II-VI INC (Form: 10-Q, Received: 02/08/2019 16:13:18)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended December 31, 2018

☐	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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

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

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

At February 5, 2019, 63,394,256 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, 2018 and June 30, 2018 (Unaudited)	3

	Condensed Consolidated Statements of Earnings – Three and six months ended December 31, 2018 and 2017 (Unaudited)	4

	Condensed Consolidated Statements of Comprehensive Income – Three and six months ended December 31, 2018 and 2017 (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows – Six months ended December 31, 2018 and 2017 (Unaudited)	7

	Condensed Consolidated Statement of Shareholders’ Equity – Six months ended December 31, 2018 (Unaudited)	8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34

Item 4.	Controls and Procedures	35

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	36

Item 1A.	Risk Factors	36

Item 2.	Issuer Purchases of Equity Securities	36

Item 6.	Exhibits	37

PART I - FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

II-VI Incorporated and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

($000)

	December 31,			June 30,
	2018			2018
Assets
Current Assets
Cash and cash equivalents	$	230,256		$	247,038
Accounts receivable - less allowance for doubtful accounts of $2,108 at December 31, 2018 and $837 at June 30, 2018		227,006			215,032
Inventories		291,099			248,268
Prepaid and refundable income taxes		8,107			7,845
Prepaid and other current assets		35,757			43,654
Total Current Assets		792,225			761,837
Property, plant & equipment, net		559,519			524,890
Goodwill		298,250			270,678
Other intangible assets, net		138,995			125,069
Investments		76,441			69,215
Deferred income taxes		3,314			2,046
Other assets		8,390			7,926
Total Assets	$	1,877,134		$	1,761,661

Liabilities and Shareholders' Equity
Current Liabilities
Current portion of long-term debt	$	20,000		$	20,000
Accounts payable		114,049			89,774
Accrued compensation and benefits		55,266			66,322
Accrued income taxes payable		16,525			17,392
Other accrued liabilities		44,185			42,979
Total Current Liabilities		250,025			236,467
Long-term debt		460,457			419,013
Deferred income taxes		28,078			27,241
Other liabilities		65,401			54,629
Total Liabilities		803,961			737,350
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 - 76,124,360 shares at December 31, 2018; 75,692,683 shares at June 30, 2018		367,195			351,761
Accumulated other comprehensive income (loss)		(18,918	)		(3,780	)
Retained earnings		890,915			836,064
		1,239,192			1,184,045
Treasury stock, at cost - 12,538,600 shares at December 31, 2018 and 12,395,791 shares at June 30, 2018		(166,019	)		(159,734	)
Total Shareholders' Equity		1,073,173			1,024,311
Total Liabilities and Shareholders' Equity	$	1,877,134		$	1,761,661

- 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,
	2018			2017

Revenues	$	342,839		$	281,470

Costs, Expenses and Other Expense (Income)
Cost of goods sold		211,333			172,075
Internal research and development		33,764			27,779
Selling, general and administrative		58,136			49,130
Interest expense		5,580			4,644
Other expense (income), net		(701	)		(2,026	)
Total Costs, Expenses & Other Expense (Income)		308,112			251,602

Earnings Before Income Taxes		34,727			29,868

Income Taxes		6,025			20,272

Net Earnings	$	28,702		$	9,596

Basic Earnings Per Share	$	0.45		$	0.15

Diluted Earnings Per Share	$	0.44		$	0.15

- 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,
	2018			2017
Revenues	$	657,272		$	542,973

Costs, Expenses and Other Expense (Income)
Cost of goods sold		401,859			327,605
Internal research and development		66,935			53,354
Selling, general and administrative		111,659			99,754
Interest expense		11,164			8,289
Other expense (income), net		(1,414	)		(2,796	)
Total Costs, Expenses & Other Expense (Income)		590,203			486,206

Earnings Before Income Taxes		67,069			56,767

Income Taxes		12,218			26,030

Net Earnings	$	54,851		$	30,737

Basic Earnings Per Share	$	0.86		$	0.49

Diluted Earnings Per Share	$	0.83		$	0.47

- See notes to condensed consolidated financial statements.

II-VI Incorporated and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

($000)

	Three Months Ended					Six Months Ended
	December 31,					December 31,
	2018			2017		2018			2017
Net earnings	$	28,702		$	9,596	$	54,851		$	30,737
Other comprehensive income (loss):
Foreign currency translation adjustments		(4,454	)		4,085		(15,105	)		15,182
Pension adjustment, net of taxes of ($24) and ($9) for the three and six months ended December 31, 2018, respectively, and $9 and $32 for the three and six months ended December 31, 2017, respectively		(85	)		36		(33	)		118
Comprehensive income	$	24,163		$	13,717	$	39,713		$	46,037

- 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,
	2018			2017
Cash Flows from Operating Activities
Net earnings	$	54,851		$	30,737
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation		36,679			30,811
Amortization		7,820			7,414
Share-based compensation expense		9,277			7,868
Losses on foreign currency remeasurements and transactions		1,726			391
Earnings from equity investments		(2,767	)		(1,617	)
Deferred income taxes		(3,506	)		10,114
Increase (decrease) in cash from changes in (net of effect of acquisitions):
Accounts receivable		(8,610	)		(350	)
Inventories		(39,588	)		(23,414	)
Accounts payable		22,777			4,831
Income taxes		(856	)		1,487
Accrued compensation and benefits		(10,436	)		(9,684	)
Other operating net assets		20,839			1,081
Net cash provided by operating activities		88,206			59,669
Cash Flows from Investing Activities
Additions to property, plant & equipment		(74,368	)		(77,623	)
Purchases of businesses		(54,229	)		(80,965	)
Purchases of equity investments		(4,480	)		(51,491	)
Other investing activities		116			145
Net cash used in investing activities		(132,961	)		(209,934	)
Cash Flows from Financing Activities
Proceeds from issuance of 0.25% convertible senior notes due 2022		-			345,000
Proceeds from borrowings under Credit Facility		120,000			100,000
Payments on borrowings under Credit Facility		(85,000	)		(262,000	)
Proceeds from exercises of stock options		6,222			6,784
Payments on earnout arrangements		(3,540	)		-
Payments in satisfaction of employees' minimum tax obligations		(6,350	)		(3,608	)
Purchases of treasury stock		-			(49,875	)
Debt issuance costs		-			(10,061	)
Net cash provided by financing activities		31,332			126,240
Effect of exchange rate changes on cash and cash equivalents		(3,359	)		6,593
Net decrease in cash and cash equivalents		(16,782	)		(17,432	)
Cash and Cash Equivalents at Beginning of Period		247,038			271,888
Cash and Cash Equivalents at End of Period	$	230,256		$	254,456
Cash paid for interest	$	4,293		$	3,229
Cash paid for income taxes	$	14,527		$	12,907
Non-cash transactions:
Additions to property, plant & equipment included in accounts payable	$	10,347		$	5,915

- See notes to condensed consolidated financial statements.

e II-VI Incorporated and Subsidiaries

Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)

(000)

					Accumulated
					Other
	Common Stock				Comprehensive			Retained		Treasury Stock
	Shares		Amount		Income (Loss)			Earnings		Shares			Amount			Total
Balance - June 30, 2018		75,693	$	351,761	$	(3,780	)	$	836,064		(12,396	)	$	(159,734	)	$	1,024,311
Share-based and deferred compensation activities		431		15,434		-			-		(142	)		(6,285	)		9,149
Net earnings		-		-		-			54,851		-			-			54,851
Foreign currency translation adjustments		-		-		(15,105	)		-		-			-			(15,105	)
Pension adjustment, net of taxes of $(9)		-		-		(33	)		-		-			-			(33	)
Balance - December 31, 2018		76,124	$	367,195	$	(18,918	)	$	890,915		(12,538	)	$	(166,019	)	$	1,073,173

- 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 (“II-VI”, the “Company”, “we”, “us” or “our”) for the three and six months ended December 31, 2018 and 2017 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 audited consolidated financial statements and notes thereto included in the Company’s Current Report on Form 8-K dated December 27, 2018. The consolidated results of operations for the three and six months ended December 31, 2018 are not necessarily indicative of the results to be expected for the full fiscal year. The June 30, 2018 Condensed Consolidated Balance Sheet information was derived from the Company’s audited consolidated financial statements.

Effective July 1, 2018, the Company realigned the composition of its operating segments. The Company moved Laser Systems Group from II-VI Laser Solutions to II-VI Photonics and moved Integrated Photonics, Inc. (“IPI”) from II-VI Photonics to II-VI Performance Products. All applicable segment information has been restated to reflect this change. Additionally, the Company renamed Laser Systems Group to II-VI Industrial Laser.

Note 2.

Recently Issued Financial Accounting Standards

Revenue Recognition Pronouncement

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). The standard requires an entity to recognize revenue in a manner that depicts the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted this standard on July 1, 2018 using the modified retrospective method of adoption. Adoption of the ASU did not require an adjustment to the opening balance of equity. The Company does not expect the standard to have a significant effect on its results of operations, liquidity or financial position in fiscal year 2019. The Company implemented processes and controls to ensure new contracts are reviewed for the appropriate accounting treatment and to generate the disclosures required under the new standard. For the disclosures required by this ASU, see Note 5. Revenue from Contracts with Customers.

Other Adopted Pronouncements

In March 2017, the FASB issued ASU 2017-07, Compensation (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. This update affects employers’ presentation of defined benefit retirement plan costs. With the adoption of this standard, the Company restated the prior periods ending June 30, 2018, 2017, and 2016. These restatements did not have a material effect on the Company’s Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This update changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The adoption of this standard did not have a material effect on the Company’s Consolidated Financial Statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This update requires that when intra-entity asset transfers occur, the entity must recognize tax effects in the period in which the transfer occurs. The adoption of this standard did not have a material effect on the Company’s Consolidated Financial Statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The guidance clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flow. The adoption of this standard did not have a material effect on the Company’s Consolidated Financial Statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This update requires entities to measure equity investments at fair value and recognize any changes in fair value in net income. The adoption of this standard did not have a material effect on the Company’s Consolidated Financial Statements.

Pronouncements Currently Under Evaluation

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This update modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. The new standard will become effective for the Company’s fiscal year 2020, which begins on July 1, 2019. In July 2018, the FASB issued targeted improvements to this ASU in ASU 2018-11. This update provides entities with an optional transition method, which permits an entity to initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.

The Company has elected to utilize the optional transition method. We have reviewed the requirements of this standard and have formulated a plan for implementation. We are currently evaluating our leasing arrangements and have selected a software repository to track all of our lease agreements to assist in the reporting and disclosures required by the standard. We will continue to assess and disclose the impact that this new guidance will have on our consolidated financial statements, disclosures and related controls, when known.

Note 3. Pending Merger

II-VI and Finisar Corporation (“Finisar”) have entered into an Agreement and Plan of Merger, dated as of November 8, 2018 (the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, Mutation Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of II-VI will be merged with and into Finisar, and Finisar will continue as the surviving corporation in the merger and a wholly owned subsidiary of II-VI (the “Merger”).

If the Merger is consummated, Finisar stockholders will be entitled to receive, at their election, consideration per share of common stock of Finisar (the “Finisar Common Stock”) consisting of (i) $26.00 in cash, without interest (the “Cash Election Consideration”), (ii) 0.5546 shares of II-VI common stock (the shares, the “II-VI Common Stock,” and the consideration, the “Stock Election Consideration”), or (iii) a combination of $15.60 in cash, without interest, and 0.2218 shares of II-VI Common Stock (the “Mixed Election Consideration,” and, together with the Cash Election Consideration and the Stock Election Consideration, the “Merger Consideration”). The Cash Election Consideration and the Stock Election Consideration are subject to proration adjustment pursuant to the terms of the Merger Agreement such that the aggregate Merger Consideration will consist of approximately 60% cash and approximately 40% II-VI Common Stock.

At the effective time of the Merger (the “Effective Time”), each option granted pursuant to Finisar’s 2005 Stock Incentive Plan (as such plan has been further amended and restated) (each, a “Finisar Stock Option”) (or portion thereof) that is outstanding and unexercised as of immediately prior to the Effective Time (whether vested or unvested) will be cancelled and terminated and converted into the right to receive an amount of Mixed Election Consideration that would be payable to a holder of such number of shares of Finisar Common Stock equal to the quotient of (i) the product of (a) the excess, if any, of $26.00 over the exercise price per share of such Finisar Stock Option multiplied by (b) the number of shares of Finisar Common Stock subject to such Finisar Stock Option, divided by (ii) $26.00.

At the Effective Time, each Finisar Restricted Stock Unit (or portion thereof) that is outstanding and unvested and does not vest in accordance with its terms in connection with the Merger and is either (x) subject to time-based vesting requirements only or (y) subject to a performance-based vesting condition other than the value of Finisar Common Stock will be assumed by II-VI (each, an “Assumed RSU”). Each Assumed RSU will be subject to substantially the same terms and conditions as applied to the related Finisar Restricted Stock Unit immediately prior to the Effective Time, including the vesting schedule (and the applicable performance-vesting conditions in the case of a grant contemplated by clause (y) of the preceding sentence) and any provisions for accelerated vesting applicable thereto, except that the number of shares of II-VI Common Stock subject to each Assumed RSU will be equal to the product of (i) the number of shares of Finisar Common Stock underlying such unvested Finisar Restricted Stock Unit award as of immediately prior to the Effective Time multiplied by (ii) the sum of (a) 0.2218 plus (b) the quotient obtained by dividing (1) $15.60 by (2) the volume weighted average price per share of II-VI Common Stock (rounded to the nearest cent) on the Nasdaq Global Select Market for the ten consecutive trading days ending on (and including) the third trading day immediately prior to the Effective Time (with the resulting number, rounded down to the nearest whole share).

The completion of the Merger is subject to the satisfaction or wa iver of certain customary closing conditions. II-VI filed with the Securities and Exchange Commission a registration statement on Form S-4 relating to the Merger, and that registration statement became effective in accordance with the provisions of Sectio n 8(a) of the Securities Act of 1933, as amended, on February 7, 2019. Subject to the satisfaction or waiver of each of the closing conditions, II-VI and Finisar expect that the Merger will be completed approximately in the middle of 2019. However, it is possible that factors outside the control of both companies could result in the Merger being completed at a different time or not at all.

On November 8, 2018, in connection with its entry into the Merger Agreement, II-VI entered into a commitment letter (together with a related fee letter) with Bank of America, N.A. (“Bank of America”), which was subsequently amended and restated on December 7, 2018 and on December 14, 2018 (together with one or more related fee letters, the “Commitment Letter”). Subject to the terms and conditions set forth in the Commitment Letter, the lender parties thereto (the “Lending Parties”) have severally committed to provide 100% of up to $2.425 billion in aggregate principal amount of senior secured credit facilities of II-VI (the “II-VI Senior Credit Facilities”) comprised of (i) a “term a” loan facility of up to $1.0 billion, a portion of which will be available after the closing of the Merger on a delayed draw basis, (ii) a “term b” loan facility of up to $975.0 million and (iii) a revolving credit facility of up to $450.0 million.

Note 4 .

Acquisitions

CoAdna Holdings, Inc.

In September 2018, the Company acquired CoAdna Holdings, Inc. (“CoAdna”), a previously publicly traded company on the Taiwan Stock Exchange with headquarters in Sunnyvale, CA, in a cash transaction valued at approximately $85.0 million, inclusive of cash acquired of approximately $42.2 million at closing.

CoAdna is a global leader in wavelength selective switches (“WSS”) based on its patented liquid crystal platform. CoAdna operates within the Company’s II-VI Photonics operating segment. Due to the timing of the acquisition, the Company is still in the process of measuring the fair value of assets acquired and liabilities assumed, including tangible and intangible assets and related deferred income taxes.

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 CoAdna within one year from the date of acquisition ($000):

Assets
Accounts receivable	$	5,684
Inventories		6,189
Prepaid and other assets		2,866
Property, plant & equipment		3,181
Intangible assets		16,072
Goodwill		24,844
Total assets acquired	$	58,836

Liabilities
Accounts payable	$	4,006
Other accrued liabilities		2,717
Accrued income taxes		5,791
Deferred tax liabilities		3,506
Total liabilities assumed		16,020
Net assets acquired	$	42,816

The goodwill of $24.8 million is included in the II-VI Photonics segment and is attributed to the expected synergies and the assembled workforce of CoAdna. None of the goodwill is deductible for income tax purposes. The fair value of accounts receivable acquired was $5.7 million and the gross contractual amount being $5.7 million. The Company expensed transaction costs for six months ended December 31, 2018 of $1.9 million.

The amount of revenues of CoAdna included in the Company’s Condensed Consolidated Statement of Earnings for the three and six months ended December 31, 2018, was $7.1 million and $10.1 million, respectively. The amount of net loss of CoAdna included in the Company’s Condensed Consolidated Statement of Earnings for the three and six months ended December 31, 2018 was immaterial.

Purchase of a Product Line

In November 2018, the Company acquired certain assets of a product line in a cash transaction valued at approximately $10.0 million. In conjunction with the acquisition of the product line, the Company acquired inventory of $0.2 million, equipment of $2.3 million, acquired technology of $6.3 million, and recorded goodwill of $1.2 million. The goodwill is deductible for income tax purposes. The goodwill is recorded in the Photonics segment and is attributed to the workforce acquired as part of the transaction. Transaction expenses for this acquisition were insignificant for the three and six months ended December 31, 2018.

Note 5 .

Revenue from Contracts with Customers

As discussed in Note 2, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), on July 1, 2018 using the modified retrospective method of adoption. Adoption of the ASU did not require an adjustment to the opening balance of equity and did not materially change the Company's amount and timing of recognition of revenues. The Company applied the ASU only to contracts that were not completed as of July 1, 2018. The Company has elected to exclude all taxes from the measurement of the transaction price.

Revenue under ASC 606 is recognized when or as obligations under the terms of a contract with the Company’s customer have been satisfied and control has transferred to the customer.

For contracts held with commercial customers, the majority of the Company’s performance obligations, ownership of the goods and associated revenue are transferred to customers at a point in time, generally upon shipment of a product (“Direct Ship Parts”) to the customer or receipt of the product by the customer and without significant judgments. The majority of contracts typically require payment within 30 to 60 days upon transfer of ownership to the customer.

Contracts with the United States (“U.S.”) government through its prime contractors are typically for products or services with no alternative future use to the Company with an enforceable right to payment for performance completed to date, whereas commercial contracts typically have alternative use. Customized products with no alternative future use to the Company with an enforceable right to payment for performance completed to date are recorded over time utilizing the output method of units delivered. The Company considers this to be a faithful depiction of the transfer to the customer of revenue over time due to short cycle time and immaterial work-in-process balances. The majority of contracts typically require payment within 30 to 60 days upon transfer of ownership to the customer.

