Eliminations		Eliminations		Eliminations			Eliminations
	Six Months Ended December 31, 2011
	Infrared Optics		Near- Infrared Optics		Military & Materials		Advanced Products Group		Eliminations			Total
Revenues	$	97,558	$	77,578	$	47,362	$	42,632	$	—		$	265,130
Inter-segment revenues		1,704		412		4,381		1,917		(8,414	)		—
Segment earnings		23,827		3,392		2,576		7,478		—			37,273
Interest expense		—		—		—		—		—			(136	)
Other income, net		—		—		—		—		—			3,136
Income taxes		—		—		—		—		—			(8,039	)
Net earnings		—		—		—		—		—			32,234
Depreciation and amortization		4,334		8,564		1,954		1,980		—			16,832
Expenditures for property,plant and equipment		3,827		8,751		4,092		6,398		—			23,068

		Eliminations		Eliminations		Eliminations		Eliminations		Eliminations			Eliminations
	Six Months Ended December 31, 2010
	Infrared Optics		Near- Infrared Optics		Military & Materials		Advanced Products Group		Eliminations			Total
Revenues	$	81,868	$	78,363	$	39,602	$	41,188	$	—		$	241,021
Inter-segment revenues		1,371		122		2,785		2,076		(6,354	)		—
Segment earnings		18,068		14,949		7,146		7,186		—			47,349
Interest expense		—		—		—		—		—			(55	)
Other income, net		—		—		—		—		—			1,602
Income taxes		—		—		—		—		—			(11,240	)
Net earnings		—		—		—		—		—			37,656
Depreciation and amortization		4,096		6,758		1,200		1,625		—			13,679
Expenditures for property,plant and equipment		2,585		5,273		2,870		3,940		—			14,668

Note 13.

Share-Based Compensation

The Compensation Committee of the Board of Directors of the Company grants employee stock option awards, restricted share awards and performance share awards under the Company’s 2009 Omnibus Incentive Plan (the “Plan”). The Company records share-based compensation expense for these awards in accordance with U.S. GAAP which requires the recognition of the 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. During the three and six months ended December 31, 2011, the Company recorded $2.6 million and $7.2 million, respectively, of share-based compensation expense in its Condensed Consolidated Statements of Earnings. During the three and six months ended December 31, 2010, the Company recorded $2.2 million and $6.0 million, respectively, of share-based compensation expense in its Condensed Consolidated Statements of Earnings. The share-based compensation expense is allocated approximately 20% to cost of goods sold and 80% to selling, general and administrative expense in the Condensed Consolidated Statements of Earnings based on the employee classification of the grantees.

Stock Options:

The Company utilizes the Black-Scholes valuation model for estimating the fair value of stock option awards. During the three and six months ended December 31, 2011, the weighted-average fair values of options granted under the Plan were $8.33 and $9.33 per option, respectively, and $9.97 and $8.39 per option for the three and six months ended December 31, 2010, respectively, using the following assumptions:


	Three Months Ended December 31, 2011			Three Months Ended December 31, 2010			Six Months Ended December 31, 2011			Six Months Ended December 31, 2010
Risk free interest rate		0.78	%		2.00	%		1.06	%		2.06	%
Expected volatility		49	%		46	%		59	%		47	%
Expected life of options		4.53 years			6.50 years			5.50 years			6.59 years
Dividend yield		None			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 periods. Expected volatility is based on the historical volatility of the Company’s Common Stock over the period commensurate with the expected life of the options. The expected life calculation is based on the observed and expected time to post-vesting exercises and 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 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 and are generally estimated at a rate of 16%. The Company will record additional expense in future periods if the actual forfeiture rate is lower than estimated, and will record a recovery of prior expense if the actual forfeiture rate is higher than estimated. Generally, twenty percent of each stock option award may be exercised one year from the date of grant with comparable annual increases on a cumulative basis each year thereafter. The stock option plan also has vesting provisions predicated upon the death, retirement or disability of the grantee. Included in the $2.6 million and $7.2 million of share-based compensation expense for the three and six months ended December 31, 2011, was $1.1 million and $4.0 million, respectively, of share-based compensation expense related to stock option awards. Included in the $2.2 million and $6.0 million of share-based compensation expense for the three and six months ended December 31, 2010, was $1.3 million and $4.0 million, respectively, of share-based compensation expense related to stock option awards.

Restricted Share Awards:

The restricted share awards compensation expense was calculated based on the number of shares expected to be earned by the grantee multiplied by the stock price at the date of grant and is being recognized over the vesting period. Generally, the restricted share awards have a three year cliff-vesting provision and an estimated forfeiture rate of 7.5%. Included in the $2.6 million and $7.2 million of share-based compensation expense for the three and six months ended December 31, 2011, was $0.7 million and $1.5 million, respectively, of share-based compensation expense related to restricted share awards. Included in the $2.2 million and $6.0 million of share-based compensation expense for the three and six months ended December 31, 2010, was $0.3 million and $0.7 million, respectively, of share-based compensation expense related to restricted share awards.

Performance Share Awards:

The Compensation Committee granted certain named executive officers and employees performance share awards under the Plan. During the three and six months ended December 31, 2011, the Company had three outstanding performance share grants covering the periods from July 2010 to June 2012, July 2011 to June 2013, and July 2011 to December 2014. The awards are intended to provide continuing emphasis on specified financial performance goals that the Company considers important contributors to long-term shareholder value. The awards are payable only if the Company achieves specified levels of revenue and/or cash flows from operations for the applicable performance periods.

In conjunction with the Company’s acquisition of Photop, the Compensation Committee established a long-term performance and retention program under the Plan for certain Photop employees. This program covers periods from January 1, 2010 to December 31, 2012. Participants are eligible to receive performance shares following each of the calendar years 2010, 2011 and 2012. The awards are only payable if Photop achieves the levels of revenue and earnings specified for each calendar year performance period as well as certain other non-financial performance targets pre-established for such performance period.

Performance shares compensation expense is calculated based on the estimated number of shares expected to be earned multiplied by the stock price at the date of grant. Included in the $2.6 million and $7.2 million of share-based compensation expense for the three and six months ended December 31, 2011, was $0.8 million and $1.7 million, respectively, of share-based compensation expense related to performance share awards. Included in the $2.2 million and $6.0 million of share-based compensation expense for the three and six months ended December 31, 2010, was $0.6 million and $1.3 million, respectively, of share-based compensation expense related to performance share awards.

Note 14.

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. At December 31, 2011, the Company had foreign currency forward contracts recorded at fair value. The fair values of these instruments were measured using valuations based upon quoted prices for similar assets and liabilities in active markets (Level 2) and are valued by reference to similar financial instruments, adjusted for credit risk and restrictions and other terms specific to the contracts. At December 31, 2011, the Company had a contingent earnout arrangement recorded at fair value related to the acquisition of Photop. The fair value of the earnout arrangement was based on significant inputs not observable in the market and represents a Level 3 measurement as defined in ASC 820. The Company uses the income approach in measuring the fair value of the earnout arrangement, which included a 0.93% discount rate and an assumed 100% probability of achieving the financial targets under the earnout arrangement. The fair value remeasurement of the earnout arrangement for the three and six months ended December 31, 2011 and 2010 was insignificant. In conjunction with the July 2011 acquisition of Aegis, the Company acquired a Level 1 investment in the form of a certificate of deposit that matures in July of 2012 and was recorded at fair value as of December 31, 2011. The fair value remeasurement of the certificate of deposit for the three and six months ended December 31, 2011 was insignificant. The following table provides a summary by level of the fair value of financial instruments that are measured on a recurring basis as of December 31, 2011 ($000):

		$,000,000		$,000,000		$,000,000		$,000,000
	Fair Value Measurements at December 31, 2011 Using:
	December 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Certificate of deposit	$	594	$	594	$	—	$	—
Foreign currency forward contracts	$	23	$	—	$	23	$	—

Liabilities:
Contingent earnout arrangement	$	6,000	$	—	$	—	$	6,000

		$00,000,000		$00,000,000		$00,000,000		$00,000,000
	Fair Value Measurements at June 30, 2011 Using:
	June 30, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Liabilities:
Contingent earnout arrangements	$	5,941	$	—	$	—	$	5,941
Foreign currency forward contracts	$	174	$	—	$	174	$	—

Note 15.

Derivative Instruments

The Company, from time to time, purchases foreign currency forward exchange contracts, primarily in Japanese Yen, 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 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.

The Company has recorded the difference in the fair market value and the contract value of these contracts on the statement of financial position. These contracts had a total contract value of $7.7 million and $7.8 million at December 31, 2011 and June 30, 2011, respectively. As of December 31, 2011, these forward contracts had expiration dates ranging from January 6, 2012 through April 3, 2012 with Japanese Yen denominations individually ranging from 100 million Yen to 170 million Yen. The Company does not account for these contracts as hedges as defined by U.S. GAAP and records the change in the fair value of these contracts in the results of operations as they occur. The fair value measurement takes into consideration foreign currency rates and the current creditworthiness of the counterparties to these contracts, as applicable, and 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 and thus represents a Level 2 measurement. These contracts are recorded in Other accrued liabilities or Prepaid and other current assets in the Company’s Condensed Consolidated Balance Sheets. The change in the fair value of these contracts for the three and six months ended December 31, 2011 was insignificant.

Note 16.

Commitments and Contingencies

The Company records a warranty reserve as a charge against earnings based on a percentage of sales utilizing actual returns over the last twelve months. The following table summarizes the change in the carrying value of the Company’s warranty reserve, which is a component of Other accrued liabilities in the Company’s Condensed Consolidated Balance Sheet as of and for the six months ended December 31, 2011 ($000):


	Six Months Ended December 31, 2011
Balance – Beginning of Period	$	1,187
Payments made during the period		(601	)
Additional warranty liability recorded during the period		680

Balance – End of Period	$	1,266

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Management’s Discussion and Analysis contains forward-looking statements as defined by Section 21E of the Securities Exchange Act of 1934, as amended, including any 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,” “intends,” “plans,” “projects” or similar expressions.

Actual results could materially differ from such statements due to the following factors: materially adverse changes in economic or industry conditions generally (including capital markets) or in the markets served by the Company, the development and use of new technology and the actions of competitors. There are additional risk factors that could affect the Company’s business, results of operations or financial condition. Investors are encouraged to review the risk factors set forth in the Company’s most recent Form 10-K as filed with the Securities and Exchange Commission on August 26, 2011 and in the Company’s Form 10-Q for September 30, 2011.

Introduction

II-VI Incorporated (“II-VI,” the “Company,” “we,” “us” or “our”), the worldwide leader in crystal growth technology, is a vertically-integrated manufacturing company that creates and markets products for diversified markets including industrial manufacturing, military and aerospace, high-power electronics, optical communications and thermoelectronics applications.

The Company generates revenues, earnings and cash flows from developing, manufacturing and marketing high technology materials and derivative products for precision use in industrial, optical communications, military, medical and aerospace applications. We also generate revenue, earnings and cash flows from external customer and 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 (“OEM”), laser end users, system integrators of high-power lasers, manufacturers of equipment and devices for industrial, optical communications, security and monitoring applications, U.S. government prime contractors, various U.S. government agencies and thermoelectric solutions suppliers.

Effective July 1, 2011, the Company renamed its former Compound Semiconductor Group reporting segment the Advanced Products Group.

Critical Accounting Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America and the Company’s discussion and analysis of its financial condition and results of operations require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported in its condensed consolidated financial statements and accompanying notes. Note 1 of the Notes to Consolidated Financial Statements in the Company’s most recent Form 10-K describes the significant accounting policies and 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 believes the Company’s critical accounting estimates are those related to revenue recognition, allowance for doubtful accounts, warranty reserves, inventory valuation, valuation of long-lived assets including acquired intangibles and goodwill, accrual of bonus and profit sharing estimates, accrual of income tax liability estimates and accounting for share-based payments. Management believes these estimates to be critical because they are both important to the portrayal of the Company’s financial condition and results of operations, and they require management to make judgments and estimates about matters that are inherently uncertain.

The Company recognizes revenues when the criteria of SEC Staff Accounting Bulletin: No. 104 – “Revenue Recognition in Financial Statements” (“SAB 104”) are met. Revenues for product shipments are realizable when we have persuasive evidence of a sales arrangement, the product has been shipped or delivered, the sales price is fixed or determinable and collectability is reasonably assured. Title and risk of loss passes from the Company to its customer at the time of shipment in all cases with the exception of certain customers. For these customers, which represent approximately 5% of our consolidated revenues, title does not pass and revenue is not recognized until the customer has received the product at its physical location. The Company’s revenue recognition policy is consistently applied across the Company’s segments, product lines and geographical locations.

Further, we do not have post-shipment obligations such as training or installation, customer acceptance provisions, credits and discounts, rebates and price protection or other similar privileges. Our distributors and agents are not granted price protection. Our distributors and agents, who comprise less than 10% of consolidated revenue, have no additional product return rights beyond the right to return defective products that are covered by our warranty policy. We believe our revenue recognition practices are consistent with SAB 104, and that we have adequately considered the requirements of ASC 605 Revenue Recognition. Revenues generated from transactions other than product shipments are contract related and have historically accounted for less than 5% of the Company’s consolidated revenues.