Service revenue includes repairs, non-recurring engineering, tolling arrangements and installation. Repairs, tolling and installation activities are usually completed in a short period of time (normally less than one month) and therefore recorded at a point in time when the services are completed. Non-recurring engineering arrangements are typically recognized over time under the time and material practical expedient as the entity has a right to consideration from a customer in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date. The majority of contracts typically require payment within 60 days.

The Company has elected not to disclose the aggregate amount of the transaction price allocated to unsatisfied performance obligations, as our contracts have an original expected duration of less than one year.

Because the Company’s performance obligations have been satisfied and an unconditional right to consideration exists as of the balance sheet date, the Company has recognized amounts due from contracts with customers of $227.0 million as accounts receivable, net of allowance for doubtful accounts within the Condensed Consolidated Balance Sheet.

Costs to Obtain and Fulfill a Contract

Under ASC 606, the Company expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general and administration expenses. The Company has elected to recognize the costs for freight and shipping when control over products has transferred to the customer as an expense in cost of sales.

The Company monitors and tracks the amount of product returns and reduces revenue at the time of shipment for the estimated amount of future returns, based on historical experience. The Company makes estimates evaluating its allowance for doubtful accounts. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon its historical experience and any specific customer collection issues that it has identified.

The Company offers an assurance-type limited warranty that products will be free from defects in materials and workmanship. The warranty is typically one year or the industry standard in length and is limited to either (1) the replacement or repair of the product or (2) a credit against future purchases. The products are not sold with a right of return.

Disaggregation of Revenue

The following tables summarize disaggregated revenue by revenue market, and product for the three and six months ended December 31, 2018 ($000):

	Three Months Ended December 31, 2018
	II-VI				II-VI
	Laser		II-VI		Performance
	Solutions		Photonics		Products		Total
Commercial
Direct Ship Parts	$	100,894	$	157,965	$	39,804	$	298,663
Services		1,363		1,729		1,526		4,618

U.S. Government
Direct Ship Parts	$	3,320	$	-	$	30,187	$	33,507
Services		-		-		6,051		6,051

Total Revenues	$	105,577	$	159,694	$	77,568	$	342,839

	Six Months Ended December 31, 2018
	II-VI				II-VI
	Laser		II-VI		Performance
	Solutions		Photonics		Products		Total
Commercial
Direct Ship Parts	$	203,764	$	291,330	$	81,801	$	576,895
Services		2,253		3,520		4,631		10,404

U.S. Government
Direct Ship Parts	$	5,735	$	-	$	54,952	$	60,687
Services		-		-		9,286		9,286

Total Revenues	$	211,752	$	294,850	$	150,670	$	657,272

Note 6 .

Other Investments

Equity Investment in Privately-Held Company

In November 2017, the Company acquired a 93.8% equity investment in a privately-held company (“Equity Investment”) for $51.5 million. In addition, the Company paid $0.2 million for a working capital adjustment to that purchase price. The Company’s pro-rata share of earnings from this investment for the three and six months ended December 31, 2018 was $0.9 million and $2.0 million, respectively. The Company’s pro rata share of earnings from this investment for the three and six months ended December 31, 2017 was $1.1 million and was recorded in other expense (income), net in the Condensed Consolidated Statement of Earnings.

This investment is accounted for under the equity method of accounting. The following table summarizes the Company's equity in this nonconsolidated investment:

	Interest	Ownership % as of	Equity as of
Location	Type	December 31, 2018	December 31, 2018 ($000)
USA	Equity Investment	93.8%	$	58,376

The Equity Investment has been determined to be a variable interest entity because the Company has an overall 93.8 % economic position in the investee, comprising a significant portion of its capitalization, but has only a 25% voting interest. The Company’s obligation to receive rewards and absorb expected losses is disproportionate to its voting interest. The Company is not the primary beneficiary because it does not have the power to direct the activities of the equity investment that most significantly impact its economic performance. Certain business decisions, including decisions with respect to operating budgets, material capital expenditures, indebtedness, significant acquisitions or dispositions, and strategic decisions, require the approval of owners holding a majority percentage in the Equity Investment. Beginning on the date it was acquired, the Company accoun ted for its interest as an equity method investment as the Company has the ability to exercise significant influence over operating and financial policies of the Equity Investment.

As of December 31, 2018 and June 30, 2018, the Company’s maximum financial statement exposure related to this Equity Investment was approximately $58.4 million and $56.3 million, respectively, which is included in Investments on the Condensed Consolidated Balance Sheet as of December 31, 2018.

The Company has the right to purchase all of the outstanding interest of each of the minority equity holders and the minority equity holders have the right to cause the Company to purchase all of their outstanding interests at any time on or after the third anniversary of the investment, or earlier upon certain events. The purchase price is equal to the greater of: (a) (i) the product of the aggregate trailing 12-month revenues of the equity investment preceding the date of purchase, multiplied by (ii) a factor of 2.9 multiplied by (iii) a factor of 0.723, multiplied by (iv) the percentage interest owned by each minority equity holder and (b) $966,666. The Company performed a Monte Carlo simulation to estimate the fair value of the net put option at the investment date and recorded a liability of $2.2 million in Other long-term liabilities in the Condensed Consolidated Balance Sheet in accordance with ASC 815-10, Derivatives and Hedging. The fair value of the net put option is adjusted as necessary on a quarterly basis, with any changes in the fair value recorded through earnings. The change in fair value of the net purchase option from the investment date to December 31, 2018 was not material.

Guangdong Fuxin Electronic Technology Equity Investment

The Company has an equity investment of 20.2% in Guangdong Fuxin Electronic Technology, based in Guangdong Province, China, which is accounted for under the equity method of accounting. The total carrying value of the investment recorded at December 31, 2018 and June 30, 2018 was $13.6 million and $12.9 million, respectively. During the three and six months ended December 31, 2018, the Company’s pro-rata share of earnings from this investment was $0.2 million and $0.7 million, respectively. During the three and six months ended December 31, 2017, the Company’s pro-rata share of earnings from this investment was $0.2 million and $0.5 million, respectively. Equity earnings were recorded in other expense (income), net in the Condensed Consolidated Statements of Earnings.

Other Equity Investment

During the quarter ended September 30, 2018, the Company acquired a 10% equity investment in a privately-held company for $4.5 million. The Company has determined that the equity interest does not give it the ability to exercise significant influence or joint control. Therefore, the Company will not account for this investment under the equity method of accounting. Under ASU 2016-01, Financial Instruments, the Company has elected the measurement alternative as the investment does not have a readily determinable fair value. Under the alternative, the Company will measure the investment at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investment of the issuer for which there were none during the quarter ended December 31, 2018.

Note 7 .

Inventories

The components of inventories were as follows ($000):

	December 31,		June 30,
	2018		2018
Raw materials	$	118,807	$	97,502
Work in progress		93,375		83,002
Finished goods		78,917		67,764
	$	291,099	$	248,268

Note 8 .

Property, Plant and Equipment

Property, plant and equipment consists of the following ($000):

	December 31,			June 30,
	2018			2018
Land and improvements	$	8,895		$	9,072
Buildings and improvements		226,229			216,507
Machinery and equipment		694,191			633,934
Construction in progress		84,869			88,350
		1,014,184			947,863
Less accumulated depreciation		(454,665	)		(422,973	)
	$	559,519		$	524,890

Note 9 .

Goodwill and Other Intangible Assets

Effective July 1, 2018, the Company realigned the composition of its operating segments. The Company moved Laser Systems Group from II-VI Laser Solutions to II-VI Photonics and moved IPI from II-VI Photonics to II-VI Performance Products. All applicable information has been restated to reflect this change. The Company used the relative fair value method to reallocate goodwill to the associated reporting units in connection with the realignment of its composition of operating segments.

Changes in the carrying amount of goodwill were as follows ($000):

	Six Months Ended December 31, 2018
	II-VI Laser			II-VI			II-VI Performance
	Solutions			Photonics			Products		Total
Balance-beginning of period	$	98,737		$	109,670		$	62,271	$	270,678
Goodwill acquired		-			26,015			4,001		30,016
Foreign currency translation		(831	)		(1,613	)		-		(2,444	)
Balance-end of period	$	97,906		$	134,072		$	66,272	$	298,250

The gross carrying amount and accumulated amortization of the Company’s intangible assets other than goodwill as of December 31, 2018 and June 30, 2018 were as follows ($000):

	December 31, 2018							June 30, 2018
	Gross					Net		Gross					Net
	Carrying		Accumulated			Book		Carrying		Accumulated			Book
	Amount		Amortization			Value		Amount		Amortization			Value
Technology and Patents	$	82,552	$	(35,780	)	$	46,772	$	66,812	$	(32,979	)	$	33,833
Trademarks		15,765		(1,536	)		14,229		15,882		(1,471	)		14,411
Customer Lists		132,923		(54,929	)		77,994		127,603		(50,792	)		76,811
Other		1,572		(1,572	)		-		1,573		(1,559	)		14
Total	$	232,812	$	(93,817	)	$	138,995	$	211,870	$	(86,801	)	$	125,069

As a result of the July 1, 2018 segment realignment, the Company reviewed the recoverability of the carrying value of goodwill at its reporting units. The Company performed a quantitative test to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill and other intangible assets. The Company did not record any impairment of goodwill or long-lived assets, as the quantitative assessment did not indicate deterioration in the fair value of its reporting units.

In conjunction with the acquisition of CoAdna, the Company recorded $9.8 million attributed to the value of technology and patents and $6.3 million of customer lists. The intangibles were recorded based on the Company’s preliminary purchase price allocation

utilizing either a discounted cash flow or relief from royalty method to derive the fair value. The valuation is expected to be finalized within one year from the date of acquisition.

In conjunction with the acquisition of the product line, the Company recorded $6.3 million of acquired technology. The acquired technology was recorded based on the Company’s preliminary purchase price allocation utilizing a relief from royalty method to derive the fair value. The valuation is expected to be finalized within one year of the date of acquisition.

Technology and patents are being amortized over a range of 60 to 240 months, with a weighted average remaining life of approximately 88 months. Customer lists are being amortized over a range of approximately 120 to 240 months with a weighted average remaining life of approximately 134 months. The gross carrying amount of trademarks includes $14.0 million of acquired trade names with indefinite lives that 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 on that portion of the intangible assets relating to the Company’s foreign subsidiaries.

At December 31, 2018, the estimated amortization expense for the existing intangible assets for each of the five succeeding fiscal years is as follows ($000):

Fiscal Year Ending June 30,	Amount
Remaining 2019	$	8,300
2020		16,500
2021		15,200
2022		13,500
2023		13,100

Note 10 .

Debt

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

	December 31,			June 30,
	2018			2018
0.25% convertible senior notes	$	345,000		$	345,000
Convertible senior notes unamortized discount attributable to cash conversion option and debt issuance costs including initial purchaser discount		(50,155	)		(56,409	)
Term loan, interest at LIBOR, as defined, plus 1.75%		55,000			65,000
Line of credit, interest at LIBOR, as defined, plus 1.75%		125,000			80,000
Credit facility unamortized debt issuance costs		(943	)		(1,126	)
Yen denominated line of credit, interest at LIBOR, as defined, plus 1.75%		2,721			2,714
Note payable assumed in IPI acquisition		3,834			3,834
Total debt		480,457			439,013
Current portion of long-term debt		(20,000	)		(20,000	)
Long-term debt, less current portion	$	460,457		$	419,013

0.25% Convertible Senior Notes

On August 24, 2017, the Company entered into a purchase agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representative of the several initial purchasers named therein (collectively, the “Initial Purchasers”), to issue and sell $300 million aggregate principal amount of our 0.25% convertible senior notes due 2022 (the "Notes") in a private placement to qualified institutional buyers within the meaning of Rule 144A under the Securities Act of 1933, as amended. In addition, we granted the Initial Purchasers a 30-day option to purchase up to an additional $45 million aggregate principal amount of the Notes (the “Over-Allotment Option”).

As a result of our cash conversion option, the Company separately accounted for the value of the embedded conversion option as a debt discount. The value of the embedded conversion option was determined based on the estimated fair value of the debt without the conversion feature, which was determined using an expected present value technique (income approach) to estimate the fair value of similar nonconvertible debt; the debt discount is being amortized as additional non-cash interest expense over the term of the Notes using the effective interest method.

amount of Notes, which is equivalent to an initial conversion price of $47.06 per share of common stock. Throughout the term of the Notes, the con version rate may be adjusted upon the occurrence of certain events. The if-converted value of the Notes amounted to $ 2 38.0 million as of December 31 , 2018 and $318.5 million as of June 30, 2018 (based on the Company’s closing stock price on the last tradin g day of the fiscal periods then ended). As of December 31 , 2018, the Notes are not yet convertible based upon the Notes’ conversion features. Holders of the Notes will not receive any cash payment representing accrued and unpaid interest upon conversion of a note. Accrued but unpaid interest will be deemed to be paid in full upon conversion rather than cancelled, extinguished or forfeited.

The following tables set forth total interest expense recognized related to the Notes for the three and six months ended December 31, 2018 and 2017:

	Three Months Ended December 31, 2018		Six Months Ended December 31, 2018
0.25% contractual coupon	$	221	$	441
Amortization of debt discount and debt issuance costs including initial purchaser discount		3,145		6,255
Interest expense	$	3,366	$	6,696

	Three Months Ended December 31, 2017		Six Months Ended December 31, 2017
0.25% contractual coupon	$	219	$	297
Amortization of debt discount and debt issuance costs including initial purchaser discount		2,935		4,043
Interest expense	$	3,154	$	4,340

The effective interest rate on the liability component for both periods presented was 4.5%. The unamortized discount amounted to $43.8 million as of December 31, 2018 and is being amortized over 4 years.

Amended Credit Facility

On July 28, 2016, the Company amended and restated its existing credit agreement. The Third Amended and Restated Credit Agreement (the “Amended Credit Facility”) provides for a revolving credit facility of $325 million, as well as a $100 million term loan. The term loan is being repaid in consecutive quarterly principal payments on the first business day of each January, April, July and October, with the first payment having commenced on October 1, 2016, as follows: (i) twenty consecutive quarterly installments of $5 million and (ii) a final installment of all remaining principal due and payable on the maturity date of July 27, 2021. Amounts borrowed under the revolving credit facility are due and payable on the maturity date. The Amended Credit Facility is unsecured, but is guaranteed by each existing and subsequently acquired or organized wholly-owned domestic subsidiary of the Company. The Company has the option to request an increase to the size of the revolving credit facility in an aggregate additional amount not to exceed $100 million. The Amended Credit Facility has a five-year term through July 27, 2021 and has an interest rate of either a Base Rate Option or a Euro-Rate Option, plus an Applicable Margin, as defined in the agreement governing the Amended Credit Facility. If the Base Rate option is selected for a borrowing, the Applicable Margin is 0.00% to 1.25% and if the Euro-Rate Option is selected for a borrowing, the Applicable Margin is 1.00% to 2.25%. The Applicable Margin is based on the ratio of the Company’s consolidated indebtedness to consolidated EBITDA. Additionally, the Credit Facility is subject to certain covenants, including those relating to minimum interest coverage and maximum leverage ratios. As of December 31, 2018, the Company was in compliance with all financial covenants under its Amended Credit Facility.

Yen Loan

The Company’s Yen denominated line of credit is a 500 million Yen (approximately $4.5 million) facility. The Yen line of credit matures in August 2020. The interest rate is equal to LIBOR, as defined in the loan agreement, plus 0.625% to 1.75%. At December 31, 2018 and June 30, 2018, the Company had 300 million Yen borrowed. Additionally, the facility is subject to certain covenants, including those relating to minimum interest coverage and maximum leverage ratios. As of December 31, 2018, the Company was in compliance with all financial covenants under its Yen facility.

Note Payable

In conjunction with the acquisition of IPI, the Company assumed a non-interest bearing note payable owed to a major customer of IPI. The agreement if not terminated early by either party is payable in full in January 2020.

Aggregate Availability

The Company had aggregate availability of $201.4 million and $246.4 million under its lines of credit as of December 31, 2018 and June 30, 2018, respectively. The amounts available under the Company’s lines of credit are reduced by outstanding letters of credit. The total outstanding letters of credit supported by these credit facilities were $0.4 million as of December 31, 2018 and June 30, 2018.

Weighted Average Interest Rate

The weighted average interest rate of total borrowings was 1.7% and 1.4% for the six months ended December 31, 2018 and 2017, respectively.

Remaining Annual Principal Payments

Remaining annual principal payments under the Company’s existing credit obligations from December 31, 2018 were as follows:

					U.S.
					Dollar
	Term		Yen Line		Line of		Note		Convertible
Period	Loan		of Credit		Credit		Payable		Notes		Total
Year 1	$	20,000	$	-	$	-	$	-	$	-	$	20,000
Year 2		20,000		2,721		-		3,834		-		26,555
Year 3		15,000		-		125,000		-		-		140,000
Year 4		-		-		-		-		345,000		345,000
Year 5		-		-		-		-		-		-
Total	$	55,000	$	2,721	$	125,000	$	3,834	$	345,000	$	531,555

Note 1 1 .

Income Taxes

The Company’s year-to-date effective income tax rate at December 31, 2018 and 2017 was 18.2% and 45.9%, respectively. The variations between the Company’s effective tax rate and the U.S. statutory rate of 21% were primarily due to the impact of the U.S. enacted tax legislation and earnings generated from the Company’s foreign operations, which are subject to income taxes at lower statutory rates. The variation in the Company’s year-to-date effective income tax rate was primarily due to one-time charges related to the Tax Cuts and Jobs Act during the six months ended December 31, 2017.

U.S. GAAP prescribes the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements which includes 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, 2018 and June 30, 2018, the Company’s gross unrecognized income tax benefit was $14.0 million and $9.9 million, respectively. The Company has classified the uncertain tax positions as noncurrent income tax liabilities, as the amounts are not expected to be paid within one year. If recognized, $5.9 million of the gross unrecognized tax benefits at December 31, 2018 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. The amount of accrued interest and penalties included in the gross unrecognized income tax benefit was $0.8 million and $0.6 million, at December 31, 2018 and June 30, 2018, respectively. Fiscal years 2015 to 2019 remain open to examination by the U.S. Internal Revenue Service, fiscal years 2014 to 2019 remain open to examination by certain state jurisdictions, and fiscal years 2009 to 2019 remain open to examination by certain foreign taxing jurisdictions. The Company is currently under examination for the U.S. Federal income tax return for the year ended June 30, 2016; certain subsidiary companies in the Philippines for the year ended June 30, 2017; Germany for the years ended June 2012 through June 2015; and New Jersey for the years ended 2014 through June 30, 2017. The Company believes its income tax reserves for these tax matters are adequate.

U.S. Tax Reform

On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act includes changes to the U.S. statutory federal tax rate and puts into effect the migration from a worldwide system of taxation to a territorial system, among other things. As of December 31, 2018, the Company completed its analysis of the impact of the Tax Act in accordance with U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118 (“SAB 118”) and the amounts are no longer considered provisional. The Company’s transition tax increased due to finalization of calculations and consideration of Notices and regulations issued by the U.S. Department of Treasury and the Internal Revenue Service; however, the increase is offset by available net operating loss and credit carryforwards which currently have a valuation allowance. Consequently, the tax expense reported is reduced by the

release of the valuation allowance on the U.S. deferred tax assets, and as result, there was no material financial state ment impact due to finalization of the provisional estimates recorded in the year ended June 30, 2018.

Furthermore, the Tax Act includes certain changes such as introducing a new category of income, referred to as global intangible low tax income, related to earnings taxed at a low rate of foreign entities without a significant fixed asset base, and imposes additional limitations on the deductibility of interest and officer compensation. These changes are included in the Company’s 2019 fiscal year income tax expense.

Note 1 2 .

Earnings Per Share

The following table sets forth the computation of earnings per share for the periods indicated. Basic net income per share has been computed using the weighted average number of shares of Common Stock outstanding during the period. Diluted net income per share has been computed using the weighted average number of common shares outstanding during the period plus dilutive potential shares of Common Stock from (1) stock options, performance and restricted shares (under the treasury stock method) and (2) convertible debt (under the If Converted method) outstanding during the period. The Company’s convertible debt calculated under the If-Converted method was anti-dilutive for both the three and six months ended December 31, 2018 and was excluded from the calculation of earnings per share. ($000 except per share data):

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2018		2017		2018		2017

Net earnings	$	28,702	$	9,596	$	54,851	$	30,737
Divided by:
Weighted average shares		63,588		62,302		63,504		62,523

Basic earnings per common share	$	0.45	$	0.15	$	0.86	$	0.49

Net earnings	$	28,702	$	9,596	$	54,851	$	30,737
Divided by:
Weighted average shares		63,588		62,302		63,504		62,523
Dilutive effect of common stock equivalents		2,085		2,736		2,412		2,638
Diluted weighted average common shares		65,673		65,038		65,916		65,161

Diluted earnings per common share	$	0.44	$	0.15	$	0.83	$	0.47

The following table presents potential shares of Common Stock excluded from the calculation of diluted net income per share as their effect would have been anti-dilutive ($000):

	Three Months Ended				Six Months Ended
	December 31,				December 31,
	2018		2017		2018		2017

Stock options and restricted shares		138		133		125		110
0.25% Convertible Senior Notes due 2022		7,331		7,331		7,331		7,331
Total anti-dilutive shares		7,469		7,464		7,456		7,441

Note 1 3 .

Segment Reporting

The Company reports its business segments using the “management approach” model for segment reporting. This means that the Company determines its reportable business segments based on the way the chief operating decision maker organizes business segments within the Company for making operating decisions and assessing performance.

The Company reports its financial results in the following three segments: (i) II-VI Laser Solutions, (ii) II-VI Photonics, and (iii) II-VI Performance Products, and the Company’s chief operating decision maker receives and reviews financial information based on these segments. The Company evaluates business segment performance based upon segment operating income, which is defined as

earnings before income taxes, interest and other income or expense. The segments are managed separately due to the market, p roduction requirements and facilities unique to each segment.

As discussed in Note 1, the Company realigned the composition of its operating segments. The Company moved Laser Systems Group from II-VI Laser Solutions to II-VI Photonics and moved IPI from II-VI Photonics to II-VI Performance Products. All applicable segment information has been restated to reflect this change.

In September and November 2018, the Company completed its acquisitions of CoAdna and an additional product line. See Note 4. Acquisitions. The operating results of these acquisitions have been reflected in the selected financial information of the Company’s II-VI Photonics segment since the date of the acquisitions.

The accounting policies are consistent across each of the segments. To the extent possible, the Company’s corporate expenses and assets are allocated to the segments. The Company evaluates segment performance based upon reported segment operating income, which is defined as earnings before income taxes, interest and other income or expense. Eliminations and Other include eliminating inter-segment sales and transfers as well as transaction costs related to the Finisar transaction.

The following tables summarize selected financial information of the Company’s operations by segment ($000):

	Three Months Ended December 31, 2018
	II-VI				II-VI
	Laser		II-VI		Performance		Eliminations &
	Solutions		Photonics		Products		Other			Total
Revenues	$	105,577	$	159,694	$	77,568	$	-		$	342,839
Inter-segment revenues		13,632		2,440		6,059		(22,131	)		-
Operating income (expense)		12,222		23,087		11,400		(7,103	)		39,606
Interest expense		-		-		-		-			(5,580	)
Other income (expense), net		-		-		-		-			701
Income taxes		-		-		-		-			(6,025	)
Net earnings		-		-		-		-			28,702
Depreciation and amortization		10,626		6,462		5,241		-			22,329
Segment assets		697,948		697,856		481,331		-			1,877,134
Expenditures for property, plant & equipment		15,301		11,223		11,945		-			38,468
Investments		-		-		76,441		-			76,441

	Three Months Ended December 31, 2017
	II-VI				II-VI
	Laser		II-VI		Performance		Eliminations &
	Solutions		Photonics		Products		Other			Total
Revenues	$	105,033	$	115,304	$	61,133	$	-		$	281,470
Inter-segment revenues		6,887		5,497		6,320		(18,704	)		-
Operating income (expense)		9,442		16,237		6,807		-			32,486
Interest expense		-		-		-		-			(4,644	)
Other income (expense), net		-		-		-		-			2,026
Income taxes		-		-		-		-			(20,272	)
Net earnings		-		-		-		-			9,596
Depreciation and amortization		8,829		5,669		4,911		-			19,409
Expenditures for property, plant & equipment		23,422		7,893		8,082		-			39,397

	Six Months Ended December 31, 2018
	II-VI				II-VI
	Laser		II-VI		Performance		Eliminations &
	Solutions		Photonics		Products		Other			Total
Revenues	$	211,752	$	294,850	$	150,670	$	-		$	657,272
Inter-segment revenues		27,185		5,336		11,721		(44,242	)		-
Operating income (expense)		24,532		38,999		20,391		(7,103	)		76,819
Interest expense		-		-		-		-			(11,164	)
Other income (expense), net		-		-		-		-			1,414
Income taxes		-		-		-		-			(12,218	)
Net earnings		-		-		-		-			54,851
Depreciation and amortization		21,473		12,661		10,365		-			44,499
Expenditures for property, plant & equipment		26,894		23,274		23,219		-			73,386

	Six Months Ended December 31, 2017
	II-VI				II-VI
	Laser		II-VI		Performance		Eliminations &
	Solutions		Photonics		Products		Other			Total
Revenues	$	192,969	$	231,244	$	118,760	$	-		$	542,973
Inter-segment revenues		14,067		8,360		12,310		(34,737	)		-
Operating income (expense)		12,094		35,663		14,504		-			62,261
Interest expense		-		-		-		-			(8,289	)
Other income (expense), net		-		-		-		-			2,796
Income taxes		-		-		-		-			(26,030	)
Net earnings		-		-		-		-			30,737
Depreciation and amortization		17,053		11,176		9,996		-			38,225
Expenditures for property, plant & equipment		36,183		17,676		22,965		-			76,823

Note 1 4 .

Share-Based Compensation

The Company’s Board of Directors adopted the II-VI Incorporated 2018 Omnibus Incentive Plan (the “Plan”), which was approved by the Company’s shareholders. The Plan provides for the grant of performance-based cash incentive awards, non-qualified stock options, stock appreciation rights, restricted share awards, restricted share units, deferred share awards, performance share awards and performance share units to employees, officers and directors of the Company. The maximum number of shares of the Company’s Common Stock authorized for issuance under the Plan is limited to 3,550,000 shares of Common Stock, not including any remaining shares forfeited under the predecessor plans that may be rolled into the Plan. The Company records share-based compensation expense for these awards in accordance with U.S. GAAP, which requires the recognition of grant-date fair value of share-based compensation in net earnings and over the requisite service period of the individual grantees, which generally equals the vesting period. The Company accounts for cash-based stock appreciation rights, cash-based restricted share unit awards and cash-based performance share unit awards as liability awards, in accordance with applicable accounting standards.

Share-based compensation expense is allocated approximately 20% to cost of goods sold and 80% to selling, general and administrative expense, based on the employee classification of the grantees. Share-based compensation expense for the periods indicated was as follows ($000):

	Three Months Ended				Six Months Ended
December 31,		2018		2017		2018		2017
Stock Options and Cash-Based Stock Appreciation Rights	$	454	$	2,062	$	2,782	$	4,525
Restricted Share Awards and Cash-Based Restricted Share Unit Awards		2,007		2,181		4,799		4,744
Performance Share Awards and Cash-Based Performance Share Unit Awards		2,497		1,154		2,714		2,440
	$	4,958	$	5,397	$	10,295	$	11,709

Note 15 . Fair Value of Financial Instruments

The FASB defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous markets for the asset and liability in an orderly transaction between market participants at the measurement date. The Company estimates fair value of its financial instruments utilizing an established three-level hierarchy in accordance with U.S. GAAP. The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date as follows:


•	Level 1 –	Valuation is based upon unadjusted quoted prices for identical assets or liabilities in active markets.

•	Level 2 –	Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instruments.

•	Level 3 –	Valuation is based upon other unobservable inputs that are significant to the fair value measurements.

The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the measurement.

At December 31, 2018, 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, restrictions and other terms specific to the contracts.

In February 2016, the Company entered into a contingent earnout arrangement which provides up to a maximum of $6.0 million of additional cash earnout opportunities based upon II-VI EpiWorks achieving certain agreed upon financial and operational targets for capacity, wafers output and gross margin, which if earned would be payable for the achievement of each specific annual target over the next three years. The Company paid the first and second years of the earnout amount of $3.5 million during the six months ended December 31, 2018.

The fair values of the contingent earnout arrangements and the net put option were measured using valuations based upon other unobservable inputs that are significant to the fair value measurement (Level 3).

The Company estimated the fair value of the 0.25% convertible notes based on quoted market prices as of the last trading day prior to December 31, 2018; however, the convertible notes have only a limited trading volume and as such this fair value estimate is not necessarily the value at which the convertible notes could be retired or transferred. The Company concluded that this fair value measurement should be categorized within Level 2. The carrying value of the convertible notes is net of unamortized discount and issuance costs. See Note 10. Debt for details on the Company’s debt facilities. The fair value and carrying value of the convertible notes were as follows at December 31, 2018 ($000):

		Fair Value				Carrying Value
Convertible notes		$	334,650			$	294,845

The following table provides a summary by level of the fair value of financial instruments that are measured on a recurring basis or for which fair value is disclosed for the periods presented ($000):

	Fair Value Measurements at December 31, 2018 Using:
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	December 31, 2018		(Level 1)		(Level 2)		(Level 3)
Liabilities:
Foreign currency forward contracts	$	218	$	-	$	218	$	-
Contingent earnout arrangements	$	3,697	$	-	$	-	$	3,697
Net put option	$	2,024	$	-	$	-	$	2,024

	Fair Value Measurements at June 30, 2018 Using:
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
			Assets		Inputs		Inputs
	June 30, 2018		(Level 1)		(Level 2)		(Level 3)
Assets:
Foreign currency forward contracts	$	121	$	-	$	121	$	-
Liabilities:
Contingent earnout arrangements	$	5,405	$	-	$	-	$	5,405
Net put option	$	2,024	$	-	$	-	$	2,024

The Company’s policy is to report transfers into and out of Levels 1 and 2 of the fair value hierarchy at fair values as of the beginning of the period in which the transfers occur. There were no transfers in and out of Levels 1 and 2 of the fair value hierarchy during the three months ended December 31, 2018.

The following table presents a reconciliation of the beginning and ending fair value measurements of the Company’s Level 3 contingent earnout arrangements related to the Company’s acquisitions and the net put option relating to the equity investment acquired in November 2017 ($000):

	Significant
	Unobservable Inputs
	(Level 3)
Balance at July 1, 2018	$	7,429
Contingent earnout arrangements:
Payments		(3,540	)
Changes in fair value recorded in other expense, (income)		(765	)
Other earnout arrangements		2,597
Balance at December 31, 2018	$	5,721

The fair values of cash and cash equivalents are considered Level 1 among the fair value hierarchy and approximate fair value because of the short-term maturity of those instruments. The Company’s borrowings including its capital lease obligation are considered Level 2 among the fair value hierarchy and their principal amounts approximate fair value.

Note 1 6 .

Post-Retirement Benefits

The Company has a pension plan (the “Swiss Plan”) covering employees of the Zurich, Switzerland subsidiary. Net periodic pension costs associated with the Swiss Plan included the following ($000):

	Three Months Ended						Six Months Ended
	December 31,						December 31,
	2018			2017			2018			2017
Service cost	$	953		$	946		$	1,891		$	1,898
Interest cost		139			107			276			214
Expected return on plan assets		(250	)		(213	)		(496	)		(428	)
Net amortization		(109	)		45			(42	)		150
Net periodic pension costs	$	733		$	885		$	1,629		$	1,834

The Company contributed $0.8 million and $1.6 million to the Swiss Plan during the three and six months ended December 31, 2018, and $1.0 million and $1.9 million during the three and six months ended December 31, 2017. The Company currently anticipates contributing an additional estimated amount of approximately $1.6 million to the Swiss Plan during the remainder of fiscal year 2019.

Note 17 .

Share Repurchase Programs

to this Program during the quarter ended December 31 , 2018. Through December 31 , 2018, the Company has cumulatively purchased 1,316,587 shares of its Common Stock pursuant to the Program for approximately $19.0 million.

Note 18 .

Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (“AOCI”) by component, net of tax, for the six months ended December 31, 2018 were as follows ($000):

	Foreign						Total
	Currency			Defined			Accumulated Other
	Translation			Benefit			Comprehensive
	Adjustment			Pension Plan			Income (Loss)
AOCI - June 30, 2018	$	(1,308	)	$	(2,472	)	$	(3,780	)
Other comprehensive income before reclassifications		(15,105	)		-			(15,105	)
Amounts reclassified from AOCI		-			(33	)		(33	)
Net current-period other comprehensive income		(15,105	)		(33	)		(15,138	)
AOCI - December 31, 2018	$	(16,413	)	$	(2,505	)	$	(18,918	)

Note 1 9 .

Capital Lease

The Company’s OptoElectronic Devices subsidiary entered into a capital lease related to a building in Warren, New Jersey. The following table shows the future minimum lease payments due under the non-cancelable capital lease ($000):

Fiscal Year Ending June 30,	Amount
2019 (remaining)		1,161
2020		2,355
2021		2,419
2022		2,486
2023		2,554
Thereafter		24,740

Total minimum lease payments	$	35,715
Less amount representing interest		10,880

Present value of capitalized payments	$	24,835

The current and long-term portion of the capital lease obligation was recorded in Other accrued liabilities and Other liabilities, respectively, in the Company’s Condensed Consolidated Balance Sheet as of December 31, 2018 and June 30, 2018. The present value of the minimum capital lease payments at inception was $25 million recorded in Property, Plant & Equipment, net, in the Company’s Condensed Consolidated Balance Sheet as of December 31, 2018, with associated depreciation being recorded over the 15-year life of the lease. During the three and six months ended December 31, 2018, the Company recorded $0.4 million and $0.8 million of depreciation expense associated with the capital leased asset.

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL COND ITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

This Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations (“Management’s Discussion and Analysis”), contains forward-looking statements as defined by Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding projected growth rates, markets, product development, financial position, capital expenditures and foreign currency exposure. Forward-looking statements are also identified by words such as “expects,” “anticipates,” “intends,” “plans,” “projects” or similar expressions.

Although our management considers these expectations and assumptions to be reasonable, actual results could differ materially from any such forward-looking statements included in this Quarterly Report on Form 10-Q or otherwise made by our management due to the following factors, among others: dependency on international sales and successful management of global operations; the development and use of new technology; the timely release of new products and acceptance of such new products by the market; our ability to devise and execute strategies to respond to market conditions; our ability to achieve the anticipated benefits of capital investments that we make; the impact of acquisitions on our business and our ability to assimilate recently acquired businesses; our ability to complete our proposed acquisition of Finisar Corporation (“Finisar”) on the anticipated terms and timing or at all; the impact of impairment in goodwill and indefinite-lived intangible assets in one or more of our segments; adverse changes in economic or industry conditions generally (including capital markets) or in the markets served by the Company; our ability to protect our intellectual property; domestic and foreign governmental regulation, including that related to the environment; the impact of a data breach incident on our operations; supply chain issues; the actions of competitors; the purchasing patterns of customers and end-users; the occurrence of natural disasters and other catastrophic events outside of our control; changes in local market laws and practices and risks related to the recent U.S. tax legislation and the Company’s continuing analysis of its impact on the Company and the adoption and expansion of trade restrictions or the occurrence of trade wars. There are additional risk factors that could materially affect the Company’s business, results of operations or financial condition set forth in Part I, Item 1A of the Company’s most recent Current Report on Form 8-K as filed with the Securities and Exchange Commission (the “SEC”) on December 27, 2018 and in the section entitled “Risk Factors” in the joint proxy statement/prospectus filed the Company with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on February 8, 2019 in connection with our pending acquisition of Finisar.

In addition, we operate in a highly competitive and rapidly changing environment; new risk factors can arise, and it is not possible for management to anticipate all such risk factors, nor to assess the impact of all such risk factors on our business or the extent to which any individual risk factor, or combination of risk factors, may cause results to differ materially from those contained in any forward-looking statement. The forward-looking statements included in this Quarterly Report on Form 10-Q are based only on information currently available to us and speak only as of the date of this Report. We do not assume any obligation, and do not intend to, update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by the securities laws. Investors should, however, consult any further disclosures of a forward-looking nature that the Company may make in its subsequent Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, or other disclosures filed with or furnished to the SEC.

Investors should also be aware that, while the Company does communicate with securities analysts from time to time, such communications are conducted in accordance with applicable securities laws. Investors should not assume that the Company agrees with any statement or report issued by any analyst irrespective of the content of the statement or report.

Introduction

II-VI Incorporated (“II-VI,” the “Company,” “we,” “us” or “our”), a worldwide leader in engineered materials and opto-electronic components, is a vertically integrated manufacturing company that develops innovative products for diversified applications in the industrial materials processing, optical communications, military, consumer electronics, semiconductor equipment, life science and automotive applications . The Company produces a wide variety of application-specific photonic and electronic materials and components, and deploys them in various forms, including integration with advanced software.

The Company generates revenues, earnings and cash flows from developing, manufacturing and marketing engineered materials and opto-electronic components for precision use in industrial, optical communications, military, semiconductor, medical and consumer applications. We also generate revenue, earnings and cash flows from government-funded research and development contracts relating to the development and manufacture of new technologies, materials and products.

Our customer base includes original equipment manufacturers, laser end users, system integrators of high-power lasers, manufacturers of equipment and devices for industrial, optical communications, consumer electronics, security and monitoring applications, U.S. government prime contractors, various U.S. government agencies and thermoelectric solutions suppliers.

In September and November 2018, the Company completed its acquisitions of CoAdna Holdings, Inc (“CoAdna”) and an addition al product line . See Note 4 . Acquisitions. The operating results of these acquisitions have been reflected in the selected financial information of the Company’s II-VI Photonics segment since the date of the acquisitions.