We establish an allowance for doubtful accounts and warranty reserves based on historical experience and believe the collection of revenues, net of these reserves, is reasonably assured. Our allowance for doubtful accounts and warranty reserve balances at December 31, 2011 were $1.4 million and $1.3 million, respectively. Our reserve estimates have historically been proven to be materially correct based upon actual charges incurred.

New Accounting Standards

See “Note 2. Recent Accounting Pronouncements,” to our unaudited financial statements in Part I, Item 1 of this Quarterly Report for a description of recent accounting pronouncements, including the expected dates of adoption and estimated effects, if any, on our consolidated financial statements.

Results of Operations ($000’s except per share data)

The following tables set forth bookings and select items from our Condensed Consolidated Statements of Earnings for the three and six months ended December 31, 2011 and 2010, respectively:


	Three Months Ended December 31, 2011						Three Months Ended December 31, 2010

Bookings	$	116,883					$	134,128


				% of Revenues					% of Revenues
Total Revenues	$	126,757			100.0		$	120,887		100.0
Cost of goods sold		83,289			65.7			70,851		58.6

Gross margin		43,468			34.3			50,036		41.4

Operating Expenses:
Internal research and development		5,016			4.0			3,357		2.8
Selling, general and administrative		24,214			19.1			21,991		18.2
Interest and other, net		(1,429	)		(1.1	)		485		0.4

Earnings before income tax		15,667			12.4			24,203		20.0
Income taxes		2,147			1.7			4,948		4.1

Net earnings		13,520			10.7			19,255		15.9
Net earnings attributable to noncontrolling interest		233			0.2			98		0.1

Net earnings attributable to II-VI Incorporated	$	13,287			10.5		$	19,157		15.8

Diluted earnings per-share	$	0.21					$	0.30


	Six Months Ended December 31, 2011						Six Months Ended December 31, 2010

Bookings	$	247,130					$	246,178


				% of Revenues						% of Revenues
Total Revenues	$	265,130			100.0		$	241,021			100.0
Cost of goods sold		166,652			62.9			141,749			58.8

Gross margin		98,478			37.1			99,272			41.2

Operating Expenses:
Internal research and development		10,179			3.8			7,203			3.0
Selling, general and administrative		51,026			19.2			44,720			18.6
Interest and other, net		(3,000	)		(1.1	)		(1,547	)		(0.6	)

Earnings before income tax		40,273			15.2			48,896			20.3
Income taxes		8,039			3.0			11,240			4.7

Net earnings		32,234			12.2			37,656			15.6
Net earnings attributable to noncontrolling interest		368			0.1			132			0.1

Net earnings attributable to II-VI Incorporated	$	31,866			12.0		$	37,524			15.6

Diluted earnings per-share	$	0.50					$	0.59

The above results include MLA and Aegis for the three and six months ended December 31, 2011, and MLA for one month only for the three and six months ended December 31, 2010, as these acquisitions were completed in December 2010 and July 2011, respectively.

Executive Summary

Net earnings attributable to II-VI Incorporated for the three months ended December 31, 2011 were $13,287,000 ($0.21 per-share diluted). This compares to net earnings attributable to II-VI Incorporated of $19,157,000 ($0.30 per-share diluted) for the same period last fiscal year. Net earnings attributable to II-VI Incorporated for the six months ended December 31, 2011 were $31,866,000 ($0.50 per-share diluted). This compares to net earnings attributable to II-VI Incorporated of $37,524,000 ($0.59 per-share diluted) for the same period last fiscal year. Although total revenues increased for the three and six months ended December 31, 2011 when compared to the same periods last fiscal year, net earnings were negatively impacted as a result of certain events that were outside the normal operating conditions for the Company. Specifically, operating results for the three and six months ended December 31, 2011 were negatively impacted by an after-tax write-down of tellurium inventory of $2.2 million, or $0.03 per-share diluted, at our PRM business unit as well as a $0.7 million, or $0.01 per-share diluted, after-tax impairment charge related to damaged machinery, equipment and inventory at our Aegis business unit. The write-down of the tellurium inventory at PRM was driven by declining global tellurium index prices. The impairment at Aegis was attributable to the October 2011 flooding that occurred in Thailand which significantly impacted the production facility of Fabrinet, a contract manufacturer used by Aegis. In addition to the items noted above, the Company’s Photop business unit continued to experience compressed gross margins in fiscal year 2012 due to a shift in product mix. The Company also continued to invest in internal research and development at Photop and Aegis in an effort to expand and improve current product offerings in the optical communications market. The impact of these items on net earnings was somewhat offset by favorable tax adjustments of $2.0 million recorded during the three months ended December 31, 2011. Specifically, certain of the Company’s Photop subsidiaries in China obtained high-technology status which grants preferential tax rate treatment by reducing the statutory tax rate of 25% to 15%. In addition, the Company reversed tax liabilities related to uncertain tax positions as a result of the completion of the U.S. Internal Revenue Services’ examination of the fiscal year 2009 tax return.

Consolidated

Bookings . Bookings for the three months ended December 31, 2011 decreased 12.9% to $116,883,000, compared to $134,128,000 for the same period last fiscal year. Bookings for the six months ended December 31, 2011 remained relatively consistent at $247,130,000, compared to $246,178,000 for the same period last fiscal year. Bookings are defined as customer orders received that are expected to be converted to revenues over the next twelve months. For long-term customer orders, the Company does not include in bookings the portion of the customer order that is beyond twelve months, due to the inherent uncertainty of an order that far out in the future. Overall, the volatility and uncertainty in worldwide economies has impacted the majority of the Company’s business units in the current fiscal year in regard to order patterns as certain customer orders were delayed, and customers placed orders for smaller quantities and lead times. Bookings for the Infrared Optics segment were impacted by the current economic turmoil in Europe while demand in the low-power Asian markets has slowed in comparison to the same periods last fiscal year, mostly due to concerns regarding growth in China. Excluding Aegis, bookings at the Near-Infrared

Optics segment decreased as a result of the inventory correction that was prevalent throughout the optical communications market, which specifically impacted Photop. Weakening demand in the photovoltaic market has applied downward pressure on the index price of tellurium, thus reducing bookings activities at the Company’s PRM business unit. In addition, the Company’s Marlow business unit experienced a delay in funding for a major Department of Energy contract as well as certain order delays from customers across many of the industries in which it operates.

Revenues . Revenues for the three months ended December 31, 2011 increased 4.9% to $126,757,000, compared to $120,887,000 for the same period last fiscal year. Revenues for the six months ended December 31, 2011 increased 10.0% to $265,130,000 compared to $241,021,000 for the same period last fiscal year. The increase in revenues for the three and six months ended December 31, 2011 compared to the same periods last fiscal year was attributable to the Infrared Optics and Military & Materials segments. The Infrared Optics segment benefited from higher laser utilization rates worldwide as well as strengthening demand for products manufactured by the segment’s HIGHYAG business unit. The Military & Materials segment benefited from increased shipment volumes for selenium and tellurium at the Company’s PRM business unit resulting from increased demand. These increases in revenues were somewhat offset by lower shipment volume at the VLOC business unit within the Near-Infrared Optics segment as a result of decreased military demand for both the UV Filter product line and contract research and development activities.

Gross margin. Gross margin for the three months ended December 31, 2011 was $43,468,000, or 34.3% of total revenues, compared to $50,036,000, or 41.4% of total revenues, for the same period last fiscal year. Gross margin for the six months ended December 31, 2011 was $98,478,000, or 37.1% of total revenues, compared to $99,272,000 or 41.2% of total revenues, for the same period last fiscal year. A major contributor to the lower gross margin for the three and six months ended December 31, 2011, was the inventory write-down and compressed gross margins of tellurium products at PRM caused by the significant decline in tellurium index prices. In addition, the Company’s Aegis subsidiary recognized an impairment charge for machinery, equipment and inventory that were damaged as a result of the Thailand flooding at Fabrinet. Furthermore, a shift in product mix at the Company’s Photop business unit to products with lower margin profiles negatively impacted gross margins during the three and six months ended December 31, 2011 when compared to the same periods last fiscal year.

Internal research and development . Company-funded internal research and development expenses for the three months ended December 31, 2011 were $5,016,000, or 4.0% of revenues, compared to $3,357,000, or 2.8% of revenues, for the same period last fiscal year. Company-funded internal research and development expenses for the six months ended December 31, 2011 were $10,179,000, or 3.8% of revenues, compared to $7,203,000, or 3.0% of revenues, for the same period last fiscal year. This increase in Company-funded internal research and development expenses was primarily the result of ongoing research and development investment at Photop and Aegis within the Near Infrared optics segment. Photop is focusing research and development efforts on optical communication and commercial optic markets, specifically regarding optical switching router modules for data network customers as well as certain solutions for 40G and 100G optical networks. In conjunction with the addition of recently acquired Aegis, the Company is currently investing in new product development of optical channel monitors and high-power fiber couplers and combiners.

Selling, general and administrative . Selling, general and administrative expenses for the three months ended December 31, 2011 were $24,214,000, or 19.1% of revenues, compared to $21,991,000 or 18.2% of revenues, for the same period last fiscal year. Selling, general and administrative expenses for the six months ended December 31, 2011 were $51,026,000, or 19.2% of revenues, compared to $44,720,000 or 18.6% of revenues, for the same period last fiscal year. Selling, general and administrative expense as a percentage of revenues has normalized with the slow recovery of the global economic recession and has remained materially consistent during the three and six months ended December 31, 2011 compared to the same periods last fiscal year.

Interest and other, net. Interest and other, net for the three and six months ended December 31, 2011 was income of $1,429,000 and $3,000,000, respectively. The majority of interest and other, net for the three months ended December 31, 2011 was the result of foreign currency gains of approximately $0.9 million. The majority of interest and other, net for the six months ended December 31, 2011 was the result of foreign currency gains of approximately $0.6 million as well as a $1.4 million gain related to the sale of precious metals inventory used in the production process. In addition, the Company benefited from earnings of equity investments, unrealized gains on the deferred compensation plan and net interest income on excess cash reserves during the three and six months ended December 31, 2011. Interest and other, net for the three and six months ended December 31, 2010 was expense of $485,000 and income of $1,547,000, respectively. The majority of interest and other, net for the three and six months ended December 31, 2010 was the result of foreign currency gains and losses as well as earnings from the Company’s equity investments, unrealized gains on the deferred compensation plan and interest income on excess cash reserves.

Income taxes. The Company’s year-to-date effective income tax rate at December 31, 2011 was 20.0% compared to an effective tax rate of 23.0% for the same period last fiscal year. During the three months ended December 31, 2011, certain of the Company’s Photop subsidiaries received notification of approval of high-technology status in China for calendar years 2011 through 2013. As a result, these subsidiaries will be subject to pay income taxes at a preferential rate of 15% for the periods described above resulting in an income tax benefit of $1.3 million recorded during the three months ended December 31, 2011. In addition, the Company recorded an income tax benefit of $0.7 million from the reversal of a tax liability related to an uncertain tax position as a result of the examination by the United States Internal Revenue Service of the Company’s fiscal year 2009 federal income tax return, which was closed with no significant findings. The variation between the Company’s effective tax rate and the U.S. statutory rate of 35% is primarily due to the Company’s foreign operations which are subject to income taxes at lower statutory rates.

Segment Reporting

Bookings, revenues and segment earnings for the Company’s reportable segments are discussed below. Segment earnings differ from income from operations in that segment earnings exclude certain operational expenses included in other expense (income) – net as reported. Management believes segment earnings to be a useful measure 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 12. Segment Reporting,” to our unaudited financial statements in Part I, Item 1 of this Quarterly Report for further information on the Company’s reportable segments and for the reconciliation of segment earnings to net earnings.

Infrared Optics ($000’s)


	Three Months Ended December 31,				% Increase (Decrease)			Six Months Ended December 31,				% Increase
	2011		2010		% Increase (Decrease)			2011		2010		% Increase

Bookings	$	43,773	$	47,006		(7	)%	$	94,871	$	88,308		7	%
Revenues	$	46,762	$	40,642		15	%	$	97,558	$	81,868		19	%
Segment earnings	$	11,470	$	9,420		22	%	$	23,827	$	18,068		32	%

The Company’s Infrared Optics segment includes the combined operations of Infrared Optics and HIGHYAG.

Bookings for the three months ended December 31, 2011 for Infrared Optics decreased 7% to $43,773,000, compared to $47,006,000 for the same period last fiscal year. The decrease in bookings for the three months ended December 31, 2011 compared to the same period last fiscal year was primarily driven by softening demand related to the military infrared market in the U.S. and the industrial market in Europe. In addition, the low-power markets in Asia specific to consumer electronics and medical manufacturing industries resulted in decreased bookings as China’s economy continued to show signs of reduced acceleration. Low-power marking and drilling segments in Japan also contributed to the decline in demand in the Asia region. Bookings for the six months ended December 31, 2011 for Infrared Optics increased 7% to $94,871,000, compared to $88,308,000 for the same period last fiscal year. The increase in bookings for the six months ended December 31, 2011 compared to the same period last fiscal year was the result of higher demand for replacement optics used in high-power CO2 laser systems as well as strong market growth and demand at HIGHYAG for one micron beam delivery components used in laser applications.