Pending Merger

II-VI and Finisar have entered into an Agreement and Plan of Merger, dated as of November 8, 2018 (the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, Mutation Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of II-VI, will be merged with and into Finisar, and Finisar will continue as the surviving corporation in the merger and a wholly owned subsidiary of II-VI (the “Merger”). If the Merger is consummated, Finisar stockholders will be entitled to receive, at their election, consideration per share of common stock of Finisar (the “Finisar Common Stock”) consisting of (i) $26.00 in cash, without interest (the “Cash Election Consideration”), (ii) 0.5546 shares of II-VI common stock (the shares, the “II-VI Common Stock,” and the consideration, the “Stock Election Consideration”), or (iii) a combination of $15.60 in cash, without interest, and 0.2218 shares of II-VI Common Stock (the “Mixed Election Consideration,” and, together with the Cash Election Consideration and the Stock Election Consideration, the “Merger Consideration”). The Cash Election Consideration and the Stock Election Consideration are subject to proration adjustment pursuant to the terms of the Merger Agreement such that the aggregate Merger Consideration will consist of approximately 60% cash and approximately 40% II-VI Common Stock. At the effective time of the Merger (the “Effective Time”), each option granted pursuant to Finisar’s 2005 Stock Incentive Plan (as such plan has been further amended and restated) (each, a “Finisar Stock Option”) (or portion thereof) that is outstanding and unexercised as of immediately prior to the Effective Time (whether vested or unvested) will be cancelled and terminated and converted into the right to receive an amount of Mixed Election Consideration that would be payable to a holder of such number of shares of Finisar Common Stock equal to the quotient of (i) the product of (a) the excess, if any, of $26.00 over the exercise price per share of such Finisar Stock Option multiplied by (b) the number of shares of Finisar Common Stock subject to such Finisar Stock Option, divided by (ii) $26.00.

At the Effective Time, each restricted stock unit granted pursuant to Finisar’s 2005 Stock Incentive Plan (as such plan has been further amended and restated) (each, a “Finisar Restricted Stock Unit”) (or portion thereof) that is outstanding and subject to a performance-based vesting condition that relates solely to the value of Finisar Common Stock will, to the extent such Finisar Restricted Stock Unit vests in accordance with its terms in connection with the Merger (the “Participating RSUs”), be cancelled and extinguished and converted into the right to receive the Cash Election Consideration, the Stock Election Consideration or the Mixed Election Consideration at the election of the holder of such Participating RSUs, subject to proration adjustment. At the Effective Time, each Finisar Restricted Stock Unit (or portion thereof) that is outstanding and unvested and does not vest in accordance with its terms in connection with the Merger and is either (x) subject to time-based vesting requirements only or (y) subject to a performance-based vesting condition other than the value of Finisar Common Stock will be assumed by II-VI (each, an “Assumed RSU”). Each Assumed RSU will be subject to substantially the same terms and conditions as applied to the related Finisar Restricted Stock Unit immediately prior to the Effective Time, including the vesting schedule (and the applicable performance-vesting conditions in the case of a grant contemplated by clause (y) of the preceding sentence) and any provisions for accelerated vesting applicable thereto, except that the number of shares of II-VI Common Stock subject to each Assumed RSU will be equal to the product of (i) the number of shares of Finisar Common Stock underlying such unvested Finisar Restricted Stock Unit award as of immediately prior to the Effective Time multiplied by (ii) the sum of (a) 0.2218 plus (b) the quotient obtained by dividing (1) $15.60 by (2) the volume weighted average price per share of II-VI Common Stock (rounded to the nearest cent) on the Nasdaq Global Select Market for the ten consecutive trading days ending on (and including) the third trading day immediately prior to the Effective Time (with the resulting number, rounded down to the nearest whole share).

The completion of the Merger is subject to the satisfaction or waiver of certain customary closing conditions. II-VI filed with the Securities and Exchange Commission a registration statement on Form S-4 relating to the Merger, and that registration statement became effective in accordance with the provisions of Section 8(a) of the Securities Act of 1933, as amended, on February 7, 2019. Subject to the satisfaction or waiver of each of the closing conditions, II-VI and Finisar expect that the Merger will be completed approximately in the middle of 2019. However, it is possible that factors outside the control of both companies could result in the Merger being completed at a different time or not at all.

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 Current Report on Form 8-K describes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. The Company adopted ASU 2014-09, Revenues from Contracts with Customers (Topic 606), on July 1, 2018 using the modified retrospective method of adoption. There have been no other changes in significant accounting policies as of December 31, 2018.

New Accounting Standards

See Note 2. Recent Accounting Pronouncements to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q 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 ($ in millions, except per share data)

The following tables set forth select items from our Condensed Consolidated Statements of Earnings for the three and six months ended December 31, 2018 and 2017:

	Three Months Ended					Three Months Ended
	December 31, 2018					December 31, 2017
			% of					% of
			Revenues					Revenues
Total revenues	$	342.9		100.0	%	$	281.5		100.0	%
Cost of goods sold		211.3		61.6			172.1		61.1
Gross margin		131.6		38.4			109.4		38.9
Operating expenses:
Internal research and development		33.8		9.9			27.8		9.9
Selling, general and administrative		58.1		16.9			49.1		17.4
Interest and other, net		5.0		1.5			2.6		0.9
Earnings before income tax		34.7		10.1			29.9		10.6
Income taxes		6.0		1.7			20.2		7.2
Net earnings	$	28.7		8.4	%	$	9.6		3.4	%

Diluted earnings per share	$	0.44				$	0.15

	Six Months Ended					Six Months Ended
	December 31, 2018					December 31, 2017
			% of					% of
			Revenues					Revenues
Total revenues	$	657.3		100.0	%	$	543.0		100.0	%
Cost of goods sold		401.9		61.1			327.6		60.3
Gross margin		255.4		38.9			215.4		39.7
Operating expenses:
Internal research and development		66.9		10.2			53.4		9.8
Selling, general and administrative		111.7		17.0			99.8		18.4
Interest and other, net		9.7		1.5			5.5		1.0
Earnings before income tax		67.1		10.2			56.7		10.4
Income taxes		12.2		1.9			26.0		4.8
Net earnings	$	54.9		8.4	%	$	30.7		5.7	%

Diluted earnings per share	$	0.83				$	0.47

Executive Summary

Net earnings for the three months ended December 31, 2018 were $28.7 million ($0.44 per share diluted), compared to $9.6 million ($0.15 per share diluted) for the same period last fiscal year. Net earnings for the six months ended December 31, 2018 were $54.9 million ($0.83 per share diluted), compared to $30.7 million ($0.47 per share diluted) for the same period last fiscal year.

During December 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into law by the President of the United States. The Tax Act imposed a one-time repatriation tax on deemed repatriation of historical earnings of foreign subsidiaries. The impact of the repatriation tax was offset by available net operating loss and credit carryforwards which had valuation allowances. The reduction of the U.S. corporate tax rate caused the Company to adjust its U.S. deferred tax assets and liabilities to the lower federal base rate of 21%. In addition, the Company recorded withholding taxes on planned repatriation due to the change to a territorial tax system. These transitional impacts resulted in a provisional net charge of $15.8 million ($0.24 per-share diluted), for both the three and six months ended December 31, 2017. The Company finalized its provisional amounts during the quarter ended December 31, 2018. This resulted in no material financial statement impact for the three and six months ended December 31, 2018 as the additional tax expense is reduced by the release of the valuation allowance on U.S. deferred tax assets.

In addition to the impact from the Tax Act described above, net earnings during the current fiscal year were favorably impacted by incremental revenues recognized for both the current three and six month periods due to continued increased demand from customers in the optical communications, RF and power generation and military markets. Offsetting the favorable impact from revenues, the Company incurred increased internal research and development for its next generation product portfolio as well as increased selling, general and administration expenses as a result of the overall increase in business volume as well as merger related expenses associated with the announcement of the Finisar merger. During the current three and six month periods, the Company incurred approximately $7.1 million of merger related expenses. In addition, the Company’s interest expense increased for both current periods due to higher levels of outstanding borrowings.

Consolidated

Revenues. Revenues for the three months ended December 31, 2018 increased 22% to $342.9 million, compared to $281.5 million for the same period last fiscal year. Revenues for the six months ended December 31, 2018 increased 21% to $657.3 million, compared to $543.0 million for the same period last fiscal year. The increase in revenues during the current three and six month periods compared to the same periods last fiscal year was driven by increased demand from the Company’s optical communication customers in the United States and China for products used in the China broadband expansion, datacenter and U.S. metro communication upgrade cycles. In addition, the growing demand for silicon carbide addressing RF electronics and high-power switching and power conversion systems and optical components and assemblies used in military related applications contributed to the revenue increases.

Gross margin. Gross margin for the three months ended December 31, 2018 was $131.6 million, or 38.4% of total revenues, compared to $109.4 million, or 38.9% of total revenues, for the same period last fiscal year. Gross margin for the six months ended December 31, 2018 was $255.4 million, or 38.9% of total revenues, compared to $215.4 million, or 39.7% of total revenues, for the same period last fiscal year. The increase in gross margin dollars for both the three and six month periods ended December 31, 2018, compared to the same periods last fiscal year was due to the revenue increases described above. Gross margin as a percentage of revenues decreased despite the revenue growth primarily driven by pricing pressure from customers in China as well as product mix in the Company’s Photonics segment towards lower margin products.

Internal research and development. Internal research and development (“IR&D”) expenses for the three months ended December 31, 2018 were $33.8 million, or 9.9% of revenues, compared to $27.8 million, or 9.9% of revenues, for the same period last fiscal year. IR&D expenses for the six months ended December 31, 2018 were $66.9 million, or 10.2% of revenues, compared to $53.4 million, or 9.8% of revenues, for the same period last fiscal year. The increase in IR&D during the current three and six month periods compared to the same periods last fiscal year was due to the Company’s ongoing investments in the development of new technology and product introductions addressing growing demand from consumer electronics and optical communications markets. The Company expects IR&D to approximate 10% to 13% of revenues during the remainder of fiscal year 2019 to address these growing market opportunities.

Selling, general and administrative. Selling, general and administrative (“SG&A”) expenses for the three months ended December 31, 2018 were $58.1 million, or 16.9% of revenues, compared to $49.1 million, or 17.4% of revenues, for the same period last fiscal year. SG&A expenses for the six months ended December 31, 2018 were $111.7 million, or 17.0% of revenues, compared to $99.8 million, or 18.4% of revenues, for the same period last fiscal year. The increase in SG&A for both the current three and six month periods in absolute dollars was the result of incurring $7.1 million of merger related expenses associated with the planned merger with Finisar. In addition, the Company’s higher revenue base required incremental SG&A to support the Company’s growth trajectory. The Company also incurred approximately $1.9 million of transaction expenses relating to its acquisition of CoAdna for the six month

period ended December 31, 2018. The Company ’s improvement in its SG&A leverage during the current periods was due to ongoing cost control initiatives across the Company.

Interest and other, net. Interest and other, net for the three months ended December 31, 2018 was expense of $5 million, compared to expense of $2.6 million for the same period last fiscal year. Interest and other, net for the six months ended December 31, 2018 were expense of $9.7 million, compared to expense of $5.5 million for the same period last fiscal year. Included in interest and other, net were interest expense on borrowings, equity earnings from its unconsolidated investments, foreign currency gains and losses, and interest income on excess cash balances. Interest expense increased $0.9 million and $2.9 million, respectively for the three and six month periods ended during the current fiscal quarter due to the higher levels of outstanding debt as well as rising interest rates on the Company’s variable rate borrowings.

Income taxes. The Company’s year-to-date effective income tax rate at December 31, 2018 was 18.2%, compared to an effective tax rate of 45.9% for the same period last fiscal year. The prior fiscal year to date effective tax rate was negatively impacted by the U.S. enacted tax legislation and the recording of the provision for the transition tax under the new tax law. The current year’s effective income tax rate benefited from the reversal of certain U.S. valuation allowances as the result of the acquisition of CoAdna and the recognition of deferred tax liabilities relating to CoAdna’s purchase price allocation as well as the lower U.S. statutory tax rate.

Segment Reporting

Revenues and operating income for the Company’s reportable segments are discussed below. Operating income differs from net earnings in that operating income excludes certain operational expenses included in other expense (income) – net as reported. Management believes operating income to be a useful measure for investors, as it reflects the results of segment performance over which management has direct control and is used by management in its evaluation of segment performance. See Note 13. Segment Reporting, to our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the Company’s reportable segments and for the reconciliation of the Company’s operating income to net earnings, which is incorporated herein by reference.

Effective July 1, 2018, the Company realigned its composition of its operating segments. The Company moved Laser Systems Group, from II-VI Laser Solutions to II-VI Photonics and moved Integrated Photonics, Inc. from II-VI Photonics to II-VI Performance Products. All applicable segment information has been restated to reflect this change. Additionally, the Company renamed Laser Systems Group to II-VI Industrial Laser.

II- VI Laser Solutions ($ in millions)


	Three Months Ended				%	Six Months Ended				%
	December 31,				Increase	December 31,				Increase
	2018		2017			2018		2017
Revenues	$	105.6	$	105.0	1%	$	211.8	$	193.0	10%
Operating income	$	12.2	$	9.5	28%	$	24.5	$	12.1	102%

Revenues for the three months ended December 31, 2018 for II-VI Laser Solutions increased 1% to $105.6 million, compared to revenues of $105.0 million for the same period last fiscal year. Revenues for the six months ended December 31, 2018 for II-VI Laser Solutions increased 10% to $211.8 million, compared to revenues of $193.0 million for the same period last fiscal year. Revenues for the current three months were consistent with the same period last fiscal year. The increase in revenues for the current six months compared to the same period last year was driven by increased shipments of its VCSEL product line addressing demand from the consumer electronic and datacom markets.

Operating income for the three months ended December 31, 2018 for II-VI Laser Solutions increased 28% to $12.2 million, compared to $9.5 million for the same period last fiscal year. Operating income for the six months ended December 31, 2018 for II-VI Laser Solutions increased 102% to $24.5 million, compared to $12.1 million for the same period last fiscal year. The improvement in operating income during the current three months despite the relatively consistent revenue levels were the result of improved operational efficiencies, cost containment efforts and product mix towards higher margin products. The improvement in operating income for the current six month period compared to the same period last year was driven by the same factors noted above relating to operational efficiencies, cost containment efforts and product mix as well as the incremental margin realized on the 10% revenue growth.

II-VI Photonics ($ in millions)

	Three Months Ended				%	Six Months Ended				%
	December 31,				Increase	December 31,				Increase
	2018		2017			2018		2017
Revenues	$	159.7	$	115.3	39%	$	294.8	$	231.2	28%
Operating income	$	23.1	$	16.2	43%	$	39.0	$	35.6	10%

The above operating results for the three and six months ended December 31, 2018 include the Company’s recent acquisitions of CoAdna and the product line which were acquired in September and November 2018.

Revenues for the three months ended December 31, 2018 for II-VI Photonics increased 39% to $159.7 million, compared to $115.3 million for the same period last fiscal year. Revenues for the six months ended December 31, 2018 for II-VI Photonics increased 28% to $294.8 million, compared to $231.2 million for the same period last fiscal year. The acquisition of CoAdna contributed $7.1 million and $10.1 million, respectively, for the three and six months ended December 31, 2018. Exclusive of the increase in revenues from CoAdna, the increase in revenues for both the three and six month periods ended December 31, 2018 was the result of increasing II-VI Photonics market share in the optical communications market as well as increased demand in China from the broadband initiative as China continues to expand its geographical broadband networks. Specifically, the Company has seen increased demand for its reconfigurable optical add-drop multiplexer (“ROADM”) and Erbium-doped fiber amplifier (“EDFA”) product lines.

Operating income for the three months ended December 31, 2018 for II-VI Photonics increased 43% to $23.1 million, compared to $16.2 million for the same period last fiscal year. Operating income for the six months ended December 31, 2018 for II-VI Photonics increased 10% to $39.0 million, compared to $35.6 million for the same period last fiscal year. Included in the operating income for the current three and six months ended December 31, 2018 was approximately $1.5 million and $3.4 million, respectively, of one-time transaction related expenses for the acquisition of CoAdna. During the current three months ended December 31, 2018, the segment received approximately $1.5 million of government subsidies to help fund research and development initiatives in China. In addition, the segment has initiated a cost control program reducing and/or delaying planned manpower additions and IR&D programs. The segment has also experienced price erosion from its customers particularly in China where there are significant competition in the optical communication market as well as a shift in the product mix towards lower margin products.

II-VI Performance Products ($ in millions)

	Three Months Ended				%	Six Months Ended				%
	December 31,				Increase	December 31,				Increase
	2018		2017			2018		2017
Revenues	$	77.6	$	61.2	27%	$	150.7	$	118.8	27%
Operating income	$	11.4	$	6.8	68%	$	20.4	$	14.6	40%

Revenues for the three months ended December 31, 2018 for II-VI Performance Products increased 27% to $77.6 million compared to $61.2 million for the same period last fiscal year. Revenues for the six months ended December 31, 2018 for II-VI Performance Products increased 27% to $150.7 million compared to $118.8 million for the same period last fiscal year. The increase in revenues for both the three and six month periods ended December 31, 2018 compared to the same periods last fiscal year was driven by increased demand for silicon carbide substrates addressing RF electronics and high-power switching and power conversion systems for automotive and communications applications. In addition, the segment’s military business has seen an increase in demand for its infrared components and sub-systems from increased U.S. Government budget spending.

Operating income for the three months ended December 31, 2018 for II-VI Performance Products increased 68% to $11.4 million, compared to $6.8 million for the same period last fiscal year. Operating income for the six months ended December 31, 2018 for II-VI Performance Products increased 40% to $20.4 million, compared to $14.6 million for the same period last fiscal year. The increase in operating income for the three and six month periods ended December 31, 2018 compared to the same periods last fiscal year was driven by a combination of incremental margin on the increased sales volume, favorable product mix towards higher margin products and cost management initiatives across the segment’s operations.

Liquidity and Capital Resources

Historically, our primary sources of cash have been from operations and long-term borrowing. Other sources of cash include proceeds received from the exercises of stock options and sale of equity investments and businesses. Our historic uses of cash have been for capital expenditures, investment in research and development, business acquisitions, payments of principal and interest on outstanding

debt obligations and payments in satisfaction of employees’ minimum tax obligations. Supplemental information pertaining to our sources and uses of cash for the periods indica ted is presented as follows:

Sources (uses) of Cash (millions):

	Six Months Ended
	December 31,
	2018			2017
Net cash provided by operating activities	$	88.2		$	59.7
Net proceeds on long-term borrowings		35.0			183.0
Proceeds from exercises of stock options		6.2			6.8
Purchases of businesses		(54.2	)		(81.0	)
Additions to property, plant & equipment		(74.4	)		(77.6	)
Purchases of equity investments		(4.5	)		(51.5	)
Payments on earnout arrangements		(3.5	)		-
Payments in satisfaction of employees' minimum tax obligations		(6.4	)		(3.6	)
Purchases of treasury shares		-			(49.9	)
Debt issuance costs		-			(10.1	)
Effect of exchange rate changes on cash and cash equivalents and other items		(3.2	)		6.8

Net cash provided by operating activities:

Net cash provided by operating activities was $88.2 million for the six months ended December 31, 2018 compared to net cash provided by operating activities of $59.7 million for the same period last fiscal year. The increase in cash provided by operating activities during the current six months was primarily driven by improved working capital management focusing on accounts payable and accounts receivable oversight as well overall increased levels of earnings and non-cash items including depreciation, amortization and share-based compensation expenses during the current fiscal year.

Net cash used in investing activities:

Net cash used in investing activities was $133.0 million for the six months ended December 31, 2018, compared to net cash used of $209.9 million for the same period last fiscal year. Net cash used in investing activities during the current six months ended December 31, 2018 included $54.2 million for acquisitions of businesses, $74.4 million of cash paid for property plant and equipment used to build capacity to meet the growing demand for the Company’s product portfolio, and $4.5 million for a 10% equity investment in a privately held company.

Net cash provided by financing activities:

Net cash provided by financing activities was $31.3 million for the six months ended December 31, 2018, compared to net cash provided by financing activities of $126.2 million for the same period last fiscal year. Net cash provided by financing activities included net borrowing on long-term debt of $35.0 million to fund the acquisition of CoAdna and fiscal year 2018 incentive compensation paid in August 2018 as well as $6.2 million of cash received from the exercises of stock options. Net cash provided by financing activities was offset by payments of $6.4 million in satisfaction of employees’ minimum tax obligations from the vesting of equity awards as well as a $3.5 million earnout payments relating to prior year acquisitions.

0.25% Convertible Senior Notes

conversion feature, which was determined using an expected present value technique (income approach) to estimate the fair value of similar nonconvertible debt; the debt discount is being amortized as additional non-cash interest expense over the term of the Notes using the effective interest method.

The equity component, which amounts to $56.4 million, net of issuance costs of $1.7 million, is not remeasured as long as it continues to meet the conditions for equity classification. The initial conversion rate is 21.25 shares of common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of $47.06 per share of common stock. Throughout the term of the Notes, the conversion rate may be adjusted upon the occurrence of certain events. The if-converted value of the Notes amounted to $238.0 million as of December 31, 2018 and $318.5 million as of June 30, 2018 (based on the Company’s closing stock price on the last trading day of the fiscal periods then ended). As of September 30, 2018, the Notes are not yet convertible based upon the Notes’ conversion features. Holders of the Notes will not receive any cash payment representing accrued and unpaid interest upon conversion of a note. Accrued but unpaid interest will be deemed to be paid in full upon conversion rather than cancelled, extinguished or forfeited.

The following table sets forth total interest expense recognized related to the Notes for the three and six months ended December 31, 2018, and 2017 :

	Three Months Ended December 31, 2018		Six Months Ended December 31, 2018
0.25% contractual coupon	$	221	$	441
Amortization of debt discount and debt issuance costs including initial purchaser discount		3,145		6,255
Interest expense	$	3,366	$	6,696

	Three Months Ended December 31, 2017		Six Months Ended December 31, 2017
0.25% contractual coupon	$	219	$	297
Amortization of debt discount and debt issuance costs including initial purchaser discount		2,935		4,043
Interest expense	$	3,154	$	4,340

Amended Credit Facility

Yen Loan

Aggregate Availability

Weighted Average Interest Rate

The weighted average interest rate of total borrowings was 1.7% and 1.4% for the three months ended December 31, 2018 and 2017, respectively.

Share Repurchase Programs

In August 2014, the Company’s Board of Directors authorized the Company to purchase up to $50 million of its Common Stock through a share repurchase program (the “Program”) that calls for shares to be purchased in the open market or in private transactions from time to time. The Program has no expiration and may be suspended or discontinued at any time. Shares purchased by the Company are retained as treasury stock and available for general corporate purposes. The Company did not repurchase shares pursuant to this Program during the six months ended December 31, 2018. Through December 31, 2018, the Company has cumulatively purchased 1,316,587 shares of its Common Stock pursuant to the Program for approximately $19.0 million.

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

	December 31,		June 30,
	2018		2018
Cash and cash equivalents	$	230.3	$	247.0
Available borrowing capacity		201.4		246.4
Total debt obligation		531.6		439.0

The Company believes that cash flow from operations, existing cash reserves and available borrowing capacity will allow the Company to fund its working capital needs, capital expenditures, repayment of scheduled long-term borrowings and capital lease obligations, investments in internal research and development, completion of its planned merger with Finisar, share repurchases and growth objectives for the next twelve months.

The Company’s cash and cash equivalent balances are generated and held in numerous locations throughout the world, including amounts held outside the United States. As of December 31, 2018 and June 30, 2018, the Company held approximately $201 million and $245 million, respectively, of cash and cash equivalents outside of the United States. Cash balances held outside the United States could be repatriated to the United States. The recently enacted “Tax Cuts and Jobs Act” created significant changes to the taxation of undistributed foreign earnings and could change our future intentions regarding repatriation of earnings.

Contractual Obligations

The following table presents information about the Company’s contractual obligations and commitments as of December 31, 2018.

Tabular-Disclosure of Contractual Obligations

	Payments Due By Period
			Less Than 1		1-3		3-5		More Than 5
Contractual Obligations	Total		Year		Years		Years		Years
($000)
Long-term debt obligations	$	531,555	$	20,000	$	166,555	$	345,000	$	-
Interest payments ⁽¹⁾		31,370		9,597		14,222		2,835		4,716
Capital lease obligations		24,835		962		2,294		2,849		18,730
Operating lease obligations ⁽²⁾		122,700		21,300		32,400		21,000		48,000
Purchase obligations ^{(3) (4)}		29,481		26,148		3,333		-		-
Other long-term liabilities reflected on the Registrant's balance sheet under GAAP		-		-		-		-		-
Total	$	739,941	$	78,007	$	218,804	$	371,684	$	71,446

(1)	Interest payments represent both variable and fixed rate interest obligations based on the interest rate in place at December 31, 2018 relating to the Amended Credit Facility, the Notes and interest relating to the Company’s capital lease obligation.

(2)	Includes an obligation for the use of two parcels of land related to II-VI Performance Metals. The lease obligations extend through 2039 and 2061, respectively.

(3)

A purchase obligation is defined as an agreement to purchase goods or services that is enforceable and legally binding on the Company and that specifies all significant terms, including fixed or minimum quantities to be purchased; minimum or variable price provisions, and the approximate timing of the transaction. These amounts are primarily composed of open purchase order commitments to vendors for the purchase of supplies and materials.

(4)	Includes cash earnout opportunities based upon certain acquisitions achievement of certain agreed upon financial, operational and technology targets.

The Company’s gross unrecognized income tax benefit at December 31, 2018 has been excluded from the table above because the Company is not currently able to reasonably estimate the amount by which the liability will increase or decrease over time. However, at this time, the Company does not expect a significant payment related to these obligations within the next year.

Pension obligations are not included in the table above. The Company expects the remaining defined benefit plan employer contributions for fiscal year 2019 to be $1.6 million. Estimated funding obligations are determined by asset performance, workforce and retiree demographics, tax and employment laws and other actuarial assumptions which may change the annual funding obligations.

Item 3 .

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

MARKET RISKS

The Company is exposed to market risks arising from adverse changes in foreign currency exchange rates and interest rates. In the normal course of business, the Company uses a variety of techniques and derivative financial instruments as part of its overall risk management strategy, which is primarily focused on its exposure in relation to the Japanese Yen, Chinese Renminbi, Swiss Franc, and the Euro. No significant changes have occurred in the techniques and instruments used other than those described below.

Foreign Exchange Risks

In the normal course of business, the Company enters into foreign currency forward exchange contracts with its financial institutions. 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 rates.

Japanese Yen

The Company enters into foreign currency forward contracts that permit it to sell specified amounts of Japanese Yen 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, thereby limiting the Company’s exposure. These contracts had a total notional amount of $15.4 million and $12.0 million at December 31, 2018 and June 30, 2018, respectively.

A 10% change in the Yen to U.S. dollar exchange rate would have changed revenues in the range from a decrease of $2.0 million to an increase of $2.5 million for the three months ended December 31 , 2018.

Chinese Renminbi

The Company enters into month-to-month forward contracts at varying amounts maturing monthly to limit exposure to the Chinese Renminbi. The Company recorded a loss of $2.3 million in the Condensed Consolidated Statement of Earnings related to these contracts for the six months ended December 31, 2018.

Euro

The Company has short-term intercompany notes that are denominated in U.S. dollars with one of the Company’s European subsidiaries. A 10% change in the Euro to U.S. dollar exchange rate would have changed net earnings in the range from a decrease of $0.8 million to an increase of $1.0 million for the three months ended December 31, 2018.

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 currently anticipate such losses.

Assets and liabilities of foreign operations are translated into U.S. dollars using the period-end exchange rate, 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, 2018, the Company’s total outstanding borrowings of $531.6 million consisted of $182.7 million of variable rate debt borrowings from a line of credit of $2.7 million denominated in Japanese Yen, borrowings under a term loan of $55.0 million under the Company’s Credit Facility denominated in U.S. dollars and a line of credit borrowing of $125.0 million under the Company’s Credit Facility denominated in U.S. dollars. As such, the Company is exposed to market risks arising from changes in interest rates. An increase in the interest rate of these borrowings of 1% would have resulted in additional interest expense of $0.2 and $0.9 million for the three and six months ended December 31, 2018.

Item 4 .

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management evaluated, with the participation of the Company’s President and Chief Executive Officer, and the Company’s Chief Financial Officer and Treasurer, the effectiveness of the Company’s disclosure controls and procedures (as defined in 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, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Changes in Internal Control over Financial Reporting

No changes in the Company’s internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) 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 1 .

LEGAL PROCEEDINGS

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

Item 1A .

RISK FACTORS

In addition to the other information set forth in this Quarterly Report on Form 10-Q, carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Current Report on Form 8-K dated December 27, 2018 for the year ended June 30, 2018, and in the section entitled “Risk Factors” in the joint proxy statement/prospectus filed the Company with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on February 8, 2019 in connection with our pending acquisition of Finisar, any of which could materially affect our business, financial condition or future results. Those risk factors 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.

Item 2.

ISSUER PURCHASES OF EQUITY SECURITIES

In August 2014, the Company’s Board of Directors authorized the Company to purchase up to $50 million of its Common Stock through a share repurchase program (the “Program”) that calls for shares to be purchased in the open market or in private transactions from time to time. The Program has no expiration and may be suspended or discontinued at any time. Shares purchased by the Company are retained as treasury stock and available for general corporate purposes. As of December 31, 2018, the Company has cumulatively purchased 1,316,587 shares of its Common Stock pursuant to the Program for approximately $19.0 million. The dollar value of shares that may yet be purchased under the Program is approximately $31.0 million.

The following table sets forth repurchases of our Common Stock during the quarter ended December 31, 2018:

						Total Number of		Dollar Value of
						Shares Purchased		Shares That May
						as Part of Publicly		Yet be Purchased
	Total Number of			Average Price Paid		Announced Plans or		Under the Plan or
Period	Shares Purchased			Per Share		Programs		Program
October 1, 2018 to October 31, 2018		-		$	-		-	$	30,906,904
November 1, 2018 to November 30, 2018		41,727	₍₁₎	$	35.94		-	$	30,906,904
December 1, 2018 to December 31, 2018		-		$	-		-	$	30,906,904
Total		41,727		$	35.94		-

(1)	Includes 41,727 shares of our Common Stock transferred to the Company from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted stock awards.

Item 6.

EXHIBITS

Exhibit Number	Description of Exhibit	Reference

2.01	Agreement and Plan of Merger, dated November 8, 2018, by and among II-VI Incorporated, Mutation Merger Sub Inc. and Finisar Corporation *	Incorporated herein by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by II-VI Incorporated on November 9, 2018.
10.01	Form of Nonqualified Stock Option Agreement under the II-VI Incorporated 2018 Omnibus Incentive Plan * *	Filed herewith.

10.02	Form of Restricted Share Unit Settled In Shares Award Agreement under the II-VI Incorporated 2018 Omnibus Incentive Plan * *	Filed herewith.

10.03	Form of Restricted Share Unit Settled In Cash Award Agreement under the II-VI Incorporated 2018 Omnibus Incentive Plan * *	Filed herewith.

10.04	Form of Restricted Share Unit Settled In Shares Award Agreement under the II-VI Incorporated 2018 Omnibus Incentive Plan * *	Filed herewith.

10.05	Form of Stock Appreciation Rights Agreement under the II-VI Incorporated 2018 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	Furnished 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	Furnished herewith.

101	Interactive Data File	Filed herewith.

*	Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished supplementally to the SEC upon request.

** 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 that authorize the issuance of long-term obligations of the Registrant not in excess of 10% of the Registrants total assets on a consolidated basis.

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, 2019	By:	/s/ Vincent D. Mattera, Jr.
		Vincent D. Mattera, Jr
		President and Chief Executive Officer

Date: February 8, 2019	By:	/s/ Mary Jane Raymond
		Mary Jane Raymond
		Chief Financial Officer and Treasurer

Exhibit 10.01

II-VI INCORPORATED

NONQUALIFIED STOCK OPTION AGREEMENT

THIS NONQUALIFIED STOCK OPTION AGREEMENT, including any general and jurisdiction-specific terms and conditions for the Optionee’s jurisdiction set forth in the appendices attached hereto, (this “Agreement”) is dated as of the Grant Date, as specified in the applicable Employee Grant Details (as defined below), by and between II-VI Incorporated, a Pennsylvania corporation (“ II-VI ”), and the Optionee, as specified in the applicable Employee Grant Details, who is a director, employee or consultant of II-VI or one of its Subsidiaries (the “Optionee” ).

Reference is made to the Employee Grant Details found on the Stock Options and Awards tab (the “Employee Grant Details” ) issued to the Optionee with respect to the applicable award, which may be found on the Solium Shareworks system at https://Shareworks.Solium.com (or any successor system selected by II-VI) (the “Solium Shareworks System” ). Reference further is made to the prospectus relating to the Plan (as defined below), which also may be found on the Solium Shareworks System.

All capitalized terms used herein, to the extent not defined herein, shall have the meanings set forth in the II-VI 2018 Omnibus Incentive Plan (as amended and/or restated from time to time, the “ Plan ”), a copy of which can be found on the Solium Shareworks System, and/or the applicable Employee Grant Details. Terms of the Plan and the Employee Grant Details are incorporated herein by reference. This Agreement shall constitute an Award Agreement as that term is defined in the Plan.

NOW, THEREFORE , for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Optionee and II-VI agree as follows:

1. Grant . II-VI hereby grants the Optionee on and as of the Grant Date an option (the “ Option ”) to purchase from II-VI the number of shares of common stock, no par value per share, of II-VI (“II-VI Common Stock” ) specified in the applicable Employee Grant Details (the “Shares” ), at the price per share equal to the Option Price, as specified in the applicable Employee Grant Details (the “Option Price” ), subject to the terms and conditions of this Agreement and the Plan. The Option shall expire on the Expiration Date, as specified in the applicable Employee Grant Details, unless such Option otherwise terminates or expires earlier in accordance with the terms hereof.

2. Vesting; Expiration .

(a) The Option shall be exercisable, pursuant to the terms of the Plan, and shall vest and become exercisable in installments, as follows:

(i)Upon and after the one (1)-year anniversary of the Grant Date , the Optionee may exercise the Option with respect to any number of Shares (except with respect to

IIVI NQSO 111618

fractional shares) not in excess of twenty-five percent (25%) of the total number of Shares covered by this Agreement.

(ii)Upon and after the two (2)-year anniversary of the Grant Date , the Optionee may exercise the Option with respect to any number of Shares (except with respect to fractional shares) not in excess of fifty percent (50%) of the total number of Shares underlying the Option, less the number of Shares as to which the Option was previously exercised, if any.

(iii)Upon and after the three (3)-year anniversary of the Grant Date , the Optionee may exercise the Option with respect to any number of Shares (except with respect to fractional shares) not in excess of seventy-five percent (75%) of the total number of Shares underlying the Option, less the number of Shares as to which the Option was previously exercised, if any.

(iv)Upon and after the four (4)-year anniversary of the Grant Date , the Optionee may exercise the Option 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 underlying the Option, less the number of Shares as to which the Option was previously exercised, if any.

(b) In no event may the Option be exercised at any time following the ten (10)-year anniversary of the Grant Date.

3. Post-Separation Exercise .

(a) Except as otherwise specifically provided in this Agreement, upon the Optionee’s Separation from Service for any reason, the Option, to the extent not then vested and exercisable pursuant to Section 2(a) , shall immediately lapse and become null and void on and as of the date of such Separation from Service. The vested portion of the Option, if any, as of the date of such Separation from Service, may be exercised post-separation during the applicable periods set forth in Section 3(b) .

(b) Notwithstanding Section 2(a) , upon the Optionee’s Separation from Service for the reasons set forth below, the Option may be exercised as follows:

(i) Death . In the event of the Optionee’s death (i) while an employee or a Nonemployee Director of the Company, (ii) within the one (1)-year period after Separation from Service because of permanent and total disability, as defined in Code Section 22(e)(3) (a “Disability” ), or (iii) within the three (3)-year period after Separation from Service because of normal retirement, as defined in II-VI’s Global Retirement Policy, any unvested portion of the Option will immediately vest and the Option may be exercised by the Optionee’s estate at any time, or from time to time, within one (1)-year of the date of the Optionee’s death but in no event later than the Expiration Date.

(ii) Disability . If the Optionee incurs a Separation from Service due to the Optionee’s Disability, any unvested portion of the Option will immediately vest and the Option may be exercised at any time, or from time to time, within one (1) year of the date of Separation from Service, but in no event later than the Expiration Date.

IIVI NQSO 111618

(iii) Retirement . If the Optionee terminates service because of normal retirement, as defined in II-VI’s Global Retirement Policy, any unvested portion of the Option will continue to vest and may be exercised by the Optionee from time to time prior to the Expiration Date in accordance with the schedule set forth in Section 2(a) .

Notwithstanding any provision of this Agreement, if the Company receives a legal opinion that, due to a legal judgment and/or development in the Optionee’s jurisdiction, the vesting that applies to the Option upon an Optionee’s normal retirement would be deemed unlawful or discriminatory, the provisions of this Section 3 regarding the vesting of the Option if the Optionee’s Separation from Service is as a result of normal retirement will not be applicable to the Optionee and the remaining provisions of this Agreement will govern.

(iv) Separation from Service for Cause . Notwithstanding any provision of this Agreement to the contrary, if the Optionee’s service is terminated for Cause (as defined below), all of the Optionee’s rights to exercise the Option (whether vested or unvested) shall terminate on the date of such Separation from Service.