Revenues for the three months ended December 31, 2011 for Infrared Optics increased 15% to $46,762,000 compared to $40,642,000 for the same period last fiscal year. Revenues for the six months ended December 31, 2011 increased 19% to $97,558,000 compared to $81,868,000 for the same period last fiscal year. The increase in revenues for the three and six months ended December 31, 2011 compared to the same periods last fiscal year was primarily due to higher shipment volume to both low-power OEM’s and high-power aftermarket customers resulting from increased laser utilization worldwide. In addition, the continued adoption and qualification of HIGHYAG products into the one micron beam delivery market contributed to the revenue increase.

Segment earnings for the three months ended December 31, 2011 for Infrared Optics increased 22% to $11,470,000, compared to $9,420,000 for the same period last fiscal year. Segment earnings for the six months ended December 31, 2011 increased 32% to $23,827,000, compared to $18,068,000 for the same period last fiscal year. The increase in segment earnings for the three and six months ended December 31, 2011 compared to the same periods last fiscal year was primarily due to the additional margin realized on the segment’s higher revenue levels as well as favorable operating leverage from strategic cost-containment efforts to ensure incremental revenues outpaced incremental operating costs.

Near-Infrared Optics ($000’s)


	Three Months Ended December 31,				% (Decrease)			Six Months Ended December 31,				% Increase (Decrease)
	2011		2010		% (Decrease)			2011		2010		% Increase (Decrease)

Bookings	$	34,939	$	35,906		(3	)%	$	73,313	$	69,722		5	%
Revenues	$	39,468	$	41,418		(5	)%	$	77,578	$	78,363		(1	)%
Segment earnings	$	1,684	$	8,068		(79	)%	$	3,392	$	14,949		(77	)%

The Company’s Near-Infrared Optics segment includes the combined operations of VLOC, Photop and Aegis. The above results include Aegis for the three and six months ended December 31, 2011 only, as this acquisition was completed in July 2011.

Bookings for the three months ended December 31, 2011 for Near-Infrared Optics decreased 3% to $34,939,000, compared to $35,906,000 for the same period last fiscal year. Bookings for the six months ended December 31, 2011 increased 5% to $73,313,000, compared to $69,722,000 for the same period last fiscal year. Excluding Aegis, bookings for the three and six months ended December 31, 2011 compared to the same periods last fiscal year decreased, as Photop experienced slower order intake from major Chinese customers in the optical communications market who have recently been impacted by inventory corrections across the industry. Furthermore, VLOC experienced a decline in orders from current military customers for contract research and development and its UV Filter product line due to military budget constraints and uncertainty in regard to funding levels.

Revenues for the three months ended December 31, 2011 for Near-Infrared Optics decreased 5% to $39,468,000, compared to $41,418,000 for the same period last fiscal year. Revenues for the six months ended December 31, 2011 decreased 1% to $77,578,000, compared to $78,363,000 for the same period last fiscal year. Excluding Aegis, revenues decreased due to declining shipment volumes at VLOC of its UV Filter product line and other military related products as well as decreased contract revenues.

Segment earnings for the three months ended December 31, 2011 for Near-Infrared Optics decreased 79% to $1,684,000, compared to $8,068,000 for the same period last fiscal year. Segment earnings for the six months ended December 31, 2011 decreased 77% to $3,392,000, compared to $14,949,000 for the same period last fiscal year. The decrease in segment earnings was attributed to operating losses incurred by Aegis as a result of the flooding in Thailand. Specifically, Aegis lost the majority of its production capabilities in October 2011 as the facilities at Fabrinet were severely damaged and ceased operations. This resulted in lost revenues as well as an impairment charge for damaged machinery, equipment and inventory. In addition, Photop experienced a decline in gross margin resulting from an unfavorable product mix as optical communication sales with higher margin product profiles have declined during the current three and six month periods. In addition, Photop continues to increase investment levels of internal research and development activities in both the optical communication and commercial optic markets, including high-speed optical network components, broadband access and laser components for selective projects. Furthermore, VLOC experienced an unfavorable change in earnings as a result of the declining military related revenues.

Military & Materials ($000’s)


	Three Months Ended December 31,					% Increase (Decrease)			Six Months Ended December 31,				% Increase (Decrease)
	2011			2010		% Increase (Decrease)			2011		2010		% Increase (Decrease)

Bookings	$	26,543		$	29,600		(10	)%	$	46,344	$	44,871		3	%
Revenues	$	23,703		$	19,467		22	%	$	47,362	$	39,602		20	%
Segment (loss) earnings	$	(386	)	$	3,425		(111	)%	$	2,576	$	7,146		(64	)%

The Company’s Military & Materials segment includes the combined operations of EEO, PRM, and MLA. The above results include MLA for the three and six months ended December 31, 2011, as this acquisition was completed in December of 2010.

Bookings for the three months ended December 31, 2011 for Military & Materials decreased 10% to $26,543,000 compared to $29,600,000 for the same period last fiscal year. The decrease in bookings for the three months ended December 31, 2011 compared to the same period last fiscal year was attributable to PRM and resulted from the combination of decreased tellurium product demand from certain customers in the photovoltaic market as well as weakening demand in Chinese metallurgical

applications. In addition, this decline in tellurium product demand contributed to the substantial fall in the index price of tellurium which also negatively impacted segment bookings during the current quarter. Bookings for the six months ended December 31, 2011 for Military & Materials increased 3% to $46,344,000 compared to $44,871,000 for the same period last fiscal year. Excluding MLA, bookings for the six months ended December 31, 2011 compared to the same period last fiscal year decreased slightly, mostly due to the aforementioned effect of tellurium demand and pricing at PRM.

Revenues for the three months ended December 31, 2011 for Military & Materials increased 22% to $23,703,000, compared to $19,467,000 for the same period last fiscal year. Revenues for the six months ended December 31, 2011 for Military & Materials increased 20% to $47,362,000 compared to $39,602,000 for the same period last fiscal year. Although the tellurium index price substantially declined during December 2011, the majority of the impact on revenues at PRM will not be recognized until the second half of fiscal year 2012. As such, the increase in revenues for the three and six months ended December 31, 2011 compared to the same periods last fiscal year was primarily due to higher shipment volumes of selenium and tellurium at PRM.

Segment loss for the three months ended December 31, 2011 for Military & Materials was $386,000, compared to segment earnings of $3,425,000 for the same period last fiscal year. The segment loss for the three months ended December 31, 2011 was a result of an inventory write-down of tellurium of $2.2 million at PRM as well as compressed gross margins from tellurium products sold that were previously purchased at higher raw material index prices. Segment earnings for the six months ended December 31, 2011 for Military & Materials decreased 64% to $2,576,000 compared to $7,146,000 for the same period last fiscal year. The decrease in segment earnings is a result of the factors noted above as well as the recording of a bad debt provision resulting from a bankruptcy by a customer in the photovoltaic industry at PRM during the quarter ended September 30, 2011.

Advanced Products Group ($000’s)


	Three Months Ended December 31,				% (Decrease)			Six Months Ended December 31,				% Increase (Decrease)
	2011		2010		% (Decrease)			2011		2010		% Increase (Decrease)

Bookings	$	11,628	$	21,616		(46	)%	$	32,602	$	43,277		(25	)%
Revenues	$	16,824	$	19,360		(13	)%	$	42,632	$	41,188		4	%
Segment earnings	$	1,470	$	3,775		(61	)%	$	7,478	$	7,186		4	%

The Company’s Advanced Products Group (formerly, Compound Semiconductor Group) includes the combined operations of Marlow, WBG and WMG.

Bookings for the three months ended December 31, 2011 for the Advanced Products Group decreased 46% to $11,628,000 compared to $21,616,000 for the same period last fiscal year. Bookings for the six months ended December 31, 2011 for the Advanced Products Group decreased 25% to $32,602,000 compared to $43,277,000 for the same period last fiscal year. The decrease in bookings for the three and six months ended December 31, 2011 compared to the same periods last fiscal year was primarily due to a delay in the release of the next phase of a major Department of Energy contract at Marlow as well as some unanticipated order delays for Marlow products in the industrial, optical communication and power generation markets. The segment’s WBG business unit also realized a bookings decrease due to the timing of a $5.2 million contract order from the U.S. Department of Defense that was received in the first half of fiscal year 2011 that is not expected to be received until the second half of fiscal year 2012.

Revenues for the three months ended December 31, 2011 for the Advanced Products Group decreased 13% to $16,824,000 compared to $19,360,000 for the same period last fiscal year. The decrease in revenues for the three months ended December 31, 2011 compared to the same period last fiscal year was primarily due to lower shipment volumes of the gesture recognition and optical communications product lines at Marlow. The decline in gesture recognition shipment volumes is primarily attributed to the year over year timing of inventory builds at our customer as well as some general softening in demand for this product line. Revenues for the six months ended December 31, 2011 for the Advanced Products Group increased 4% to $42,632,000 compared to $41,188,000 for the same period last fiscal year. The increase in revenues for the six months ended December 31, 2011 compared to the same period last fiscal year was primarily due to higher shipment volumes at WBG of large diameter Silicon Carbide substrates for radio frequency applications used in the commercial and defense markets.

Segment earnings for the three months ended December 31, 2011 decreased 61% to $1,470,000 compared to $3,775,000 for the same period last fiscal year. The decrease in segment earnings for the three months ended December 31, 2011 compared to the same period last fiscal year was primarily due to a decline in gross margin at Marlow resulting from unfavorable product mix as

gesture recognition product sales with higher margin profiles have declined during the current three month period. Segment earnings for the six months ended December 31, 2011 increased 4% to $7,478,000 compared to $7,186,000 for the same period last fiscal year. The increase in segment earnings for the six months ended December 31, 2011 compared to the same period last fiscal year was primarily due to the marginal increase in revenue levels.

Liquidity and Capital Resources

Historically, our primary source of cash has been provided through operations. Other sources of cash include proceeds received from the exercises of stock options and long-term borrowings. Our historical uses of cash have been for capital expenditures, purchases of businesses, payment of principal and interest on outstanding debt 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: ($000)


	Six Months Ended December 31,
	2011			2010

Net cash provided by operating activities	$	42,913		$	33,012
Net proceeds on long-term borrowings		705			—
Proceeds from exercises of stock options		452			3,278
Purchase of businesses, net of cash acquired		(46,141	)		(12,813	)
Additions to property, plant and equipment		(23,068	)		(14,668	)

Cash provided by operating activities was $42,913,000 for the six months ended December 31, 2011 compared to cash provided by operating activities of $33,012,000 for the same period last fiscal year. The increase in cash provided by operating activities for the six months ended December 31, 2011 compared to the same period last fiscal year was the result of higher non-cash adjustments for depreciation, amortization and share-based compensation as well as improved working capital management. These increases were somewhat offset by lower net earnings realized during the six months ended December 31, 2011 when compared to the same period last fiscal year.

Net cash used in investing activities was $69,185,000 for the six months ended December 31, 2011 compared to net cash used of $26,421,000 for the same period last fiscal year. The majority of the increase in net cash used in investing activities was the result of the acquisition of Aegis in July 2011 as well as increased capital spending to support the Company’s efforts to expand capacity to meet long-term expected business requirements.

Net cash provided by financing activities during the six months ended December 31, 2011 mostly consisted of net long-term borrowings of $705,000 as well as proceeds from the exercise of stock options of $452,000. Net cash provided by financing activities during the six months ended December 31, 2010 consisted of proceeds from the exercise of stock options of $3,278,000 and the excess tax benefits from share-based compensation expense of $1,813,000.

In June 2011, the Company replaced its existing credit facility that was set to expire. The new credit facility is a $50.0 million unsecured line of credit which, under certain conditions, may be expanded to $80.0 million. The new credit facility has a five-year term through June 2016, and has interest rate of LIBOR, as defined in the agreement, plus 0.625% to 1.50%. Additionally, the facility is subject to certain covenants, including those relating to minimum interest coverage and maximum leverage ratios. As of December 31, 2011, the Company was in compliance with all financial covenants.

The Company’s cash position, borrowing capacity and debt obligations for the periods indicated were as follows ($000’s):


	December 31, 2011		June 30, 2011

Cash and cash equivalents	$	123,833	$	149,460
Available borrowing capacity		32,100		34,100
Total debt obligation		20,888		18,729

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. Cash balances held outside the United States could be repatriated to the United States, but, under current law, would potentially be subject to United States federal income taxes, less applicable foreign tax credits. The Company has not recorded deferred income taxes related to cash balances held outside of the United States as the undistributed earnings of the Company’s foreign subsidiaries are indefinitely reinvested. The Company believes cash flow from operations, available cash reserves and borrowing capacity will be sufficient to fund its working capital needs, capital expenditures, debt payments and internal growth for the remainder of fiscal year 2012.

Contractual Obligations

The following table presents information about our contractual obligations and commitments as of December 31, 2011.

Tabular-Disclosure of Contractual Obligations


	Payments Due By Period
Contractual Obligations	Total		Less Than 1 Year		1-3 Years		3-5 Years		More Than 5 Years
($000)
Long-Term Debt Obligations	$	20,888	$	3,888	$	—	$	17,000	$	—
Interest Payments ⁽¹⁾		947		218		400		329		—
Capital Lease Obligations		—		—		—		—		—
Operating Lease Obligations		43,994		6,862		10,451		6,577		20,104
Purchase Obligations ⁽²⁾		46,581		35,636		10,833		112		—
Other Long-Term Liabilities Reflected on the Registrant’s Balance Sheet		—		—		—		—		—

Total	$	112,410	$	46,604	$	21,684	$	24,018	$	20,104

(1)	Variable rate interest obligations are based on the interest rate in place at December 31, 2011.