(v) Other Separation from Service . Except as otherwise determined by the Committee, if the Optionee’s Separation from Service occurs for any reason other than those set forth in clauses (i) through (iv) of Section 3(b) , the unvested portion of the Option shall be deemed cancelled and forfeited on the date of the Optionee’s Separation from Service and the vested portion of the Option, if any, as of the date of such Separation from Service shall remain exercisable until the earlier of (i) the date that is ninety (90) calendar days from the date of such Separation from Service or (ii) the Expiration Date.

4. Change in Control; Adjustments to Payments .

(a) Change in Control . Upon a Change in Control, the Award shall be subject to Section 10 of the Plan, with “Cause” and “Good Reason” for such purpose as defined below.

(b) “Cause” shall be defined as that term is defined in the Optionee’s offer letter, employment agreement or other applicable employment or service agreement with the Company; or, if there is no such definition, “Cause” shall mean a determination by the Company that any of the following has occurred:

(i) the willful failure by the Optionee to perform the Optionee’s duties and responsibilities to the Company or a Subsidiary that the Recipient is employed by or provides services to (the “Employer” ) (other than any such failure resulting from the Optionee’s Disability), which is not cured within ten (10) business days of receiving written notice from the Company or the Employer specifying in reasonable detail the duties or responsibilities that the Company or the Employer believes are not being adequately performed;

(ii)the willful engaging by the Optionee in any act that is damaging to the Company or the Employer;

(iii)the conviction of the Optionee of, or a plea of “guilty” or “no contest” to, (A) any felony or (B) a criminal offense involving fraud, dishonesty or other moral turpitude;

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(iv) any breach by the Optionee of the terms of any written agreement between the Optionee and the Company relating to proprietary information, confidentiality, non-disclosure, ownership of inventions, non-competition, non-solicitation, non-interference or non-disparagement;

(v)the engaging by the Optionee in any willful act of dishonesty resulting or intended to result, directly or indirectly, in personal gain to the Optionee; or

(vi)the commission of any act by the Optionee that is in violation of the Company’s Code of Business Conduct and Ethics.

(c) “Good Reason” shall be defined as that term is defined in the Optionee’s offer letter, employment agreement or other applicable employment or service agreement with the Company; or, if there is no such definition, “Good Reason” shall mean that any of the following has occurred, without the Optionee’s express written consent:

(i)a material reduction of the Optionee’s employment responsibilities from those immediately prior to the Change in Control;

(ii)a material reduction by the Company or the Employer of the Optionee’s eligibility for Total Target Compensation as in effect immediately prior to the Change in Control, with “Total Target Compensation” defined as the Optionee’s annual base salary plus the cash and stock compensation the Optionee is eligible to receive from the Company or the Employer at one hundred percent (100%) performance, whether sales incentive, bonus or otherwise;

(iii)a material increase in the amount of the Optionee’s business travel that produces a constructive relocation of the Optionee;

(iv)a material reduction by the Company or the Employer in the kind or level of employee benefits to which the Optionee is entitled immediately prior to the Change in Control, with the result that the Optionee’s overall benefits package is materially reduced; or

(v)the relocation of the Optionee to a facility or a location more than thirty (30) miles from the Optionee’s principal place of employment immediately prior to the Change in Control.

In order for the Optionee to incur a Separation from Service for Good Reason, (A) the Company must be notified by the Optionee in writing within ninety (90) days of the event constituting Good Reason, (B) the event must remain uncorrected by the Company or the Employer (as applicable) for thirty (30) days following such notice (the “Notice Period” ), and (C) such Separation from Service must occur within sixty (60) days after the expiration of the Notice Period.

(d) Adjustments to Payments .

(i)Notwithstanding any provision to the contrary in this Agreement, if it is determined that any payment or distribution by the Company or the Employer to the

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Optionee or for the Optionee’s benefit (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (the “Payments” ) would be subject to the excise tax imposed by Code Section 4999, or any interest or penalty is incurred by the Optionee with respect to such excise tax (such excise tax, together with any such interest and penalties, collectively referred to as the “Excise Tax” ), then the Payments shall be reduced (but not below zero) if and to the extent that such reduction would result in the Optionee retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the imposition of the Excise Tax), than if the Optionee received all of the Payments. The Payments shall be reduced or eliminated by first reducing or eliminating the portion of the Payments that are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits that are to be paid the farthest in time from the determination.

(ii)All determinations required to be made under this Section 4(d) , including whether and when an adjustment to any Payments is required and, if applicable, which Payments are to be so adjusted, shall be made by an independent accounting firm selected by II-VI from among the four (4) largest accounting firms in the United States or any nationally-recognized financial planning and benefits consulting company (the “Accounting Firm” ), which shall provide detailed supporting calculations both to II-VI and to the Optionee within fifteen (15) business days of the receipt of notice from the Optionee that there has been a Payment, or such earlier time as is requested by II-VI. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, II-VI shall appoint another nationally-recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by II-VI. If the Accounting Firm determines that no Excise Tax is payable by the Optionee, it shall furnish the Optionee with a written opinion that failure to report the Excise Tax on the Optionee’s applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Optionee.

5. Exercise; Payment of Option Price . Any exercisable portion of the Option 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 Agreement. II-VI may require the exercise of such Option to be accomplished via a notice of exercise submitted via the Solium Shareworks 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 as described 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 ) shall be effective upon the actual receipt of such payment by II-VI. Payment of the aggregate Option Price for all Shares purchased pursuant to an exercise of the Option shall be made, at the Optionee’s option, by (a) delivering to II-VI a cashier’s check or electronic funds transfer in the amount of the aggregate Option Price (or portion thereof to be paid by cashier’s check or electronic funds transfer) payable to the order of II-VI, (b) delivering to II-VI Shares held by the Optionee, 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), (c) a “net exercise” under which II-VI reduces

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the number of Shares issued upon exercise by the largest whole number of Shares with a Fair Market Value that does not exceed the aggregate Option Price and any applicable withholding, or such other consideration received by II-VI under a cashless exercise program approved by II-VI in connection with the Plan, (d) a cashless exercise from the proceeds of a sale through a bank or broker on the date of exercise of some or all of the Shares to which the exercise relates and/or (e) any other consideration that the Committee deems appropriate and in compliance with applicable law. Payment of the Option Price in Shares 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 connection with each exercise of any portion of the Option, the Optionee shall furnish such documents as II-VI in its sole discretion may deem necessary to ensure compliance with applicable rules and regulations of any stock exchange or governmental authority. No rights or privileges of a shareholder of II-VI in respect to such Shares issuable upon the exercise of any portion of the Option shall accrue to the Optionee unless and until such Shares have been registered in the Optionee’s name in the books and records of II-VI.

6. Compliance with Legal Requirements . Notwithstanding any other provisions of the Plan or this Agreement, unless there is an exemption from any registration, qualification or other legal requirement applicable to the Shares, the Company shall not be required to deliver any shares upon exercise prior to the completion of any registration or qualification of the Shares under any local, state, federal or foreign securities or exchange control law or under rulings or regulations of the U.S. Securities and Exchange Commission ( “SEC” ) or of any other governmental regulatory body, or prior to obtaining any approval or other clearance from any local, state, federal or foreign governmental agency, which registration, qualification or approval the Company shall, in its absolute discretion, deem necessary or advisable. Further, the Company is under no obligation to register or qualify the Shares with the SEC or any state or foreign securities commission or to seek approval or clearance from any governmental authority for the issuance or sale of Shares. Subject to Section 409A, the Committee may postpone the issuance or delivery of Shares under the Option as the Committee may consider appropriate and may require the Optionee to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of Shares in compliance with applicable laws, rules and regulations. The Optionee understands and agrees that the Company shall have unilateral authority to amend this Agreement without his or her consent to the extent necessary to comply with securities or other laws applicable to the issuance of Shares.

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

8. Adjustments . Upon any event described in Section 12 of the Plan (entitled “Adjustments”) or any successor provision thereto, the terms of such Section 12 of the Plan or any successor provision thereto shall apply to the Option.

9. Responsibility for Taxes .

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(a) Regardless of any action the Company or the Employer takes with respect to any or all income tax, social insurance, payroll tax, fringe benefit tax, payment on account or other tax-related items related to the Optionee’s participation in the Plan ( “Tax-Related Items” ), the Optionee acknowledges that the ultimate liability for all Tax-Related Items owed by the Optionee is and remains the Optionee’s responsibility and that the Company (i) makes no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the Option, including the grant, vesting or exercise of this Option or the subsequent sale of Shares acquired pursuant to the Option; and (ii) does not commit to structure the terms of the grant or any aspect of the Option to reduce or eliminate the Optionee’s liability for Tax-Related Items or achieve a particular tax result. Further, if the Optionee is subject to Tax-Related Items in more than one jurisdiction, the Optionee acknowledges and agrees that the Company or the Employer may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

(b)Prior to any relevant taxable or tax withholding event, as applicable, the Optionee agrees to make adequate arrangements satisfactory to the Company to satisfy all Tax-Related Items. In this regard, the Optionee authorizes the Company and/or the Employer, or their respective agents, at their discretion, to satisfy any applicable withholding obligations with regard to Tax-Related Items by one or a combination of the following: (i) withholding from the Optionee’s wages or other cash compensation paid to the Optionee by the Company or the Employer; (ii) withholding from the proceeds of the sale of Shares acquired upon exercise either through a voluntary sale or through a mandatory sale arranged by the Company (on the Optionee’s behalf pursuant to this authorization) without further consent; (iii) withholding from Shares to be issued upon exercise of the Option, subject to the approval of the Committee if the Optionee is subject to the short-swing profit rules of Section 16(b) of the Exchange Act; or (iv) any other method determined by the Committee and permitted by applicable laws.

(c)The Company may withhold or account for Tax-Related Items by considering applicable withholding rates, including maximum applicable rates, in which case the Optionee may receive a refund of any over-withheld amount in cash (with no entitlement to the equivalent in Shares), or, if not refunded, the Optionee may seek a refund from the local tax authorities. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, the Optionee is deemed to have been issued the full number of Shares, notwithstanding that a number of Shares are held back solely for the purpose of paying the Tax-Related Items.

(d)Finally, the Optionee shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of the Optionee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver Shares or proceeds from the sale of Shares, if the Optionee fails to comply with the Optionee’s obligations in connection with the Tax-Related Items as described in this Section 9 .

10. Plan Provisions . In the event of any conflict between the provisions of this Agreement and the Plan, the Plan shall control, except that capitalized terms specifically defined in this Agreement shall have the meaning given to them in this Agreement with respect to their usage in this Agreement, notwithstanding the definitions given to such terms in the Plan (which definitions shall control as they relate to the usage of such terms in the Plan).

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

12. Non-Competition; Non-Solicitation; Confidentiality .

(a)While the Optionee is employed by the Company (including its Subsidiaries) and for a period of one (1) year after the Optionee’s Separation from Service 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 one percent (1%) of the outstanding stock of a publicly-held company), that develops, manufactures, markets or sells any product or service that competes with any product or service developed, manufactured, marketed or sold or, to the Optionee’s knowledge, planned to be developed, manufactured, marketed or sold, by II-VI or its Subsidiaries while the Optionee was employed by the Company or a Subsidiary, within the United States of America and/or any other country within which II-VI or its Subsidiaries have customers or prospective customers as of the date of such Separation from Service.

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

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

(b) While the Optionee is employed by the Company and for a period of one (1) year after the Optionee’s Separation from Service for any reason (the “ Restricted Period ”), the

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Optionee will not directly or indirectly either alone or in association with others solicit, or permit any organization directly or indirectly controlled by the Optionee to solicit, any employee or independent contractor of II-VI or its Subsidiaries to leave the employ or service of II-VI or its Subsidiaries. The Restricted Period will be tolled during and for any period of time during which the Optionee is in violation of the restrictive covenants contained in this Section 12 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 Optionee is in compliance with the restrictive covenants contained in this Section 12(a) will not exceed the one (1)-year period set forth above.

(c) The Optionee acknowledges that certain materials, including information, data, technology and other materials relating to customers, programs, costs, marketing, investment, sales activities, promotion, credit and financial data, manufacturing processes, financing methods, plans or the business and affairs of II-VI and its Subsidiaries constitute proprietary confidential information and trade secrets. Accordingly, the Optionee will not at any time during or after the Optionee’s employment with the Company or a Subsidiary 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 (including its Subsidiaries), any proprietary confidential information or trade secrets; provided that the foregoing shall not apply to information which is not unique to II-VI and its Subsidiaries or which is generally known to the industry or the public other than as a result of the Optionee’s breach of this covenant. The Optionee agrees that, upon the Optionee’s Separation from Service for any reason, the Optionee will immediately return to II-VI all property of II-VI and its Subsidiaries including all memoranda, books, technical and/or lab notebooks, customer product and pricing data, papers, plans, information, letters and other data, and all copies thereof or therefrom, which in any way relate to the business of II-VI and its Subsidiaries, except that the 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 II-VI and its Subsidiaries.

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

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containing the trade secret is filed under seal and the Optionee does not disclose the trade secret except pursuant to court order .

13. Remedies; Clawback .

(a) Company and the Optionee acknowledge and agree that that any violation by the Optionee of any of the restrictive covenants contained in Section 12 would cause immediate, material and irreparable harm to II-VI and its Subsidiaries which may not adequately be compensated by money damages and, therefore, II-VI and its Subsidiaries shall be entitled to injunctive relief (including one (1) or more preliminary injunctions and/or ex parte restraining orders) in addition to, and not in derogation of, any other remedies provided by law, in equity or otherwise for such a violation, including the right to have such covenants specifically enforced by any court of competent jurisdiction, the rights under Section 13(b) , and the right to require the Optionee to account for and pay over to II-VI all benefits derived or received by the 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.

(b) In the event that the Optionee violates or breaches any of the covenants set forth in Section 12 , the Option (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 Option was exercised, to (i) return and transfer to II-VI any Shares acquired through any exercise of the Option that are directly or beneficially owned by the Optionee, (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 the value of any gift thereof, and (iii) to the extent that any cash payment was received with respect to such Option, to return and transfer to II-VI any such cash payment.

(c) The Option, and any amounts or benefits received or outstanding under the Plan, as well as any other incentive awards previously granted to the Optionee by the Company , shall be subject to potential clawback, cancellation, recoupment, rescission, payback, reduction, or other similar action in accordance with the terms or conditions of any applicable Company clawback or similar policy or any applicable law related to such actions, as may be in effect from time to time, including the requirements of (a) Section 304 of the Sarbanes Oxley Act and Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, (b) similar rules under the laws of any other jurisdiction, and (c) any policies adopted by the Company to implement such requirements. The Optionee acknowledges and consents to the Company’s application, implementation and enforcement of any applicable Company clawback or similar policy that may apply to the Optionee, whether adopted prior to or following the Grant Date, and any provision of applicable law relating to clawback, cancellation, recoupment, rescission, payback, or reduction of compensation, and agrees that the Company may take such actions as may be necessary to effectuate any such policy or applicable law, without further consideration or action.

14. Optionee Acknowledgments . The Optionee acknowledges and agrees that (a) as a result of the Optionee’s previous, current and future employment with the Company or the

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Employer, the Optionee has had access to, will have access to and/or possesses or will possess confidential and proprietary information of II-VI and its Subsidiaries, (b) II-VI and its Subsidiaries are engaged in a highly competitive business and conduct such business worldwide, (c) this Agreement does not constitute a contract of employment, does not imply that the Company or the Employer will continue the Optionee’s employment for any period of time and does not change the at-will nature of the Optionee’s employment, except as set forth in a separate written employment agreement between the Company or the Employer and the Optionee, (d) the restrictive covenants set forth in Section 12 are necessary and reasonable in time and scope (including the period, geographic, product and service and other restrictions) to protect the legitimate business interests of II-VI and its Subsidiaries, (e) the remedy, forfeiture and payment provisions contained in Section 12 are reasonable and necessary to protect the legitimate business interests of II-VI and its Subsidiaries, (f) acceptance of the Option and agreement to be bound by the provisions hereof is not a condition of the Optionee’s employment and (g) the Optionee’s receipt of the benefits provided under this Agreement is adequate consideration for the enforcement of the provisions contained in Section 12 and Section 13 .

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

16. Controlling Law . The validity, construction and effect of this Agreement will be determined in accordance with the internal laws of the Commonwealth of Pennsylvania without giving effect to the conflict of laws principles thereof. The 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 may file an action to enforce the covenants contained in Section 12 by seeking injunctive or other equitable relief in any appropriate court having jurisdiction, including where the Optionee resides or where the Optionee was employed by the Company or the Employer. The 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. For the purposes of this Section 16 , the Employer shall be a third-party beneficiary of this Agreement.

17. Notice . II-VI may require any notice required or permitted under this Agreement to be transmitted, submitted or received, by II-VI or the Optionee, via the Solium Shareworks System in accordance with the procedures established by II-VI for such notice. Otherwise,

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

18. Entire Agreement . This Agreement (including the Plan and the Employee Grant Details) contains the entire understanding between the parties and supersedes any prior understanding and agreements between them regarding the subject matter hereof with respect to the Option, and there are no other representations, agreements, arrangements or understandings, oral or written, between the parties relating to the Option which are not fully expressed herein. Notwithstanding anything to the contrary set forth in this Agreement, any restrictive covenants contained in this Agreement are independent, and are not intended to limit the enforceability, of any restrictive or other covenants contained in any other agreement between the Company or the Employer and the Optionee.

19. Captions; Section References . Section and other headings contained in this Agreement are for reference purposes only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. Unless expressly provided otherwise, any reference in this Agreement to any Section refers to the corresponding Section of this Agreement.

20. 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.

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

22. Assignment . Except as provided in Section 7, the Optionee’s rights and obligations under this Agreement shall not be transferable by the Optionee, by assignment or otherwise, and any purported assignment, transfer or delegation thereof by the Optionee shall be

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void. II-VI may assign/delegate all or any portion of this Agreement and its rights hereunder without prior notice to the Optionee and without the Optionee providing any additional consent thereto, whereupon the Optionee shall continue to be bound hereby with respect to such assignee/delegate.

23. Electronic Delivery . II-VI may, in its sole discretion, deliver any documents or correspondence related to this Agreement, the Option, the Plan, 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 the Optionee’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 Solium Shareworks System. Likewise, II-VI may require the Optionee to deliver or receive any documents or correspondence related to this Agreement by such electronic means.

24. Further Assurances . The Company and the Optionee shall use commercially reasonable efforts to, from time to time at the request of the other party, without any additional consideration, furnish the other party such further information or assurances, execute and deliver such additional documents and take such other actions and do such other things, as may be necessary to carry out the provisions of this Agreement.

25. Appendices . The Optionee acknowledges and agrees that, if the Optionee resides outside the U.S., the Option is subject to the general terms applicable to Options granted to optionees outside the U.S. set forth in Appendix A hereto, as well as any additional terms and conditions for the Optionee’s U.S. State or country set forth in Appendix B hereto. Appendix A and Appendix B constitute part of this Agreement.