(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 comprised of open purchase order commitments to vendors for the purchase of supplies and materials and unpaid purchase prices for the Company’s acquisitions of Photop and HIGHYAG.

The gross unrecognized income tax benefits under FIN 48 at December 31, 2011, which are excluded from the table above is $3.7 million. The Company is not able to reasonably estimate the amount by which the liability will increase or decrease over time; however, at this time, the Company does not expect a significant payment related to these obligations within the next year.

Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Exchange 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 primarily focused on its exposure to the Japanese Yen. No significant changes have occurred in the techniques and instruments used other than those described below.

Changes in the foreign currency exchange rates of these currencies had a favorable impact on the results of operations for the three and six months ended December 31, 2011 by an after-tax gain of approximately $0.5 million and $0.7 million, respectively, or $0.01 per-share diluted. Changes in the foreign currency exchange rates of these currencies had an unfavorable impact on the results of operations for the three months ended December 31, 2010 by an after-tax loss of approximately $0.8 million, or $0.01 per-share diluted. Changes in the foreign currency exchange rates of these currencies on the results of operations for the six months ended December 31, 2010 were insignificant.

In the normal course of business, the Company enters into foreign currency forward exchange contracts with its banks. The purpose of these contracts is to hedge ordinary business risks regarding foreign currencies on product sales. Foreign currency exchange contracts are used to limit transactional exposure to changes in currency exchange rates. The Company enters into foreign currency forward contracts that permit it to sell specified amounts of foreign currencies expected to be received from its export sales for pre-established U.S. dollar amounts at specified dates. The forward contracts are denominated in the same foreign currencies in which export sales are denominated. These contracts provide the Company with an economic hedge in which settlement will occur in future periods and which otherwise would expose the Company to foreign currency risk. The Company monitors its positions and the credit ratings of the parties to these contracts. While the Company may be exposed to potential losses due to risk in the event of non-performance by the counterparties to these financial instruments, it does not anticipate such losses. The Company currently has a 300 million Yen loan to help minimize the foreign currency exposure in Japan. A change in the interest rate of 1% for this Yen loan would have changed the interest expense by an immaterial amount for the three and six months ended December 31, 2011. A 10% change in the Yen to dollar exchange rate would have changed revenues in the range from a decrease of $0.3 million to an increase of $1.7 million for the three months ended December 31, 2011. A 10% change in the Yen to dollar exchange rate would have changed revenues in the range from a decrease of $1.7 million to an increase of $2.1 million for the six months ended December 31, 2011.

For II-VI Singapore Pte., Ltd. and its subsidiaries, II-VI Suisse S.a.r.l., PRM and AOFR Pty. Ltd., the functional currency is the U.S. dollar. Gains and losses on the remeasurement of the local currency financial statements are included in net earnings. Foreign currency remeasurement gains were $0.1 million and $0.5 million, respectively, for the three and six months ended December 31, 2011. Foreign currency remeasurement gains were $0.2 million and $0.1 million, respectively, for the three and six months ended December 31, 2010.

For all other foreign subsidiaries, 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 within shareholders’ equity.

Interest Rate Risks

As of December 31, 2011, the total borrowings of $20.9 million were from a loan of $3.9 million denominated in Japanese Yen and a line of credit borrowing of $17.0 million denominated in U.S. dollars. As such, the Company is exposed to market risks arising from changes in interest rates. A change in the interest rate of these borrowings of 1% would have had an immaterial impact on the Company’s financial results for the three and six months ended December 31, 2011.

Item 4.

CONTROLS AND PROCEDURES

The Company’s management evaluated, with the participation of Francis J. Kramer, the Company’s President and Chief Executive Officer, and Craig A. Creaturo, the Company’s Chief Financial Officer and Treasurer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report on Form 10-Q. 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 Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. 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, Messrs. Kramer and Creaturo concluded that the Company’s disclosure controls and procedures are effective at the reasonable assurance level as of the end of the period covered by this report. No changes in the Company’s internal control over financial reporting were implemented during the Company’s most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1A.

RISK FACTORS

In addition to the risk factors and other information set forth in this report, carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2011, which could materially affect our business, financial condition or future results. The updated risk factor described below and those included in our Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Natural Disasters or Other Global or Regional Catastrophic Events Could Disrupt Our Operations and Adversely Affect Results

Despite our concerted effort to minimize risk to our production capabilities and corporate information systems and to reduce the effect of unforeseen interruptions to us through business continuity planning, we still may be exposed to interruptions due to catastrophe, natural disaster, pandemic, terrorism or acts of war, which are beyond our control such as the March 2011 earthquake in Japan or the October 2011 flooding in Thailand. 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.

Item 6.

EXHIBITS


Exhibit Number	Description of Exhibit	Reference

3.1	Amended and Restated Articles of Incorporation	Incorporated herein by reference is Exhibit 3.1 to II-VI’s Current Report on Form 8-K filed November 8, 2011.

3.2	Amended and Restated By-Laws	Incorporated herein by reference is Exhibit 3.2 to II-VI’s Current Report on Form 8-K filed November 8, 2011.

10.27	Form of Nonqualified Stock Option under the II-VI Incorporated 2009 Omnibus Incentive Plan*	Filed herewith.

10.28	Form of Restricted Share Award under the II-VI Incorporated 2009 Omnibus Incentive Plan*	Filed herewith.

10.29	Form of Performance Share Award under the II-VI Incorporated 2009 Omnibus Incentive Plan*	Filed herewith.

10.30	Form of Stock Appreciation Rights under the II-VI Incorporated 2009 Omnibus Incentive Plan*	Filed herewith.

31.01	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, and Section 302	Filed herewith.


	of the Sarbanes-Oxley Act of 2002

31.02	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith.

32.01	Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith.

32.02	Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith.

101	Interactive Data File**

*	Denotes management contract or compensatory plan, contract or arrangement.

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 Registrants total assets on a consolidated basis.

In accordance with Rule 406T of Regulation S-T promulgated by the Securities and Exchange Commission, Exhibit 101 is deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

SIGNATURES

Pursuant to the requirements 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
	(Registrant)

Date: February 8, 2012	By:	/s/ Francis J. Kramer
		Francis J. Kramer
		President and Chief Executive Officer

Date: February 8, 2012	By:	/s/ Craig A. Creaturo
		Craig A. Creaturo
		Chief Financial Officer and Treasurer

EXHIBIT INDEX


Exhibit Number	Description of Exhibit	Reference

3.1	Amended and Restated Articles of Incorporation	Incorporated herein by reference is Exhibit 3.1 to II-VI’s Current Report on Form 8-K filed November 8, 2011.

3.2	Amended and Restated By-Laws	Incorporated herein by reference is Exhibit 3.2 to II-VI’s Current Report on Form 8-K filed November 8, 2011.

10.27	Form of Nonqualified Stock Option under the II-VI Incorporated 2009 Omnibus Incentive Plan*	Filed herewith.

10.28	Form of Restricted Share Award under the II-VI Incorporated 2009 Omnibus Incentive Plan*	Filed herewith.

10.29	Form of Performance Share Award under the II-VI Incorporated 2009 Omnibus Incentive Plan*	Filed herewith.

10.30	Form of Stock Appreciation Rights under the II-VI Incorporated 2009 Omnibus Incentive Plan*	Filed herewith.



31.01	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith.

31.02	Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith.

32.01	Certification of the Chief Executive Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith.

32.02	Certification of the Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. § 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith.

101	Interactive Data File **

*	Denotes management contract or compensatory plan, contract or arrangement.

Exhibit 10.27

II-VI INCORPORATED

NONQUALIFIED STOCK OPTION AGREEMENT

THIS NONQUALIFIED STOCK OPTION AGREEMENT (this “Agreement”) is dated as of the Grant Date, as specified in the applicable Summary of Award (as defined below), by and between II-VI Incorporated, a Pennsylvania corporation (“ II-VI ”), and the Optionee, as specified in the applicable Summary of Award, who is a director, employee or consultant of II-VI or one of its subsidiaries (the “Optionee” ).

Reference is made to the Summary of Award (the “Summary of Award” ) issued to the Optionee with respect to the applicable Award, which may be found on the MorganStanley SmithBarney Benefit Access System at www.benefitaccess.com (or any successor system selected by II-VI) (the “Benefit Access System” ). Reference further is made to the Summary Plan Description relating to the Plan (as defined below) which also may be found on the Benefit Access System.

All capitalized terms used herein, to the extent not defined, shall have the meanings set forth in the II-VI 2009 Omnibus Incentive Plan (as amended from time to time, the “ Plan ”), a copy of which can be found on the Benefit Access System, and/or the applicable Summary of Award. Terms of the Plan and the Summary of Award are incorporated herein by this reference. This Agreement shall constitute an Award Agreement as that term is defined in the Plan and is intended to be a Qualified Performance-Based Award within the meaning of Section 2.28 of 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 Optionee and II-VI agree as follows:

1. Grant . II-VI hereby grants the Optionee on and as of the Grant Date Options to purchase from II-VI the number of shares of common stock of II-VI (“II-VI Common Stock” ) specified in the applicable Summary of Award (the “Shares” ), at the price per share equal to the Option Price, as specified in the applicable Summary of Award (the “Option Price” ), which Options shall expire on the Expiration Date, as specified in the applicable Summary of Award, unless such Options terminate or expire earlier in accordance with the terms hereof.

2. Vesting . The Options shall be exercisable, pursuant to the terms of the Plan and shall vest and become exercisable in installments, as follows:

(a) Upon and after the one (1) year anniversary of the Grant Date , the Optionee may exercise the Options with respect to any number of Shares (except with respect to fractional shares) not in excess of twenty percent (20%) of the total number of Shares covered by this Agreement.

(b) Upon and after the two (2) year anniversary of the Grant Date , the Optionee may exercise the Options with respect to any number of Shares (except with respect to fractional shares) not in excess of forty percent (40%) of the total number of Shares covered by this Agreement.

(c) Upon and after the three (3) year anniversary of the Grant Date , the Optionee may exercise the Options with respect to any number of Shares (except with respect to fractional shares) not in excess of sixty percent (60%) of the total number of Shares covered by this Agreement.

(d) Upon and after the four (4) year anniversary of the Grant Date , the Optionee may exercise the Options with respect to any number of Shares (except with respect to fractional shares) not in excess of eighty percent (80%) of the total number of Shares covered by this Agreement.

(e) Upon and after the five (5) year anniversary of the Grant Date , the Optionee may exercise the Options with respect to any number of Shares (except with respect to fractional shares) not in excess of one-hundred percent (100%) of the total number of Shares covered by this Agreement.

3. Post-termination Exercise . Upon the termination of the Optionee’s employment with or service to the Company (as defined in Section 11 below) (for any reason other than (a) early, normal or late retirement as those terms are defined in II-VI’s profit sharing plan, (b) death, or (c) total and permanent disability as defined in Section 105(d)(4) of the Internal Revenue Code), the Options, whether or not then exercisable pursuant to Section 2 above, shall immediately lapse and become null and void on and as of the date of such termination. Upon the termination of the Optionee’s employment with or service to the Company due to (x) early, normal or late retirement as those terms are defined in II-VI’s profit sharing plan, (y) death or (z) total and permanent disability as defined in Section 105(d)(4) of the Internal Revenue Code, Options may be exercised post-termination during the applicable periods set forth in Section 4.2 hereof.

4. Acceleration of Vesting .

4.1. All Options shall immediately vest and become exercisable immediately prior to a Change in Control. Any Options remaining unexercised upon a Change in Control shall lapse upon such Change in Control and shall be null and void.

4.2 Exercise Period . No Options granted under the Plan may be exercised more than ten years from the Grant Date. Upon the termination of the Optionee’s employment with or service to the Company for the reasons set forth below, the Options may be exercised as follows:

(a) In the event of the death of an Optionee (i) while an employee or a Nonemployee Director of the Company, (ii) within the twelve (12) month period after termination of employment or service as a Nonemployee Director with the Company

because of total and permanent disability, as defined in Code Section 105(d)(4), or (iii) within the three (3) year period after termination of employment with or separation from service from the Company because of early, normal or late retirement, as those terms are defined in II-VI’s profit sharing plan, or, in the case of a Nonemployee Director, upon the attainment of age 65 and 20 years of service on the Board, any unvested portion of such Optionee’s Options will immediately vest and may be exercised by the Optionee's estate at any time, or from time to time, within one (1) year of the date such Optionee’s death but in no event later than the expiration date of such Options.

(b) If an Optionee’s employment with the Company or service as a Nonemployee Director shall terminate because of total and permanent disability, as defined in Code Section 105(d)(4), any unvested portion of such Optionee’s Options will immediately vest and may be exercised at any time, or from time to time, within twelve (12) months of the date of termination of employment or service, but in no event later than the expiration date of such Options.

(c) If an Optionee’s employment with the Company or service as a Nonemployee Director shall terminate because of his early, normal or late retirement as those terms are defined in the Company’s profit sharing plan, or, in the case of a Nonemployee Director, upon the attainment of age 65 and 20 years of service on the Board, any unvested portion of such Optionee’s Options will immediately vest and may be exercised by the Optionee at any time, or from time to time, within three (3) years of the date of termination of employment or service, but in no event later than the expiration date of such Options.