26. Imposition of Other Requirements . The Company reserves the right to impose other requirements on the Option to the extent that the Company determines that it is necessary or advisable in order to comply with local law or facilitate the administration of the Option and to require the Optionee to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

27. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Optionee’s participation in the Plan or the Optionee’s acquisition or sale of Shares. The Optionee understands and agrees that the Optionee should consult with his or her own personal legal and financial advisors regarding the Optionee’s participation in the Plan before taking any action related to the Plan.

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]

IIVI NQSO 111618

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


II-VI INCORPORATED

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

PARTICIPANT

Electronic Acceptance via the
Solium Shareworks System

IIVI NQSO 111618

Appendix A

General Terms Applicable to Options Granted to Recipients Outside the U.S.

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

1. DATA PRIVACY INFORMATION AND CONSENT

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

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

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

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

(d) Data Retention . The Company will use the Optionee’s personal data only as long as is necessary to implement, administer and manage the Optionee’s participation in the Plan or

IIVI NQSO 111618

as required to comply with legal or regulatory obligations, including under tax and security laws. When the Company no longer needs the Optionee’s personal data, which will generally be seven years after the Optionee participates in the Plan, the Company will remove it from its systems. If the Company keeps the data longer, it would be to satisfy legal or regulatory obligations and the Company’s legal basis would be relevant laws or regulation.

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

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

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

2. ADDITIONAL ACKNOWLEDGEMENTS

By entering into this Agreement and accepting this Option, the Optionee acknowledges, understands and agrees that:

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

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

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

IIVI NQSO 111618

(e) this Option, any Shares acquired under the Plan and the income from and value of same, are not intended to replace any pension rights or compensation;

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

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

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

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

(j) this Option will not have value if the underlying Shares do not increase in value, and if the Optionee exercises this Option and acquires Shares, the value of such Shares may increase or decrease, even below the exercise price;

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

(l) for purposes of this Option, the Optionee’s employment will be considered terminated as of the date the Optionee is no longer providing services to the Company or any Subsidiary (regardless of the reason for such termination and whether or not later found to be invalid or in breach of labor laws in the jurisdiction where the Optionee is employed or the terms of the Optionee’s employment agreement, if any). Unless otherwise determined by the Committee, the Optionee’s right to vest in this Option will terminate as of such date and will not be extended by any notice period ( e.g., the Optionee’s period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under labor laws in the jurisdiction where the Optionee is employed or the terms of the Optionee’s employment agreement, if any); and the period (if applicable) during which the Optionee may exercise this Option after Separation from Service will commence as of such date and will not be extended by any notice period mandated under labor laws in the jurisdiction where the Optionee

IIVI NQSO 111618

is employed or the terms of the Optionee’s employment agreement, if any. The Committee shall have the exclusive discretion to determine when the Optionee is no longer actively providing services for purposes of this Option (including whether the Optionee may still be considered to be providing services while on a leave of absence); and

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

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

3. LANGUAGE

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

4. INSIDER TRADING/MARKET ABUSE LAWS

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

5. EXCHANGE CONTROL, TAX AND/OR FOREIGN ASSET/ACCOUNT REPORTING

The Optionee acknowledges that there may be exchange control, tax, foreign asset and/or account reporting requirements which may affect the Optionee’s ability to hold Shares acquired under the Plan or cash received from participating in the Plan in a brokerage/bank account or legal entity outside the Optionee’s country. The Optionee may be required to report such

IIVI NQSO 111618

accounts, assets, the balances therein, the value thereof and/or the transactions related thereto to the tax or other authorities in the Optionee’s country. The Optionee may also be required to repatriate sale proceeds or other funds received as a result of participation in the Plan to the Optionee’s country through a designated bank or broker within a certain time after receipt. The Optionee acknowledges that it is his or her responsibility to be compliant with such regulations and that the Optionee should consult with his or her personal legal advisor for any details.

IIVI NQSO 111618

Appendix B

Jurisdiction-Specific Terms and Conditions

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

Terms and Conditions

This Appendix B includes additional terms and conditions that govern the Option if the Optionee works and/or resides in one of the countries or other jurisdictions listed below.

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

Notifications

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

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

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

IIVI NQSO 111618

AUSTRALIA

Notifications

Tax Information . Subdivision 83A-C of the Income Tax Assessment Act 1997 applies to this Option granted in accordance with the terms and conditions of the Plan and the Agreement (subject to the requirements of the Income Tax Assessment Act 1997).

Exchange Control Information . Exchange control reporting is required for cash transactions exceeding AUD 10,000 and international fund transfers. If an Australian bank is assisting the Optionee with the transaction, the bank will file the report on the Optionee’s behalf. If there is no Australian bank involved in the transfer, the Optionee will be required to file the report.

BELGIUM

Notifications

Foreign Asset and Account Reporting Information . Belgian residents are required to report any securities ( e.g., Shares) or bank accounts (including brokerage accounts) opened or maintained outside of Belgium on their annual tax return. In a separate report, residents will be required to provide the Central Contact Point of the National Bank of Belgium with certain details regarding such foreign accounts (including the account number, bank name and country in which any such account was opened). The forms to complete this report are available on the website of the National Bank of Belgium. Belgian residents should consult with their personal tax advisor to determine their personal reporting obligations.

Stock Exchange Act . From January 1, 2017, a stock exchange tax applies to transactions executed through a non-Belgian financial intermediary. The stock exchange tax will likely apply when Shares are sold. The Optionee should consult with his or her personal tax advisor to determine the Optionee’s obligations with respect to the stock exchange tax.

GERMANY

Notifications

Exchange Control Information . Cross-border payments in excess of €12,500 must be reported monthly to the German Federal Bank. If the Optionee receives a payment in excess of this amount, the Optionee is responsible for electronically reporting to the German Federal Bank by the fifth day of the month following the month in which the payment occurs. The form of the report ( Allgemeines Meldeportal Statistik ) can be accessed via the German Federal Bank’s website ( www.bundesbank.de ) and is available in both German and English.

HONG KONG

Terms and Conditions

Share Sale Restriction . Shares acquired under the Plan are accepted as a personal investment. In the event the Option vests and becomes exercisable within six months of the Grant Date, the

IIVI NQSO 111618

Optionee (or the Optionee’s heirs) agrees that the Shares will not be offered to the public or otherwise disposed of prior to the six-month anniversary of the Grant Date.

Notifications

Securities Law Information . WARNING. The contents of this document have not been reviewed by any regulatory authority in Hong Kong. The Optionee is advised to exercise caution in relation to the offer. If the Optionee is in any doubt about any of the contents of this document, the Optionee should obtain independent professional advice. Neither the grant of this Option nor the Shares acquired upon exercise constitutes a public offering of securities under Hong Kong law and is available only to employees of the Company and its Subsidiaries. This Agreement, the Plan and other incidental communication materials distributed in connection with this Option (i) have not been prepared in accordance with and are not intended to constitute a “prospectus” for a public offering of securities under the applicable securities legislation in Hong Kong, and (ii) are intended only for the personal use of each eligible employee of the Company or its Subsidiaries and may not be distributed to any other person.

ITALY

Terms and Conditions

Plan Document Acknowledgement . In accepting this Option, the Optionee acknowledges that he or she has received a copy of the Plan and the Agreement and has reviewed the Plan and the Agreement in their entirety and fully understands and accepts all provisions of the Plan and the Agreement. The Optionee further acknowledges that he or she has read and specifically and expressly approves the following sections of this Agreement: Section 1 , Section 2 , Section 3 , Section 6 , Section 9 , Section 23 , Section 26 and Section 27, as well as the entire Appendix A .

Notifications

Foreign Asset and Account Reporting Information . If the Optionee is an Italian resident and holds investments or financial assets outside of Italy ( e.g., cash, Shares) during any fiscal year which may generate income tax liability in Italy, the Optionee is required to report such investments or assets on his or her annual tax return for such fiscal year (on UNICO Form, RW Schedule, or on a special form if the Optionee is not required to file a tax return). These reporting obligations will also apply to Italian residents who are the beneficial owners of foreign financial assets under Italian money laundering provisions. The Optionee should consult his or her personal advisor to ensure compliance with applicable reporting obligations.

Foreign Asset Tax . The value of financial assets held outside of Italy by individual residents of Italy is subject to a foreign asset tax. The taxable amount will be the fair market value of the financial assets ( e.g., Shares) assessed at the end of the calendar year. The value of the financial assets held abroad must be reported in Form RM of the annual tax return. The Optionee should consult his or her personal tax advisor for additional information about the foreign financial assets tax.

IIVI NQSO 111618

JAPAN

Notifications

Exchange Control Information . If the Optionee acquires Shares valued at more than ¥100,000,000 in a single transaction, the Optionee must file a Securities Acquisition Report with the Ministry of Finance through the Bank of Japan within 20 days of the acquisition of such Shares.

In addition, if the Optionee pays more than ¥30,000,000 in a single transaction for the purchase of Shares upon exercise, the Optionee must file a Payment Report with the Ministry of Finance through the Bank of Japan within 20 days of the date that the payment is made. The precise reporting requirements vary depending on whether or not the relevant payment is made through a bank in Japan.

Please note that a Payment Report is required independently from a Securities Acquisition Report; therefore, the Optionee must file both a Payment Report and a Securities Acquisition Report if the total amount the Optionee pays in a single transaction for exercising the Option and purchasing Shares exceeds ¥100,000,000.

Foreign Asset and Account Reporting Information . Japanese residents who hold assets outside of Japan with a value exceeding ¥50,000,000 (as of December 31 each year) are required to comply with annual tax reporting obligations with respect to such assets. Japanese residents are advised to consult with their personal tax advisor to ensure that they are properly complying with applicable reporting requirements.

SINGAPORE

Terms and Conditions

Sale Restriction . The Optionee agrees that any Shares acquired pursuant to the Option will not be offered for sale in Singapore prior to the six-month anniversary of the Grant Date, unless such sale or offer is made pursuant to the exemptions under Part XIII Division (1) Subdivision (4) (other than section 280) of the Securities and Futures Act (Chapter 289, 2006 Ed.) (“ SFA ”).

Notifications

Securities Law Information . The grant of this Option is being made pursuant to the “Qualifying Person” exemption under section 273(1)(f) of the SFA under which it is exempt from the prospectus and registration requirements and is not made with a view to the underlying Shares being subsequently offered for sale to any other party. The Plan has not been and will not be lodged or registered as a prospectus with the Monetary Authority of Singapore.

Chief Executive Officer and Director Notification Requirement . The Chief Executive Officer (“ CEO ”) and the directors of a Singapore Subsidiary are subject to certain notification requirements under the Singapore Companies Act. The CEO and directors must notify the Singapore Subsidiary in writing of an interest ( e.g., Option, Shares) in the Company or any related company within two business days of (i) its acquisition or disposal, (ii) any change in a

IIVI NQSO 111618

previously-disclosed interest ( e.g., upon vesting of the Option or when Shares acquired under the Plan are subsequently sold), or (iii) becoming the CEO/a director.

SWITZERLAND

Notifications

Securities Law Information . The grant of this Option and any Shares acquired under the Plan are not intended to be publicly offered in or from Switzerland. Neither this document nor any other materials related to this Option (i) constitutes a prospectus as such term is understood pursuant to article 652a of the Swiss Code of Obligations, (ii) may be publicly distributed or otherwise made publicly available in Switzerland, or (iii) have been or will be filed with, approved or supervised by any Swiss regulatory authority (in particular, the Swiss Financial Market Supervisory Authority ( FINMA )).

TAIWAN

Notifications

Securities Law Information . The offer of participation in the Plan is available only for employees of the Company and its Subsidiaries. The offer of participation in the Plan is not a public offer of securities by a Taiwanese company.

Exchange Control Information . Taiwanese residents may acquire and remit foreign currency (including proceeds from the sale of Shares) up to US$5,000,000 per year without justification. If the transaction amount is TWD500,000 or more in a single transaction, the resident must submit a Foreign Exchange Transaction Form and provide supporting documentation to the satisfaction of the remitting bank.

UNITED KINGDOM

Responsibility for Taxes . The following provision supplements Section 9 of the Agreement.

Without limitation to Section 9 of the Agreement, the Optionee agrees that he or she is liable for all Tax-Related Items and hereby covenants to pay all such Tax-Related Items, as and when requested by the Company or the Employer or by Her Majesty’s Revenue and Customs ( “HMRC” ) (or any other tax authority or any other relevant authority). The Optionee also agrees to indemnify and keep indemnified the Company and the Employer against any Tax-Related Items that they are required to pay or withhold or have paid or will pay to HMRC on the Optionee’s behalf (or any other tax authority or other relevant authority).

Notwithstanding the foregoing, if the Optionee is a director or executive officer of the Company (within the meaning of Section 13(k) of the Exchange Act), the Optionee understands that he or she may not be able to indemnify the Company for the amount of any Tax-Related Items not collected from or paid by the Optionee, if the indemnification could be considered to be a loan. In this case, the Tax-Related Items not collected or paid may constitute a benefit to the Optionee on which additional income tax and National Insurance Contributions ( “NICs ”) may be payable.

IIVI NQSO 111618

The Optionee understands that he or she will be responsible for reporting and paying any income tax due on this additional benefit directly to HMRC under the self-assessment regime and for paying to the Company and/or the Employer (as appropriate) the amount of any NICs due on this additional benefit, which may also be recovered from the Optionee by any of the means referred to in Section 9 of the Agreement.

UNITED STATES - CALIFORNIA

Terms and Conditions

Non-Solicitation; Confidentiality

The following provisions replace Sections 12(a), (b) and (c) of the Agreement in their entirety.

(a) While the Optionee is employed by the Company (including its Subsidiaries) and for a period of one (1) year after the Optionee’s separation from service for any reason (the “ Restricted Period ”), the Optionee will not directly or indirectly either alone or in association with others solicit, or permit any organization directly or indirectly controlled by the Optionee to solicit, any employee or independent contractor of II-VI or its Subsidiaries to leave the employ or service of II-VI or its Subsidiaries. The Restricted Period will be tolled during and for any period of time during which the Optionee is in violation of the restrictive covenants contained in this Section 12(a) and for any period of time which may be necessary to secure an order of court or injunction, either preliminary or permanent, to enforce such covenants, such that the cumulative time period during which the Optionee is in compliance with the restrictive covenants contained in this Section 12(a) will not exceed the one (1)-year period set forth above.

(b)The Optionee acknowledges that certain materials, including information, data, technology and other materials relating to customers, programs, costs, marketing, investment, sales activities, promotion, credit and financial data, manufacturing processes, financing methods, plans or the business and affairs of II-VI and its Subsidiaries constitute proprietary confidential information and trade secrets. Accordingly, the Optionee will not at any time during or after the Optionee’s employment with the Company or a Subsidiary 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 (including its Subsidiaries), any proprietary confidential information or trade secrets; provided that the foregoing shall not apply to information which is not unique to II-VI and its Subsidiaries or which is generally known to the industry or the public other than as a result of the Optionee’s breach of this covenant. The Optionee agrees that, upon the Optionee’s separation from service for any reason, the Optionee will immediately return to II-VI all property of II-VI and its Subsidiaries including all memoranda, books, technical and/or lab notebooks, customer product and pricing data, papers, plans, information, letters and other data, and all copies thereof or therefrom, which in any way relate to the business of II-VI and its Subsidiaries, except that the 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 II-VI and its Subsidiaries.

IIVI NQSO 111618

Exhibit 10.02

II-VI INCORPORATED

RESTRICTED SHARE UNIT SETTLED IN SHARES

AWARD AGREEMENT

THIS RESTRICTED SHARE UNIT AWARD AGREEMENT, including any general and jurisdiction-specific terms and conditions for the Recipient’s jurisdiction set forth in the appendices attached hereto, (this “Agreement”) is dated as of the Grant Date, as specified in the applicable Employee Grant Details (as defined below), by and between II-VI Incorporated, a Pennsylvania corporation (“II-VI”) , and the Recipient, as specified in the applicable Employee Grant Details, who is a director, employee or consultant of II-VI or one of its Subsidiaries (the “Recipient”) .

Reference is made to the Employee Grant Details found on the Stock Options and Awards tab (the “Employee Grant Details” ) issued to the Recipient with respect to the applicable Award, which may be found on the Solium Shareworks system at https://Shareworks.Solium.com (or any successor system selected by II-VI) (the “Solium Shareworks System” ). Reference further is made to the prospectus relating to the Plan (as defined below), which also may be found on the Solium Shareworks System.

All capitalized terms used herein, to the extent not defined herein, shall have the meanings set forth in the II-VI 2018 Omnibus Incentive Plan (as amended and/or restated from time to time, the “Plan”) , a copy of which can be found on the Solium Shareworks System, and/or the applicable Employee Grant Details. Terms of the Plan and the Employee Grant Details are incorporated herein by reference. This Agreement shall constitute an Award Agreement as that term is defined in the Plan.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Recipient and II-VI agree as follows:

1. Restricted Share Unit Award . II-VI hereby grants to the Recipient an Award of Restricted Share Units under the Plan, as specified in the applicable Employee Grant Details, subject to the terms, conditions and restrictions set forth in this Agreement (this “Award”). For the purposes of this Agreement, a “Restricted Share Unit” is the contingent right to receive the equivalent of one (1) Share, in the event the Restricted Share Unit vests and becomes payable pursuant to the terms of this Agreement. Restricted Share Units shall be payable and settled solely in II-VI Shares.

2. Restrictions . Except as otherwise provided in this Agreement, the Restricted Share Units shall vest and become payable, subject to the terms of the Plan, as follows:

Vesting Date

% Vesting

First anniversary of Grant Date

100%

Restricted Share Units that have not vested may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated. Restricted Share Units that have not vested shall be subject

IIVI RSU (1 year) Shares 111618

to forfeiture as provided in Section 3 . Notwithstanding the foregoing, in the event of the Recipient’s Separation from Service upon normal retirement, as defined in II-VI’s Global Retirement Policy, any unvested Restricted Share Units shall immediately vest and payment in respect thereof shall be made to the Recipient no later than the seventy-fifth (75 ^th ) calendar day following the date of Separation from Service. Upon the Recipient’s Separation from Service due to death or permanent and total disability, as defined in Code Section 22(e)(3) (a “Disability” ), any unvested Restricted Share Units shall immediately vest and payment in respect thereof shall be made to the Recipient no later than the seventy-fifth (75 ^th ) calendar day following the date of Separation from Service.

Notwithstanding any provision of this Agreement, if the Company receives a legal opinion that, due to a legal judgment and/or development in the Recipient’s jurisdiction, the vesting that applies to this Award upon a Recipient’s normal retirement would be deemed unlawful or discriminatory, the provisions of this Section 2 regarding the vesting of this Award if the Recipient’s Separation from Service is as a result of normal retirement will not be applicable to the Recipient and the remaining provisions of this Agreement will govern.