(d) If an Optionee’s employment or service as a Nonemployee Director shall terminate for any reason other than death, total and permanent disability, or retirement as aforesaid, all of such Optionee’s rights to exercise Options shall terminate at the date of such termination of employment or service.

5. Exercise; Payment of Option Price . Any exercisable portion of the Options may be exercised in whole or in part, but in no event with respect to a fraction of a share, from time to time until the Expiration Date, unless otherwise terminated pursuant to the terms of the Plan or this Award Agreement. II-VI may require the exercise of such Options to be accomplished via a notice of exercise submitted via the Benefit Access System or as otherwise required by II-VI, in accordance with the procedures established by II-VI for such exercise.

Unless purchased via a cashless exercise set forth below, the Optionee shall provide for the payment of the aggregate Option Price for the number of shares purchased and any applicable withholding taxes. Such exercise (subject to Section 6 hereof) shall be effective upon the actual receipt of such payment and notice to II-VI. The aggregate Option Price for all shares purchased pursuant to an exercise of the Options shall be (a) paid by check payable to the order of II-VI or by (b) shares of II-VI Common Stock held by the Optionee for at least six (6) months, the fair market value of which at the time of such exercise is equal to the aggregate Option Price (or portion thereof to be paid with previously owned shares of II-VI Common Stock). Payment of the Option Price in shares of II-VI Common Stock shall be made by delivering properly endorsed stock certificates to II-VI or otherwise causing such II-VI Common Stock to be transferred to the account of II-VI, either physically or through attestation. In

addition, the aggregate Option Price for all shares purchased pursuant to an exercise of the Options may be paid via a cashless exercise from the proceeds of sale through a bank or broker on the date of exercise of some or all of the shares to which the exercise relates. There shall be furnished with each exercise of any portion of the Options such documents as II-VI in its discretion may deem necessary to assure compliance with applicable rules and regulations of any stock exchange or governmental authority. No rights or privileges of a stockholder of II-VI in respect to such shares issuable upon the exercise of any part of the Options shall accrue to the Optionee unless and until certificates representing such shares have been registered in the Optionee’s name.

6. Compliance with Laws . The Options shall not be exercised in whole or in part and no related share certificates shall be delivered in the sole discretion of II-VI: (a) if such exercise or delivery would constitute a violation of any provision of, or any regulation or order entered pursuant to, any law purporting to regulate wages, salaries or compensation; or (b) if any requisite approval, consent, registration or other qualification of any stock exchange or quotation system upon which the securities of II-VI may then be listed, the Securities and Exchange Commission or other governmental authority having jurisdiction over the exercise of the Options or the issuance of shares pursuant thereto, shall not have been secured.

7. Nontransferability . Except as otherwise provided in the Plan, the Options 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 Options in violation of this paragraph or the Plan shall render these Options null and void.

8. Adjustments . The number of shares covered by the Options and the Option Price, shall be adjusted to reflect any stock dividend, stock split, or combination of shares of II-VI Common Stock. In addition, the Committee may make or provide for such adjustment in the number of shares covered by the Options, and the kind of shares covered the Options, as the Committee in its sole discretion may in good faith determine to be equitably required in order to prevent dilution or enlargement of Optionee’s rights that otherwise would result from (a) any exchange of shares of II-VI’s Common Stock, recapitalization or other change in the capital structure of II-VI, (b) any merger, consolidation, spin–off, spin–out, split–off, split–up, reorganization, partial or complete liquidation or other distribution of assets (other than a normal cash dividend), issuance of rights or warrants to purchase securities, or (c) any other corporate transaction or event having an effect similar to any of the foregoing. Moreover, in the event of any such transaction or event, the Committee may provide in substitution for the Options such alternative consideration as it may in good faith determine to be equitable under the circumstances and may require in connection therewith the surrender of the Options so replaced.

9. Plan Provisions . In the event of any conflict between the provisions of this Agreement and the Plan, the Plan shall control.

10. No Continued Rights . The granting of the Options shall not give Optionee any rights to similar grants in future years or any right to continuance of employment or other service with II-VI or the Company, nor shall it interfere in any way with any right that the Company would otherwise have to terminate Optionee’s employment or other service at any time, or the right of Optionee to terminate his or her services at any time.

11. Non-Competition; Non-Solicitation; Confidentiality .

(a) While the Optionee is employed by the Company and for a period of one (1) year after the termination or cessation of such employment for any reason (the “ Restricted Period ”), the Optionee 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 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 planned to be developed, manufactured, marketed or sold, by the Company while the Optionee was employed by the Company, within the United States of America and/or any other country within which the Company has customers or prospective customers.

(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 the Company, (1) any customers of the Company, (2) any prospective customers from whom the Company has solicited business within the twelve (12) months prior to the Optionee’s termination or cessation of employment, 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 the Company who have become known to Optionee as a result of his/her employment with the Company, or (B) induce or attempt to induce any vendor, supplier, licensee or other business relation of the Company to cease or restrict doing business with the Company, or in any way interfere with the relationship between any such vendor, supplier, licensee or business relation and the Company.

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

(b) The Optionee and the Company agree that certain materials, including, but not limited to, 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 the Company constitute proprietary confidential information and trade secrets. Accordingly, the Optionee will not at any time during or after the Optionee’s employment with the Company disclose or use for the Optionee’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, any proprietary confidential information or trade secrets; provided that the foregoing shall not apply to information which is not unique to the Company or

which is generally known to the industry or the public other than as a result of the Optionee’s breach of this covenant. The Optionee agrees that, upon termination of employment with the Company for any reason, the Optionee will immediately return to the Company all Company property 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 the Company, except that the Optionee may retain personal items. The Optionee further agrees that the Optionee will not retain or use for the Optionee’s account at any time any trade names, trademark or other proprietary business designation used or owned in connection with the business of the Company.

“Company” shall mean II-VI and/or any Subsidiary of II-VI that the Optionee is employed by or may become employed by or provide services to during the Optionee’s employment by II-VI or any such Subsidiary. 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 11 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 11 will not exceed the one (1) year period set forth above.

12. Remedies; Violation Clawback .

(a) Company and Optionee acknowledge and agree that that any violation by Optionee of any of the restrictive covenants contained in Section 11 would cause immediate, material and irreparable harm to II-VI and the Company which may not adequately be compensated by money damages and, therefore, II-VI and the Company shall be entitled to injunctive relief (including, without limitation, one 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, but not limited to, the right to have such covenants specifically enforced by any court of competent jurisdiction, the rights under Section 12(b) below, and the right to require Optionee to account for and pay over to II-VI or the Company all benefits derived or received by Optionee 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 or the Company, as the case may be.

(b) In the event that the Optionee violates or breaches any of the covenants set forth in Section 11 of this Agreement, the Options (whether vested or unvested) and the right to receive Shares upon exercise thereof 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 Optionee, to the extent that any portion of the Options were exercised into Shares (i) return and transfer to II-VI any Shares directly or beneficially owned by the Optionee, and (ii) to the extent that the Optionee sold or transferred any such Shares, disgorge and/or repay to II-VI any profits or other economic value (as reasonably determined by II-VI) made or realized by the Optionee with respect to such Shares, including but not limited to the value of any gift thereof.

(c) The Optionee further agrees, as a condition to acceptance of these Options, that these Options may be subject to the provisions of any other forfeiture or clawback policy that may be adopted by II-VI in the future.

13. Optionee Acknowledgments . Optionee acknowledges and agrees that (i) as a result of Optionee’s previous, current and future employment with the Company, Optionee has had access to, will have access to and/or possesses or will possess confidential and proprietary information of the Company, (ii) the Company and its affiliates and subsidiaries are engaged in a highly competitive business and that the Company conducts such business Worldwide, (iii) this Agreement does not constitute a contract of employment, does not imply that the Company will continue his/her employment for any period of time and does not change the at-will nature of his/ her employment, except as set forth in a separate written employment agreement between the Company and the Optionee, (iv) that the restrictive covenants set forth under Section 11 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 the Company, (v) that the remedy, forfeiture and payment provisions contained in Section 12 are reasonable and necessary to protect the legitimate interests of II-VI and the Company, (vi) that acceptance of these Options and agreement to be bound by the provisions hereof is not a condition of Optionee’s employment, and (vii) that Optionee’s receipt of the benefits provided under this Agreement is adequate consideration for the enforcement of the provisions contained in Section 11 and Section 12 hereof.

14. Severability; Waiver . If any term, provision, covenant or restriction contained in the 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 the 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 or the Company 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 or the Company 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.

15. 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. Optionee 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 or the Company may file an action to enforce the covenants contained in Section 11 by seeking injunctive or other equitable relief in any appropriate court having jurisdiction, including but not limited to where the Optionee resides or where the Optionee was employed by II-VI or the Company. Optionee 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. The Company shall be a third-party beneficiary of this Agreement.

16. 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 Benefit Access System in accordance with the procedures established by II-VI for such notice. Otherwise, except as otherwise set forth in this Agreement, 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 Optionee at his most recent home address on record with II-VI or the Company. Notices are effective upon receipt.

17. Entire Agreement . This Agreement (including the Plan and the Summary of Award) contains the entire understanding between the parties and supersedes any prior understanding and agreements between them regarding the subject matter hereof with respect to the Options, and there are no other representations, agreements, arrangements or understandings, oral or written, between the parties relating to the Options 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 and the Optionee.

18. Captions . 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 the Agreement or any provision hereof.

19. Limitation of Actions . Any lawsuit commenced by the Optionee 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.

20. Section 409A of the Code . This Agreement and the Options are intended to be excepted from coverage under Section 409A and shall be administered, interpreted, and construed accordingly. II-VI in its discretion, and without the Optionee’s consent, may impose conditions on the timing and effectiveness of any exercise by Optionee, or take any other action it deems necessary, including amending the terms of the Award and this Agreement to cause the Options to be excepted from 409A (or to comply therewith to the extent that II-VI determines it is not excepted). Notwithstanding, Optionee recognizes and acknowledges that Section 409A of the Code may affect the timing and recognition of payments due hereunder, and may impose upon the Optionee certain taxes or other charges for which the Optionee is and shall remain solely responsible.

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

22. Electronic Delivery . II-VI may, in its sole discretion, deliver any documents or correspondence related to this Agreement, the Options, the Optionee’s participation in the Plan, or future awards that may be granted to the Optionee under the Plan, by electronic means. The Optionee hereby consents to receive such documents by electronic delivery and to Optionee’s participation in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company, including but not limited to the Benefit Access System. Likewise, II-VI may require the Optionee to deliver or receive any documents or correspondence related to this Agreement by such electronic means.

23. 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 Optionee pursuant to II-VI’s instructions to the Optionee (including via the Benefit Access System) shall constitute execution of this Agreement by the Optionee.

The Optionee agrees that his or her electronic acceptance of this Agreement via electronic means, including but not limited to via the Benefit Access 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:		/s/ David G. Wagner
Name:		David G. Wagner
Title:		Vice President, Human Resources

PARTICIPANT

Electronic Acceptance via the
Benefit Access System

Exhibit 10.28

II-VI INCORPORATED

RESTRICTED SHARE AWARD AGREEMENT

THIS RESTRICTED SHARE AWARD AGREEMENT (this “Agreement” ) is dated as of the Grant Date, as specified in the applicable Summary of Award (as defined below), by and between II-VI Incorporated, a Pennsylvania corporation (“ II-VI ”), and the Recipient, as specified in the applicable Summary of Award, who is a director, employee or consultant of II-VI or one of its subsidiaries (the “Recipient” ).

Reference is made to the Summary of Award (the “Summary of Award” ) issued to the Recipient with respect to the applicable Award, which may be found on the MorganStanley SmithBarney Benefit Access System at www.benefitaccess.com (or any successor system selected by II-VI) (the “Benefit Access System” ). Reference further is made to the Summary Plan Description relating to the Plan (as defined below) which also may be found on the Benefit Access System.

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. Share Award . II-VI hereby grants to Recipient an Award of the number of shares of common stock of II-VI ( “II-VI Common Stock” ), as specified in the applicable Summary of Award, subject to the terms, conditions and restrictions set forth in the this Agreement (the “ Restricted Shares ”).

2. Restrictions . The Restricted Shares shall vest and become transferable, pursuant to the terms of the Plan, as follows: One hundred percent (100%) of the total number of Restricted Shares shall vest and become transferable on the third anniversary of the Grant Date. Restricted Shares that have not vested may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated. Restricted Shares that have not vested shall be subject to forfeiture as provided in Section 3 below. Upon a Change in Control of II-VI all unvested Restricted Shares shall immediately vest and become transferable. In the event of the termination of your employment or other service to the Company (as defined in Section 11 below) upon (i) early, normal or late retirement as those terms are defined in II-VI’s profit sharing plan, (ii) death or (iii) total and permanent disability as defined in Section 105(d)(4) of the Internal Revenue Code, any unvested Restricted Shares shall immediately vest and become transferable by Recipient or Recipient’s estate as the case may be.

3. Change in Status . If Recipient’s employment with or service to the Company terminates for reasons other than (i) early, normal or late retirement as those terms are defined in II-VI’s profit sharing plan, (ii) death or (iii) total and permanent disability as defined in Section 105(d)(4) of the Internal Revenue Code, or if Recipient’s status changes to a position which II-VI deems to be ineligible for this restricted share award, any Restricted Shares which had been granted to Recipient which have not yet become vested and transferable, as of the date of Recipient’s termination or upon

Recipient’s commencing employment or service in a non–eligible position, shall be immediately forfeited by Recipient.

4. Book Entry Account . Within a reasonable time after the Grant Date of this Award, II-VI shall instruct its transfer agent to establish a book entry account representing the Restricted Shares in Recipient’s name effective as of the Grant Date, provided that II-VI shall retain control of such account until the Restricted Shares have become vested in accordance with this Agreement.

5. Shareholder Rights . Upon the effective date of the book entry pursuant to Section 4 above, Recipient shall have all of the rights of a shareholder with respect to the Restricted Shares, including the right to vote such Restricted Shares and to receive all dividends or other distributions paid or made available with respect to such Restricted Shares. Notwithstanding the foregoing, any stock dividends or other in–kind dividends or distributions shall be held by II-VI until the related Restricted Shares have become vested in accordance with this Agreement and shall remain subject to the forfeiture provisions applicable to the Restricted Shares to which such dividends or distributions relate.

6. Fractional Shares . II-VI shall not be required to issue any fractional shares pursuant to the Award, and II-VI may round fractions down.

7. Withholding . Recipient shall pay all applicable federal, state and local income and employment taxes (including taxes of any foreign jurisdiction) II-VI is required to withhold at any time with respect to the Restricted Shares. Such payment shall be made in full, at Recipient’s election, in cash or check, or by the tender of previously acquired shares of II-VI Common Stock (including shares then vesting under this Agreement). Shares tendered as payment of required withholding shall be valued at the closing price per share of II-VI Common Stock on the date such withholding obligation arises.

8. Nontransferability . Except as otherwise provided in the Plan, the Restricted Shares 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 Restricted Shares in violation of this Section or the Plan shall render the Award null and void.

9. Adjustments . The number of Restricted Shares shall be adjusted to reflect any stock dividend, stock split, or combination of shares of II-VI Common Stock. In addition, the Committee may make or provide for such adjustment in the number of Restricted Shares, as the Committee in its sole discretion may in good faith determine to be equitably required in order to prevent dilution or enlargement of Recipient’s rights that otherwise would result from (a) any exchange of shares of II-VI Common Stock, recapitalization or other change in the capital structure of II-VI, (b) any merger, consolidation, spin–off, spin–out, split–off, split–up, reorganization, partial or complete liquidation or other distribution of assets (other than a normal cash dividend), issuance of rights or warrants to purchase securities, or (c) any other corporate transaction or event having an effect similar to any of the foregoing. Moreover, in the event of any such transaction or event, the Committee may provide in substitution for the Restricted Shares such alternative consideration as it may in good faith determine to be equitable under the circumstances and may require in connection therewith the surrender of the Restricted Shares so replaced.

10. Plan Provisions . In the event of any conflict between the provisions of this Agreement and the Plan, the Plan shall control.

11. Non-Competition; Non-Solicitation; Confidentiality .

(a) While the Recipient is employed by the Company and for a period of one (1) year after the termination or cessation of such employment 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 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 planned to be developed, manufactured, marketed or sold, by the Company while the Recipient was employed by the Company, within the United States of America and/or any other country within which the Company has customers or prospective customers.

(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 the Company, (1) any customers of the Company, (2) any prospective customers from whom the Company has solicited business within the twelve (12) months prior to the Recipient’s termination or cessation of employment, 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 the Company who have become known to Recipient as a result of his/her employment with the Company, or (B) induce or attempt to induce any vendor, supplier, licensee or other business relation of the Company to cease or restrict doing business with the Company, or in any way interfere with the relationship between any such vendor, supplier, licensee or business relation and the Company.

(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 the Company to leave the employ of the Company, 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 the Company at any time during the term of the Recipient’s employment with the Company; provided , that this clause (B) shall not apply to any individual whose employment with the Company has been terminated for a period of one year or longer.

(b) The Recipient and the Company agree that certain materials, including, but not limited to, 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 the Company 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 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, any proprietary confidential information or trade secrets; provided that the foregoing shall not apply to information which is not unique to the Company 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 termination

of employment with the Company for any reason, the Recipient will immediately return to the Company all Company property 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 the Company, 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 the Company.

“Company” shall mean II-VI and/or any Subsidiary of II-VI that the Recipient is employed by or may become employed by or provide services to during the Recipient’s employment by II-VI or any such Subsidiary. 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 11 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 11 will not exceed the one (1) year period set forth above.

12. Notice . II-VI may require any notice required or permitted under this Agreement to be transmitted, submitted and/or received, by II-VI or the Recipient, via the Benefit Access 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 Recipient at his most recent home address on record with II-VI or the Company. Notices are effective upon receipt.

13. No Continued Rights . The granting of the Award shall not give Recipient any rights to similar grants in future years or any right to continuance of employment or other service with the Company or any of its subsidiaries, patents or affiliates, nor shall it interfere in any way with any right that the Company or any of its subsidiaries, parents or affiliates would otherwise have to terminate Recipient’s employment or other service at any time, the right of the Company or its subsidiary, parent or affiliate to assign Recipient to a position that is ineligible for this restricted share award, or the right of Recipient to terminate his or her services at any time.

14. Remedies; Violation Clawback .

(a) II-VI and Recipient acknowledge and agree that that any violation by Recipient of any of the restrictive covenants contained in Section 11 would cause immediate, material and irreparable harm to II-VI and the Company which may not adequately be compensated by money damages and, therefore, II-VI and the Company shall be entitled to injunctive relief (including, without limitation, one 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, but not limited to, the right to have such covenants specifically enforced by any court of

competent jurisdiction, the rights under Section 14(b) below, and the right to require Recipient to account for and pay over to II-VI or the Company all benefits derived or received by 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 or the Company, as the case may be.

(b) In the event that the Recipient violates or breaches any of the covenants set forth in Section 11 of this Agreement, any unvested Restricted Shares 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 to (i) forfeit and transfer to the II-VI any or all of the Restricted Shares directly or beneficially owned by the Recipient; and (ii) to the extent that the Recipient sold or transferred any Restricted 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 Restricted Shares, including but not limited to the value of any gift thereof.

(c) The Recipient further agrees, as a condition to acceptance of these Restricted Shares, that these Restricted Shares may be subject to the provisions of any other forfeiture or clawback policy that may be adopted by II-VI in the future.

15. Recipient Acknowledgments . Recipient acknowledges and agrees that (i) as a result of Recipient’s previous, current and future employment with the Company, Recipient has had access to, will have access to and/or possesses or will possess confidential and proprietary information of the Company, (ii) the Company and its affiliates and subsidiaries are engaged in a highly competitive business and that the Company conducts such business Worldwide, (iii) this Agreement does not constitute a contract of employment, does not imply that the Company 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 and the Recipient, (iv) that the restrictive covenants set forth under Section 11 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 the Company, (v) that the remedy, forfeiture and payment provisions contained in Section 14 are reasonable and necessary to protect the legitimate interests of II-VI and the Company, (vi) that acceptance of this Award and the Restricted Shares and agreement to be bound by the provisions hereof is not a condition of Recipient’s employment, and (vii) Recipient’s receipt of the benefits provided under this Agreement is adequate consideration for the enforcement of the provisions contained in Sections 11 and 14 hereof.

16. Severability; Waiver . If any term, provision, covenant or restriction contained in the 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 the 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 or the Company 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 or the Company 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.

17. 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. 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 or the Company may file an action to enforce the covenants contained in Section 11 by seeking injunctive or other equitable relief in any appropriate court having jurisdiction, including but not limited to where the Recipient resides or where the Recipient was employed by II-VI or the Company. 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. The Company shall be a third-party beneficiary of this Agreement.

18. Entire Agreement . This Agreement contains the entire understanding between the parties and supersedes any prior understanding and agreements between them representing the subject matter hereof with respect to the Award, and there are no other representations, agreements, arrangements or understandings, oral or written, between between the parties relating to the 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 and the Recipient.

19. Captions . 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.

20. 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.

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

22. Electronic Delivery . II-VI may, in its sole discretion, deliver any documents or correspondence related to this Agreement, the Restricted Shares, 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 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 but not limited to the Benefit Access System. Likewise, II-VI may require the Recipient to deliver or receive any documents or correspondence related to this Agreement by such electronic means.

23. Section 409A . This Award is intended to be excepted from coverage under Section 409A of the Code and shall be interpreted and construed accordingly. Notwithstanding, Recipient recognizes and acknowledges that Section 409A may impose upon the Recipient certain taxes or interest charges for which Recipient is and shall remain solely responsible.

24. 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. Notwithstanding, II-VI may, in its sole discretion and without the Recipient’s consent, modify or amend the terms of this Agreement, or take any other action it deems necessary or advisable to cause this Agreement and the Award to be excepted from Section 409A (or to comply therewith to the extent II-VI determines it is not excepted).

[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 Benefit Access System) shall constitute execution of this Agreement by the Recipient.

The Recipient agrees that his or her electronic acceptance of this Agreement via electronic means, including but not limited to via the Benefit Access 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:		/s/ David G. Wagner

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

PARTICIPANT

Electronic Acceptance via the
Benefit Access System

Exhibit 10.29

II-VI INCORPORATED

PERFORMANCE SHARE AWARD AGREEMENT

THIS PERFORMANCE SHARE AWARD AGREEMENT (this “Agreement”) is dated as of the Grant Date, as specified in the applicable Summary of Award (as defined below), by and between II-VI Incorporated, a Pennsylvania corporation (“ II-VI ”), and the Recipient, as specified in the applicable Summary of Award, who is a director, employee or consultant of II-VI or one of its subsidiaries (the “ Recipient ”).

1. Performance Share Award . II-VI hereby grants to Recipient an Award of Performance Shares under the Plan, as specified in the Summary of Award, to be earned based upon achievement of the Performance Objectives in accordance with Section 2 below (this “Award” ). For the purposes of this Award: (1) “ Performance Share ” shall mean a bookkeeping entry that records the equivalent of one (1) share of II-VI Common Stock, no par value ( “II-VI Common Stock”), granted pursuant to this Agreement and that is payable solely in shares of II-VI Common Stock; (2) “ Performance Period ” shall mean the period from July 1, 2011 through and including June 30, 2013 ; (3) “ Target Award ” shall mean the Target Award set forth in the Summary of Award; and (4) “ Maximum Award ” means the maximum number of Performance Shares allowable under this Agreement as set forth in the Summary of Award representing 150 % of the Target Award.

2. Determination of Shares Earned . Subject to Sections 5 and 6 below, II-VI shall deliver to Recipient one (1) share of II-VI Common Stock for each whole Performance Share that is earned in accordance with the following schedule.


		Performance Shares Earned as a Percentage of Target Award ⁽³⁾
If II-VI Consolidated Revenue is less than 79.99% of the Revenue Target		0%
If II-VI Consolidated Revenue is greater than or equal to 80.00% and less than 100.0% of the Revenue Target		50.0% to 99.99% ⁽¹⁾
If II-VI Consolidated Revenue equals 100.0% of the Revenue Target		100.0%
If II-VI Consolidated Revenue is greater than 100.0% and less than 120.0% of the Revenue Target		100.01% to 149.99% ⁽²⁾
If II-VI Consolidated Revenue is greater than or equal to 120.0% of the Revenue Target		150.0% ^{(Maximum Award)}

⁽¹⁾

In the event that the II-VI Consolidated Revenue is greater than or equal to 80.0% and less than 100.0% of the Revenue Target, the Performance Shares 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 a percentage determined as follows: (A)(i) the II-VI Consolidated Revenue as a percentage of the Revenue Target less 80.0% divided by (ii) 20.0%; multiplied by (B) 50.0% (which product cannot exceed 49.99%).

⁽²⁾

In the event that the II-VI Consolidated Revenue is greater than 100.0% and less than 120.0% of the Revenue Target, the Performance Shares earned as a percentage of the Target Award will be a percentage determined on a linear basis between 100.01% and 149.99% by adding 100.0% to a percentage determined as follows: (A)(i) the II-VI Consolidated Revenue as a percentage of the Revenue Target less 100.0% divided by (ii) 20.0%; multiplied by (B) 50.0% (which product cannot exceed 49.99%).

⁽³⁾

As further defined in Attachment A , the Performance Period will be segmented into four six-month periods and performance against these four periods will be measured against the applicable targets. The final determination of the Performance Shares earned will be based on the higher of the actual performance against the target from either (a) the full twenty-four-(24) month performance period or (b) the sum of the performance results of each of the four six-month periods.

For the purposes of this Award (i) “II-VI Consolidated Revenue ” shall mean the “Total Revenues” of II-VI for the Performance Period, determined in accordance with generally accepted accounting principles in the United States, consistently applied, and (ii) “ Revenue Target ” shall mean $1.2999 Billion.

Only whole shares of II-VI Common Stock shall be earned in accordance with this Section 2 . For the avoidance of doubt, earning 66.67% of a Target Award of 100 Shares would result in delivery of 66 shares of II-VI Common Stock.

3. Delivery of Shares . Unless Recipient has elected to defer receipt of the Performance Shares in accordance with Section 4 , and except as otherwise provided in Section 2 , II-VI shall cause a stock certificate representing shares of II-VI Common Stock equal to the number of Performance Shares earned and determined under Section 2 to be issued to Recipient no later than the seventy-fifth (75 ^th ) calendar day following the end of the Performance Period. .

4. Deferral . Recipient may elect in writing on or before the date that is twelve (12) months prior to the end of the Performance Period, or such earlier date as may be designated by II-VI (the “ Latest Deferral Date ”) in order to satisfy the deferral election requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”), to defer the issuance of all or part of the Performance Shares earned. Any such election shall: (1) specify the date of issuance for the earned Performance Shares, which shall not be earlier than the fifth (5 ^th ) anniversary of the original payment date or such other minimum deferral period as may be designated by II-VI in order to satisfy the deferral election requirements of Section 409A of the Code; and (2) comply with all other applicable deferral election requirements of Section 409A of the Code.

5. Limitation of Rights; Dividend Equivalents . Recipient (i) shall not have any right to transfer any rights under the Performance Shares except as permitted by Section 8 below, (ii) shall not have any rights of ownership of the shares of II-VI’s Common Stock subject to the Performance Shares before the issuance of such shares, and (iii) shall not have any right to vote such shares. Recipient, however, shall receive a cash payment equal to the cash dividends paid on shares underlying Performance Shares if and when cash dividends are paid to shareholders of II-VI (but in no event later than March 15 ^th of the calendar year following the calendar year in which such cash dividends are paid).

6. Termination of Employment . Except as provided in Section 7 below, if Recipient’s employment with or service to the Company (as defined in Section 16 below) terminates before the end of the Performance Period, this Performance Share Award shall be forfeited on the date of such termination.

7. Prorating in Certain Circumstances . If Recipient’s employment with or service to the Company terminates during the Performance Period due to Recipient’s (i) early, normal or late retirement as those terms are defined in II-VI’s profit sharing plan, (ii) death or (iii) total and permanent disability as defined in Section 105(d)(4) of the Code, Recipient shall be entitled to a prorated portion of the Performance Shares to the extent earned pursuant to Section 2 above, determined at the end of the Performance Period and based on the ratio of the number of complete months Recipient is employed or serves during the Performance Period to the total number of months in the Performance Period. Any payments due on Recipient’s death shall be paid to the Recipient’s estate as soon as administratively practicable after the end of the Performance Period.

8. Nontransferability . Except as otherwise provided in the Plan, the Performance Shares 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 Shares in violation of this Section or the Plan shall render the Award null and void.

9. Change in Control . All Performance Shares shall be awarded at the targeted payout amount contemporaneously with a Change in Control.

10. Adjustments . The number of shares covered by the Performance Shares and, if applicable, the kind of shares covered by the Performance Shares, shall be adjusted to reflect any stock dividend, stock split, or combination of the shares of II-VI’s Common Stock. In addition, the Committee may make or provide for such adjustment in the Performance Shares as the Committee in its sole discretion may in good faith determine to be equitably required in order to prevent dilution or enlargement of Recipient’s rights that otherwise would result from (a) any exchange of shares of II-VI’s Common Stock, recapitalization or other change in the capital structure of II-VI, (b) any Change in Control, merger, consolidation, spin–off, spin–out, split–off, split–up, reorganization, partial or complete liquidation or other distribution of assets (other than a normal cash dividend), issuance of rights or warrants to purchase securities, or (c) any other corporate transaction or event having an effect similar to any of the foregoing. Moreover, in the event of any such transaction or event, the Committee may provide in substitution for the Performance Shares such alternative consideration as it may in good faith determine to be equitable under the circumstances and may require in connection therewith the surrender of the Performance Shares so replaced.

11. Fractional Shares . II-VI shall not be required to issue any fractional shares pursuant to the Award, and II-VI shall round fractions down.

12. Withholding . Recipient shall pay all applicable federal, state and local income and employment taxes (including taxes of any foreign jurisdiction) which II-VI is required to withhold at any time with respect to the Performance Shares and any cash dividend equivalents paid thereon. Such payment shall be made in full, at Recipient’s election, in cash or check, or by the tender of previously acquired shares of II-VI’s Common Stock (including Performance Shares then earned and immediately deliverable under this Agreement). Performance Shares tendered as payment of required withholding shall be valued at the closing price per share of II-VI’s Common Stock on the date such withholding obligation arises.

13. Plan Provisions . In the event of any conflict between the provisions of this Agreement and the Plan, the Plan shall control.

14. No Continued Rights . The granting of the Award shall not give Recipient any rights to similar grants in future years or any right to continuance of employment or other service with II-VI or the Company, nor shall it interfere in any way with any right that the Company would otherwise have to terminate Recipient’s employment or other service at any time, or the right of Recipient to terminate his or her services at any time.

15. Rights Unsecured . II-VI shall remain the owner of all Performance Shares deferred by Recipient pursuant to Section 4 and Recipient shall have only II-VI’s unfunded, unsecured promise to pay pursuant to the terms of this Agreement. The rights of Recipient

hereunder shall be that of an unsecured general creditor of II-VI and Recipient shall not have any security interest in any assets of II-VI.

16. Non-Competition; Non-Solicitation; Confidentiality .

(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 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 planned to be developed, manufactured, marketed or sold, by the Company while the Recipient was employed by the Company, within the United States of America, and/or any other country within which the Company has customers or prospective customers as of the date of such termination or cessation.

(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 the Company, (1) any customers of the Company, (2) any prospective customers from whom the Company has solicited business within the twelve (12) months prior to the Recipient’s termination or cessation of employment, 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 the Company who have become known to Recipient as a result of his/her employment with the Company, or (B) induce or attempt to induce any vendor, supplier, licensee or other business relation of the Company to cease or restrict doing business with the Company, or in any way interfere with the relationship between any such vendor, supplier, licensee or business relation and the Company.

(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 the Company to leave the employ of the Company, 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 the Company at any time during the term of the Recipient’s employment with the Company; provided , that this clause (C) shall not apply to any individual whose employment with the Company has been terminated for a period of one year or longer.

enterprise, other than the Company, any proprietary confidential information or trade secrets; provided that the foregoing shall not apply to information which is not unique to the Company 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 termination of employment with the Company for any reason, the Recipient will immediately return to the Company all Company property 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 the Company, 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 the Company.

“Company” shall mean II-VI and/or any Subsidiary of II-VI that the Recipient is employed by or may become employed by or provide services to during the Recipient’s employment by II-VI or any such Subsidiary. 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 16 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 16 will not exceed the one (1) year period set forth above.

17. Remedies; Violation Clawback .

(a) II-VI and Recipient acknowledge and agree that that any violation by Recipient of any of the restrictive covenants contained in Section 16 would cause immediate, material and irreparable harm to Company which may not adequately be compensated by money damages and, therefore, II-VI and the Company shall be entitled to injunctive relief (including, without limitation, one 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, but not limited to, the right to have such covenants specifically enforced by any court of competent jurisdiction, the rights under Section 17(b) below, and the right to require Recipient to account for and pay over to II-VI or the Company all benefits derived or received by 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 or the Company, as the case may be.

(b) In the event that the Recipient violates or breaches any of the covenants set forth in Section 16 of this Agreement, the Performance Shares (whether vested or unvested) and the right to receive shares of II-VI Common Stock for such Performance Shares 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, to the extent that any such shares of II-VI Common Stock were received with respect to such Performance Shares (i) return and transfer to II-VI any such shares directly or beneficially owned by the Recipient, and (ii) 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 but not limited to the value of any gift thereof.

(c) The Recipient further agrees, as a condition to acceptance of these Performance Shares, that these Performance Shares may be subject to the provisions of any other forfeiture or clawback policy that may be adopted by II-VI in the future.

18. Recipient Acknowledgments . Recipient acknowledges and agrees that (i) as a result of Recipient’s previous, current and future employment with the Company, Recipient has had access to, will have access to and/or possesses or will possess confidential and proprietary information of the Company, (ii) the Company and its affiliates and subsidiaries are engaged in a highly competitive business and that the Company conducts such business Worldwide, (iii) this Agreement does not constitute a contract of employment, does not imply that the Company 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 and the Recipient, (iv) that the restrictive covenants set forth under Section 16 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 the Company, (v) that the remedy, forfeiture and payment provisions contained in Section 17 are reasonable and necessary to protect the legitimate interests of II-VI and the Company, (vi) that acceptance of these Performance Shares and agreement to be bound by the provisions hereof is not a condition of Recipient’s employment, and (vii) Recipient’s receipt of the benefits provided under this Agreement is adequate consideration for the enforcement of the provisions contained in Section 16 hereof.

19. Severability; Waiver . If any term, provision, covenant or restriction contained in the 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 the 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 or the Company 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 or the Company 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.

20. 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 Benefit Access 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 Recipient at his most recent home address on record with II-VI or the Company. Notices are effective upon receipt.

21. 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. 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 or the Company may file an action to enforce the covenants contained in Section 16 by seeking injunctive or other equitable relief in any appropriate court having jurisdiction, including but not limited to where the Recipient resides or where the Recipient was employed by II-VI or the Company. 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. The Company shall be a third-party beneficiary of this Agreement.

22. Entire Agreement . This Agreement contains the entire understanding between the parties and supersedes any prior understanding and agreements between them regarding the subject matter hereof with respect to the Award, and there are no other representations, agreements, arrangements or understandings, oral or written, between the parties relating to the 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 and the Recipient.

23. Captions . 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.

24. 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.

25. Section 409A of the Code . This Agreement and the Award are intended to satisfy all applicable requirements of Section 409A of the Code or an exception thereto and shall be construed accordingly. II-VI in its discretion impose conditions on the timing and effectiveness of any exercise by Recipient, or take any other action it deems necessary to comply with the requirements of Section 409A or an exception thereto, including amending the terms of the Award and this Agreement, without Recipient’s consent, in any manner it deems necessary to cause the Award and this Agreement to comply with the applicable requirements of Section 409A or an exception thereto. Notwithstanding, Recipient recognizes and acknowledges that Section 409A of the Code 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.

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

27. Electronic Delivery . II-VI may, in its sole discretion, deliver any documents or correspondence related to this Agreement, the Performance Shares, 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 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 but not limited to the Benefit Access System. Likewise, II-VI may require the Recipient to deliver or receive any documents or correspondence related to this Agreement by such electronic means.

28. 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]

The Recipient agrees that his or her electronic acceptance of this Agreement via electronic means, including but not limited to via the Benefit Access 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:		/s/ David G. Wagner
Name:		David G. Wagner
Title:		Vice President, Human Resources

PARTICIPANT

Electronic Acceptance via the Benefit Access System

Exhibit 10.30

BIR DRAFT: January 19, 2012

II-VI INCORPORATED

STOCK APPRECIATION RIGHTS AGREEMENT

THIS STOCK APPRECIATION RIGHTS AGREEMENT (this “Agreement” ) is dated as of the Grant Date, as specified in the applicable Summary of Award (as defined below), by and between II-VI Incorporated, a Pennsylvania corporation ( “II-VI” ), and the Recipient, as specified in the applicable Summary of Award, who is a director, employee or consultant of II-VI or one of its subsidiaries (the “Recipient”).

All capitalized terms used herein, to the extent not defined, shall have the meanings set forth in the II-VI 2009 Omnibus Incentive Plan (as amended from time to time, the “Plan” ), a copy of which can be found on the Benefit Access System, and/or the applicable Summary of Award. Terms of the Plan and the Summary of Award are incorporated herein by this reference. This Agreement shall constitute an Award Agreement as that term is defined in the Plan and is intended to be a Qualified Performance-Based Award within the meaning of Section 2.28 of the Plan.

1. Grant . II-VI hereby grants the Recipient on and as of the Grant Date Stock Appreciation Rights ( “SARs” ) with respect to the number of shares of common stock of II-VI ( “II-VI Common Stock” ) specified in the applicable Summary of Award (the “Shares” ), at the price per share equal to the Base Price, as specified in the applicable Summary of Award (the “Base Price” ), which SARs shall expire on the Expiration Date, as specified in the applicable Summary of Award, unless such SARs terminate or expire earlier in accordance with the terms hereof.

2. Vesting . The SARs, pursuant to the terms of the Plan, shall vest and become exercisable in installments, as follows:

(a) Upon and after the one (1) year anniversary of the Grant Date, the Recipient may exercise the SARs with respect to any number of Shares (except with respect to fractional shares) not in excess of twenty percent (20%) of the total number of Shares covered by this Agreement.

(b) Upon and after the two (2) year anniversary of the Grant Date, the Recipient may exercise the SARs with respect to any number of Shares (except with respect to fractional shares) not in excess of forty percent (40%) of the total number of Shares covered by this Agreement.

(c) Upon and after the three (3) year anniversary of the Grant Date, the Recipient may exercise the SARs with respect to any number of Shares (except with respect to fractional shares) not in excess of sixty percent (60%) of the total number of Shares covered by this Agreement.

(d) Upon and after the four (4) year anniversary of the Grant Date, the Recipient may exercise the SARs with respect to any number of Shares (except with respect to fractional shares) not in excess of eighty percent (80%) of the total number of Shares covered by this Agreement.

(e) Upon and after the five (5) year anniversary of the Grant Date, the Recipient may exercise the SARs with respect to any number of Shares (except with respect to fractional shares) not in excess of one-hundred percent (100%) of the total number of Shares covered by this Agreement.

3. Post-termination Exercise . Upon the termination of the Recipient’s employment with or service to the Company (as defined in Section 13 below) (for any reason other than (a) early, normal or late retirement as those terms are defined in II-VI’s profit sharing plan, (b) death, or (c) total and permanent disability as defined in Section 105(d)(4) of the Internal Revenue Code), the SARs, whether or not then exercisable pursuant to Section 2 above, shall immediately lapse and become null and void on and as of the date of such termination. Upon the termination of the Recipient’s employment with or service to the Company due to (x) early, normal or late retirement as those terms are defined in II -VI’s profit sharing plan, (y) death or (z) total and permanent disability as defined in Section 105(d)(4) of the Internal Revenue Code, SARs may be exercised post-termination during the applicable periods set forth in Section 4.2 hereof.

4. Acceleration of Vesting/Exercise Period .

4.1. All SARs shall immediately vest and become exercisable immediately prior to a Change in Control. Any SARs remaining unexercised upon a Change in Control shall lapse upon such Change in Control and shall be null and void.

4.2 Exercise Period . No SARs granted under the Plan may be exercised more than ten years from the Grant Date. Upon the termination of the Recipient’s employment with or service to the Company for the reasons set forth below, the SARs may be exercised as follows:

(a) In the event of the death of a Recipient (i) while an employee or a Nonemployee Director of the Company, (ii) within the twelve (12) month period after termination of employment or service as a Nonemployee Director with the Company because of total and permanent disability, as defined in Code Section 105(d)(4), or (iii) within the three (3) year period after termination of employment with or separation from service from the Company because of early, normal or late retirement, as those terms are defined in II-VI’s profit sharing plan, or, in the case of a Nonemployee Director, upon the attainment of age 65 and 20 years of service on the Board, any unvested portion of such Recipient’s SARs will immediately vest and may be exercised by the Recipient’s estate at

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any time, or from time to time, within one (1) year of the date of such Recipient’s death but in no event later than the expiration date of such SARs.

(b) If a Recipient’s employment with the Company or service as a Nonemployee Director shall terminate because of total and permanent disability, as defined in Code Section 105(d)(4), any unvested portion of such Recipient’s SARs will immediately vest and may be exercised at any time, or from time to time, within twelve (12) months of the date of termination of employment or service, but in no event later than the expiration date of such SARs.

(c) If a Recipient’s employment with the Company or service as a Nonemployee Director shall terminate because of his early, normal or late retirement as those terms are defined in the Company’s profit sharing plan, or, in the case of a Nonemployee Director, upon the attainment of age 65 and 20 years of service on the Board, any unvested portion of such Recipient’s SARs will immediately vest and may be exercised by the Recipient at any time, or from time to time, within three (3) years of the date of termination of employment or service, but in no event later than the expiration date of such SARs.

(d) If a Recipient’s employment or service as a Nonemployee Director shall terminate for any reason other than death, total and permanent disability, or retirement as aforesaid, all of such Recipient’s rights to exercise SARs shall terminate at the date of such termination of employment or service.

5. Exercise of SARS . Any exercisable portion of the SARs may be exercised in whole or in part, but in no event with respect to a fraction of a share, from time to time until the Expiration Date, unless otherwise terminated pursuant to the terms of the Plan or this Award Agreement. II-VI may require the exercise of such SARs to be accomplished via a notice of exercise submitted via the Benefit Access System or as otherwise required by II -VI, in accordance with the procedures established by II -VI for such exercise. Such exercise (subject to Section 8 hereof) shall be effective upon the actual receipt of such notice to II-VI. There shall be furnished with each exercise of any portion of the SARs such documents as II-VI in its discretion may deem necessary to assure compliance with applicable rules and regulations of any stock exchange or governmental authority.

6. Payment Upon Exercise . As promptly as is commercially practicable following the receipt by the Company of all requested information from the Recipient with respect to any exercised portion of the SAR, the Recipient shall be entitled to receive in cash from the Company in an amount equal to the product (the “Aggregate Spread” ) obtained by multiplying (A) the positive difference obtained, if any, by subtracting the Base Price per share from the Fair Market Value of a share of II-VI Common Stock on the date of exercise of the SAR by (B) the number of shares with respect to which the SAR is exercised. For the avoidance of doubt, no cash payment is owed if the Aggregate Spread is zero or a negative number and any cash payment the Recipient is entitled to upon exercise shall be subject to any applicable withholding taxes.

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7. Limitation of Rights . Recipient shall not have any rights of ownership with respect to the Shares subject to the SAR, including, but not limited to, any right to vote such Shares.

8. Compliance with Laws . The SARs shall not be exercised in whole or in part in the sole discretion of II-VI: (a) if such exercise would constitute a violation of any provision of, or any regulation or order entered pursuant to, any law purporting to regulate wages, salaries or compensation; or (b) if any requisite approval, consent, registration or other qualification of any stock exchange or quotation system upon which the securities of II-VI may then be listed, the Securities and Exchange Commission or other governmental authority having jurisdiction over the exercise of the SARs shall not have been secured.

9. Nontransferability . Except as otherwise provided in the Plan, the SARs 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 SARs in violation of this paragraph or the Plan shall render these SARs null and void.

10. Adjustments . The number of shares covered by the SARs and the Base Price, shall be adjusted to reflect any stock dividend, stock split, or combination of shares of II-VI Common Stock. In addition, the Committee may make or provide for such adjustment in the number of shares covered by the SARs, and the kind of shares covered by the SARs, as the Committee in its sole discretion may in good faith determine to be equitably required in order to prevent dilution or enlargement of Recipient’s rights that otherwise would result from (a) any exchange of shares of II-VI’s Common Stock, recapitalization or other change in the capital structure of II -VI, (b) any merger, consolidation, spin–off, spin–out, split–off, split–up, reorganization, partial or complete liquidation or other distribution of assets (other than a normal cash dividend), issuance of rights or warrants to purchase securities, or (c) any other corporate transaction or event having an effect similar to any of the foregoing. Moreover, in the event of any such transaction or event, the Committee may provide in substitution for the SARs such alternative consideration as it may in good faith determine to be equitable under the circumstances and may require in connection therewith the surrender of the SARs so replaced.

11. Plan Provisions . In the event of any conflict between the provisions of this Agreement and the Plan, the Plan shall control.

12. No Continued Rights . The granting of the SARs shall not give Recipient any rights to similar grants in future years or any right to continuance of employment or other service with II-VI or the Company, nor shall it interfere in any way with any right that the Company would otherwise have to terminate Recipient’s employment or other service at any time, or the right of Recipient to terminate his or her services at any time.

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13. Non-Competition; Non-Solicitation; Confidentiality .

(a) While the Recipient is employed by the Company and for a period of one (1) year after the termination or cessation of such employment 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 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 planned to be developed, manufactured, marketed or sold, by the Company while the Recipient was employed by the Company, within the United States of America and/or any other country within which the Company has customers or prospective customers.

(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 the Company, (1) any customers of the Company, (2) any prospective customers from whom the Company has solicited business within the twelve (12) months prior to the Recipient’s termination or cessation of employment, 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 the Company who have become known to Recipient as a result of his/her employment with the Company, or (B) induce or attempt to induce any vendor, supplier, licensee or other business relation of the Company to cease or restrict doing business with the Company, or in any way interfere with the relationship between any such vendor, supplier, licensee or business relation and the Company.

(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 the Company to leave the employ of the Company, 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 the Company at any time during the term of the Recipient’s employment with the Company; provided, that this clause (B) shall not apply to any individual whose employment with the Company has been terminated for a period of one year or longer.

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affairs of the Company 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 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, any proprietary confidential information or trade secrets; provided that the foregoing shall not apply to information which is not unique to the Company 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 termination of employment with the Company for any reason, the Recipient will immediately return to the Company all Company property 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 the Company, 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 the Company.

“Company” shall mean II-VI and/or any Subsidiary of II-VI that the Recipient is employed by or may become employed by or provide services to during the Recipient’s employment by II-VI or any such Subsidiary. 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.

14. Remedies; Violation Clawback .

(a) Company and Recipient acknowledge and agree that that any violation by Recipient of any of the restrictive covenants contained in Section 13 would cause immediate, material and irreparable harm to II-VI and the Company which may not adequately be compensated by money damages and, therefore, II-VI and the Company shall be entitled to injunctive relief (including, without limitation, one 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, but not limited to, the right to have such covenants specifically enforced by any court of competent jurisdiction, the rights under Section 14(b) below, and the right to require Recipient to account for and pay over to II-VI or the Company all benefits derived or received by 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 or the Company, as the case may be.

(b) In the event that the Recipient violates or breaches any of the covenants set forth in Section 13 of this Agreement, the SARs (whether vested or unvested) and the right to receive Shares upon exercise thereof 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,

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in equity or otherwise, to demand and require the Recipient, to the extent that any portion of the SARs were exercised into Shares (i) to return and transfer to II -VI any Shares directly or beneficially owned by the Recipient, and (ii) 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 reasonably determined by II-VI) made or realized by the Recipient with respect to such Shares, including but not limited to the value of any gift thereof.

(c) The Recipient further agrees, as a condition to the acceptance of these SARs, that these SARs may be subject to the provisions of any other forfeiture or clawback policy that may be adopted by II-VI in the future.

15. Recipient Acknowledgments . Recipient acknowledges and agrees that (i) as a result of Recipient’s previous, current and future employment with the Company, Recipient has had access to, will have access to and/or possesses or will possess confidential and proprietary information of the Company, (ii) the Company and its affiliates and subsidiaries are engaged in a highly competitive business and that the Company conducts such business Worldwide, (iii) this Agreement does not constitute a contract of employment, does not imply that the Company will continue his/her employment for any period of time and does not change the at-will nature of his/her employment, except as set forth in a separate written employment agreement between the Company and the Recipient, (iv) that the restrictive covenants set forth under 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 the Company, (v) that the remedy, forfeiture and payment provisions contained in Section 14 are reasonable and necessary to protect the legitimate interests of II-VI and the Company, (vi) that acceptance of these SARs and the Recipient's agreement to be bound by the provisions hereof is not a condition of Recipient’s employment, and (vii) that 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 hereof.

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notwithstanding anything to the contrary set forth above, II-VI or the Company 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 but not limited to where the Recipient resides or where the Recipient was employed by II-VI or the Company. 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. The Company shall be a third-party beneficiary of this Agreement.

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 Benefit Access System in accordance with the procedures established by II-VI for such notice. Otherwise, except as otherwise set forth in this Agreement, 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 Recipient at his most recent home address on record with II-VI or the Company. Notices are effective upon receipt.

19. Entire Agreement . This Agreement (including the Plan and the Summary of Award) contains the entire understanding between the parties and supersedes any prior understanding and agreements between them regarding the subject matter hereof with respect to the SARs, and there are no other representations, agreements, arrangements or understandings, oral or written, between the parties relating to the SARs 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 and the Recipient.

20. Captions . 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 the Agreement or any provision hereof.

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. Withholding. The Company shall have the right to withhold, or require the Recipient to timely remit, any and all applicable federal, state and local income and employment

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taxes (including taxes of any foreign jurisdiction) which the Company is required to withhold at any time with respect to the SAR.

23. Rights Unsecured . Recipient shall have only the Company’s unfunded, unsecured promise to pay. The rights of Recipient hereunder shall be that of an unsecured general creditor of the Company, and Recipient shall not have any security interest in any assets of the Company.

24. Section 409A of the Code . This Agreement and the SARs are intended to be accepted from coverage under Section 409A and shall be administered, interpreted, and construed accordingly. II-VI in its discretion, and without the Recipient’s consent, may impose conditions on the timing and effectiveness of any exercise by Recipient, or take any other action it deems necessary, including amending the terms of the Award and this Agreement to cause the SARs to be excepted from 409A (or to comply therewith to the extent that II-VI determines it is not excepted). Notwithstanding, Recipient recognizes and acknowledges that Section 409A of the Code 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.

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

26. Electronic Delivery . II-VI may, in its sole discretion, deliver any documents or correspondence related to this Agreement, the SARs, 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 Recipient’s participation in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company, including but not limited to the Benefit Access System. Likewise, II-VI may require the Recipient to deliver or receive any documents or correspondence related to this Agreement by such electronic means.

27. 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]

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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 via the Benefit Access System) shall constitute execution of this Agreement by the Recipient.

The Recipient agrees that his or her electronic acceptance of this Agreement via electronic means, including but not limited to via the Benefit Access 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:		/s/ David G. Wagner
Name:		David G. Wagner
Title:		Vice President, Human Resources

PARTICIPANT
Electronic Acceptance via the
Benefit Access System

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Exhibit 31.01

CERTIFICATIONS

I, Francis J. Kramer, certify that:

I have reviewed this quarterly report on Form 10-Q of II-VI Incorporated;

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;

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;

The registrant’s other certifying officer 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 that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer 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.

Exhibit 31.02

I, Craig A. Creaturo, certify that:

I have reviewed this quarterly report on Form 10-Q of II-VI Incorporated;

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.

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 Quarterly Report of II-VI Incorporated (the “Corporation”) on Form 10-Q for the period ended December 31, 2011 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.

*	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

(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.

*	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.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company