3. Other Separation from Service . If the Recipient incurs a Separation from Service for any reason other than those described in Section 2 or Section 4 , any Restricted Share Units which have not yet vested, as of the date of the Recipient’s Separation from Service, shall be immediately forfeited by the Recipient; provided, however, the Committee may determine that all or a portion of the Recipient’s Restricted Share Units shall vest and be issued if the Recipient incurs a Separation from Service under such special circumstances as the Committee deems appropriate.

4. Change in Control; Adjustments to Payments .

(a) Change in Control . Upon a Change in Control, the Award shall be subject to Section 10 of the Plan, with “Cause” and “Good Reason” for such purpose as defined below.

(b) “Cause” shall be defined as that term is defined in the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company; or, if there is no such definition, “Cause” shall mean a determination by the Company that any of the following has occurred:

(i)the willful failure by the Recipient to perform the Recipient’s duties and responsibilities to the Company or a Subsidiary that the Recipient is employed by or provides services to (the “Employer” ) (other than any such failure resulting from the Recipient’s Disability), which is not cured within ten (10) business days of receiving written notice from the Company or the Employer specifying in reasonable detail the duties or responsibilities that the Company or the Employer believes are not being adequately performed;

(ii)the willful engaging by the Recipient in any act that is damaging to the Company or the Employer;

(iii)the conviction of the Recipient of, or a plea of “guilty” or “no contest” to, (A) any felony or (B) a criminal offense involving fraud, dishonesty or other moral turpitude;

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(iv) any breach by the Recipient of the terms of any written agreement between the Recipient and the Company relating to proprietary information, confidentiality, non-disclosure, ownership of inventions, non-competition, non-solicitation, non-interference or non-disparagement;

(v)the engaging by the Recipient in any willful act of dishonesty resulting or intended to result, directly or indirectly, in personal gain to the Recipient; or

(vi)the commission of any act by the Recipient that is in violation of the Company’s Code of Business Conduct and Ethics.

(c) “Good Reason” shall be defined as that term is defined in the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company; or, if there is no such definition, “Good Reason” shall mean that any of the following has occurred, without the Recipient’s express written consent:

(i)a material reduction of the Recipient’s employment responsibilities from those immediately prior to the Change in Control;

(ii)a material reduction by the Company or the Employer of the Recipient’s eligibility for Total Target Compensation as in effect immediately prior to the Change in Control, with “Total Target Compensation” defined as the Recipient’s annual base salary plus the cash and stock compensation the Recipient is eligible to receive from the Company or the Employer at one hundred percent (100%) performance, whether sales incentive, bonus or otherwise;

(iii)a material increase in the amount of the Recipient’s business travel that produces a constructive relocation of the Recipient;

(iv)a material reduction by the Company or the Employer in the kind or level of employee benefits to which the Recipient is entitled immediately prior to the Change in Control, with the result that the Recipient’s overall benefits package is materially reduced; or

(v)the relocation of the Recipient to a facility or a location more than thirty (30) miles from the Recipient’s principal place of employment immediately prior to the Change in Control.

In order for the Recipient to incur a Separation from Service for Good Reason, (A) the Company must be notified by the Recipient in writing within ninety (90) days of the event constituting Good Reason, (B) the event must remain uncorrected by the Company or the Employer (as applicable) for thirty (30) days following such notice (the “Notice Period” ), and (C) such Separation from Service must occur within sixty (60) days after the expiration of the Notice Period.

(d) Adjustments to Payments .

(i)Notwithstanding any provision to the contrary in this Agreement, if it is determined that any payment or distribution by the Company or the Employer to the

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Recipient or for the Recipient’s benefit (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (the “Payments” ) would be subject to the excise tax imposed by Code Section 4999, or any interest or penalty is incurred by the Recipient with respect to such excise tax (such excise tax, together with any such interest and penalties, collectively referred to as the “Excise Tax” ), then the Payments shall be reduced (but not below zero) if and to the extent that such reduction would result in the Recipient retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the imposition of the Excise Tax), than if the Recipient received all of the Payments. The Payments shall be reduced or eliminated by first reducing or eliminating the portion of the Payments that are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits that are to be paid the farthest in time from the determination.

(ii)All determinations required to be made under this Section 4(d) , including whether and when an adjustment to any Payments is required and, if applicable, which Payments are to be so adjusted, shall be made by an independent accounting firm selected by II-VI from among the four (4) largest accounting firms in the United States or any nationally-recognized financial planning and benefits consulting company (the “Accounting Firm” ), which shall provide detailed supporting calculations both to II-VI and to the Recipient within fifteen (15) business days of the receipt of notice from the Recipient that there has been a Payment, or such earlier time as is requested by II-VI. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, II-VI shall appoint another nationally-recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by II-VI. If the Accounting Firm determines that no Excise Tax is payable by the Recipient, it shall furnish the Recipient with a written opinion that failure to report the Excise Tax on the Recipient’s applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Recipient.

5. Delivery of Shares/Payment . Except as otherwise provided in Section 2 or Section 4 , II-VI shall cause a stock certificate (or equivalent electronic book entry) representing Shares equal to the number of Restricted Share Units vested and payable under this Agreement to be issued to the Recipient on the vesting date specified in the schedule in Section 2 (or as soon as administratively practicable thereafter, but in no event later than the seventy-fifth (75 ^th ) calendar day following such applicable vesting date). Notwithstanding the foregoing, the Company, at its sole discretion, may settle the Award in cash if necessary or appropriate for legal or administrative reasons based on laws in the Recipient’s jurisdiction. If the Restricted Share Units are settled in cash, II-VI shall pay to the Recipient an amount in cash equal to the product of (a) the number of Restricted Share Units vested and payable on the vesting date specified in the schedule in Section 2 and (b) the Fair Market Value on such vesting date, with such cash payment being made within the time period specified in this Section 5 . In the event of the death of the Recipient, delivery of the applicable form of consideration set forth in this Section 5 shall be made to the Recipient’s estate.

6. Limitation of Rights; Dividend Equivalents . The Recipient shall not have any rights of ownership of the Shares underlying the Restricted Share Units, including voting rights

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or the rights to receive dividends or other distributions, before the vesting of this Award. The Recipient, however, shall be entitled to receive a cash payment equal to the cash dividends that would have been paid during the applicable vesting period (i.e., the period from the Grant Date through the vesting date or earlier vesting event pursuant to Section 2 or Section 4 ) on the number of Shares underlying the Restricted Share Units then vesting if such Shares had been issued and outstanding during the applicable vesting period. Such cash dividend equivalents will not vest or be paid prior to vesting of the Restricted Share Units to which they relate, as specified in this Agreement, and will be subject to cancellation and forfeiture to the same extent that the related Restricted Share Units do not vest or are forfeited.

7. Nontransferability . Except as otherwise provided in the Plan, the Restricted Share Units shall not be sold, pledged, assigned, hypothecated, transferred or disposed of (a “Transfer”) in any manner, other than by will or the laws of descent and distribution. Any attempt to Transfer the Restricted Share Units in violation of this Section or the Plan shall render this Award null and void.

9. Fractional Shares . II-VI shall not be required to issue any fractional Shares pursuant to this Award, and II-VI may round fractional Shares down to the nearest whole Share.

10. Responsibility for Taxes .

(a)Regardless of any action the Company or the Employer takes with respect to any or all income tax, social insurance, payroll tax, fringe benefit tax, payment on account or other tax-related items related to the Recipient’s participation in the Plan ( “Tax-Related Items” ), the Recipient acknowledges that the ultimate liability for all Tax-Related Items owed by the Recipient is and remains the Recipient’s responsibility and that the Company (i) makes no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of this Award, including the grant or vesting of this Award or the subsequent sale of Shares acquired pursuant to this Award; and (ii) does not commit to structure the terms of the grant or any aspect of this Award to reduce or eliminate the Recipient’s liability for Tax-Related Items or achieve a particular tax result. Further, if the Recipient is subject to Tax-Related Items in more than one jurisdiction, the Recipient acknowledges and agrees that the Company or the Employer may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

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the Recipient’s behalf pursuant to this authorization) without further consent; (iii) withholding Shares to be issued upon vesting of this Award; or (iv) any other method determined by the Committee and permitted by applicable laws. Notwithstanding the foregoing, if the Recipient is subject to the short-swing profit rules of Section 16(b) of the Exchange Act , the Company will withhold in Shares issuable at vesting of the Award upon the relevant withholding event, unless otherwise determined by the Committee.

(c)The Company may withhold or account for Tax-Related Items by considering applicable withholding rates, including maximum applicable rates, in which case the Recipient may receive a refund of any over-withheld amount in cash (with no entitlement to the equivalent in Shares) or, if not refunded, the Recipient may seek a refund from the local tax authorities. If the obligation for Tax-Related Items is satisfied by withholding in Shares, for tax purposes, the Recipient is deemed to have been issued the full number of Shares, notwithstanding that a number of Shares are held back solely for the purpose of paying the Tax-Related Items.

(d) Finally, the Recipient shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of the Recipient’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to issue or deliver Shares or the proceeds from the sale of Shares, if the Recipient fails to comply with the Recipient’s obligations in connection with the Tax-Related Items as described in this Section 10 .

11. Plan Provisions . In the event of any conflict between the provisions of this Agreement and the Plan, the Plan shall control, except that capitalized terms specifically defined in this Agreement shall have the meaning given to them in this Agreement with respect to their usage in this Agreement, notwithstanding the definitions given to such terms in the Plan (which definitions shall control as they relate to the usage of such terms in the Plan).

12. No Continued Rights . The granting of this Award shall not give the Recipient any rights to similar grants in future years or any right to continuance of employment or other service with II-VI or its Subsidiaries, nor shall it interfere in any way with any right that the Company or the Employer would otherwise have to terminate the Recipient’s employment or other service at any time, the right of the Company or the Employer to assign the Recipient to a position that is ineligible for this Restricted Share Unit Award, or the right of the Recipient to terminate his or her employment or other service at any time.

13. Rights Unsecured . The Recipient shall have only II-VI’s unfunded, unsecured promise to pay pursuant to the terms of this Agreement. The rights of the Recipient hereunder shall be that of a general unsecured creditor of II-VI and the Recipient shall not have any security interest in any assets of II-VI.

14. Non-Competition; Non-Solicitation; Confidentiality .

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

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

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

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

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

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

15. Remedies; Clawback .

(a) II-VI and the Recipient acknowledge and agree that that any violation by the Recipient of any of the restrictive covenants contained in Section 14 would cause immediate, material and irreparable harm to II-VI and its Subsidiaries which may not adequately be compensated by money damages and, therefore, II-VI and its Subsidiaries shall be entitled to injunctive relief (including one (1) or more preliminary injunctions and/or ex parte restraining orders) in addition to, and not in derogation of, any other remedies provided by law, in equity or otherwise for such a violation, including the right to have such covenants specifically enforced by any court of competent jurisdiction, the rights under Section 15(b) , and the right to require the Recipient to account for and pay over to II-VI all benefits derived or received by the Recipient as a result of any such breach of covenant together with interest thereon, from the date of such initial violation until such sums are received by II-VI.

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

(c) This Award, and any amounts or benefits received or outstanding under the Plan, as well as any other incentive awards previously granted to the Recipient by the Company , shall be subject to potential clawback, cancellation, recoupment, rescission, payback, reduction, or other similar action in accordance with the terms or conditions of any applicable Company clawback or similar policy or any applicable law related to such actions, as may be in effect from time to time, including the requirements of (a) Section 304 of the Sarbanes Oxley Act and Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, (b) similar rules under the laws of any other jurisdiction, and (c) any policies adopted by the Company to implement such requirements. The Recipient acknowledges and consents to the Company’s application, implementation and enforcement of any applicable Company clawback or similar policy that may apply to the Recipient, whether adopted prior to or following the Grant Date, and any provision of applicable law relating to clawback, cancellation, recoupment, rescission, payback, or reduction of compensation, and agrees that the Company may take such actions as may be necessary to effectuate any such policy or applicable law, without further consideration or action.

16. Recipient Acknowledgments . The Recipient acknowledges and agrees that (a) as a result of the Recipient’s previous, current and future employment with the Company or the Employer, the Recipient has had access to, will have access to and/or possesses or will possess confidential and proprietary information of II-VI and its Subsidiaries, (b) II-VI and its Subsidiaries are engaged in a highly competitive business and conduct such business worldwide, (c) this Agreement does not constitute a contract of employment, does not imply that the Company or the Employer will continue the Recipient’s employment for any period of time and does not change the at-will nature of the Recipient’s employment, except as set forth in a separate written employment agreement between the Company or the Employer and the Recipient, (d) the restrictive covenants set forth in Section 14 are necessary and reasonable in time and scope (including the period, geographic, product and service and other restrictions) to protect the legitimate business interests of II-VI and its Subsidiaries, (e) the remedy, forfeiture and payment provisions contained in Section 15 are reasonable and necessary to protect the legitimate business interests of II-VI and its Subsidiaries, (f) acceptance of this Award and the Restricted Share Units and agreement to be bound by the provisions hereof is not a condition of the Recipient’s employment and (g) the Recipient’s receipt of the benefits provided under this Agreement is adequate consideration for the enforcement of the provisions contained in Section 14 and Section 15 .

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

18. Notice . II-VI may require any notice required or permitted under this Agreement to be transmitted, submitted or received, by II-VI or the Recipient, via the Solium Shareworks System in accordance with the procedures established by II-VI for such notice. Otherwise, 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 the Recipient at his or her most recent home address on record with II-VI. Notices are effective upon receipt.

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

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oral or written, between the parties relating to this Award which are not fully expressed herein. Notwithstanding anything to the contrary set forth in this Agreement, any restrictive covenants contained in this Agreement are independent, and are not intended to limit the enforceability, of any restrictive or other covenants contained in any other agreement between the Company or the Employer and the Recipient.

21. Captions; Section References . Section and other headings contained in this Agreement are for reference purposes only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. Unless expressly provided otherwise, any reference in this Agreement to any Section refers to the corresponding Section of this Agreement.

22. Limitation of Actions . Any lawsuit commenced by the Recipient with respect to any matter arising out of or relating to this Agreement must be filed no later than one (1) year after the date that a denial of any claim hereunder is made or any earlier date that the claim otherwise accrues.

23. Section 409A . This Agreement and this Award are intended to satisfy all applicable requirements of Section 409A or an exception thereto and shall be construed accordingly. II-VI may in its sole discretion, and without the Recipient’s consent, take any action it deems necessary to comply with the requirements of Section 409A or an exception thereto, including amending the terms of this Award and this Agreement, in any manner it deems necessary to cause this Award and this Agreement to be excepted from Section 409A (or to comply therewith to the extent that II-VI determines that it is not excepted). Notwithstanding, the Recipient recognizes and acknowledges that Section 409A may affect the timing and recognition of payments due hereunder, and may impose upon the Recipient certain taxes or other charges for which the Recipient is and shall remain solely responsible. Notwithstanding anything to the contrary in this Agreement, if the Recipient is a Specified Employee, to the extent that the Award constitutes “nonqualified deferred compensation” subject to Section 409A of the Code, any payment due to the Recipient under the Award upon Separation from Service will be delayed in accordance with Section 18 of the Plan.

24. Assignment . Except as provided in Section 7 , the Recipient’s rights and obligations under this Agreement shall not be transferable by the Recipient, by assignment or otherwise, and any purported assignment, transfer or delegation thereof by the Recipient shall be void. II-VI may assign/delegate all or any portion of this Agreement and its respective rights hereunder without prior notice to the Recipient and without the Recipient providing any additional consent thereto, whereupon the Recipient shall continue to be bound hereby with respect to such assignee/delegatee.

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

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Solium Shareworks System. Likewise, II-VI may require the Recipient to deliver or receive any documents or correspondence related to this Agreement by such electronic means.

26. Further Assurances . The Company and the Recipient shall use commercially reasonable efforts to, from time to time at the request of the other party, without any additional consideration, furnish the other party such further information or assurances, execute and deliver such additional documents and take such other actions and do such other things, as may be necessary to carry out the provisions of this Agreement.

27. Compliance with Legal Requirements . Notwithstanding any other provisions of the Plan or this Agreement, unless there is an exemption from any registration, qualification or other legal requirement applicable to the Shares, the Company shall not be required to deliver any Shares issuable upon vesting of this Award prior to the completion of any registration or qualification of the Shares under any local, state, federal or foreign securities or exchange control law or under rulings or regulations of the U.S. Securities and Exchange Commission ( “SEC” ) or of any other governmental regulatory body, or prior to obtaining any approval or other clearance from any local, state, federal or foreign governmental agency, which registration, qualification or approval the Company shall, in its absolute discretion, deem necessary or advisable. Further, the Company is under no obligation to register or qualify the Shares with the SEC or any state or foreign securities commission or to seek approval or clearance from any governmental authority for the issuance or sale of Shares. Subject to Section 409A, the Committee may postpone the issuance or delivery of Shares under this Award as the Committee may consider appropriate and may require the Recipient to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of Shares in compliance with applicable laws, rules and regulations. The Recipient understands and agrees that the Company shall have unilateral authority to amend this Agreement without his or her consent to the extent necessary to comply with securities or other laws applicable to the issuance of Shares.

28. Appendices . The Recipient acknowledges and agrees that, if the Recipient resides outside the U.S., this Award is subject to the general terms applicable to Awards granted to recipients outside the U.S. set forth in Appendix A hereto. Further, this Award is subject to any additional terms and conditions set forth for the Recipient’s U.S. state or country in Appendix B hereto. Appendix A and Appendix B constitute part of this Agreement.

29. Imposition of Other Requirements . The Company reserves the right to impose other requirements on this Award to the extent that the Company determines that it is necessary or advisable in order to comply with local law or facilitate the administration of this Award and to require the Recipient to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

30. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Recipient’s participation in the Plan or the Recipient’s acquisition or sale of Shares. The Recipient understands and agrees that the Recipient should consult with his or her own personal legal and financial advisors regarding the Recipient’s participation in the Plan before taking any action related to the Plan.

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31. Amendments . This Agreement may be amended or modified at any time by an instrument in writing signed by the parties hereto, or as otherwise provided under the Plan or this Agreement.

[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 through the Solium Shareworks System ) shall constitute execution of this Agreement by the Recipient.

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

II-VI INCORPORATED

By:

Name: David G. Wagner

Title: Vice President, Human Resources

PARTICIPANT

Electronic Acceptance via the Solium Shareworks System

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Appendix A

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

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

1. DATA PRIVACY INFORMATION AND CONSENT

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

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

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

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

(d) Data Retention . The Company will use the Recipient’s personal data only as long as is necessary to implement, administer and manage the Recipient’s participation in the Plan or

IIVI RSU (1 Year) Shares 111618

as required to comply with legal or regulatory obligations, including under tax and security laws. When the Company no longer needs the Recipient’s personal data, which will generally be seven years after the Recipient participates in the Plan, the Company will remove it from its systems. If the Company keeps the data longer, it would be to satisfy legal or regulatory obligations and the Company’s legal basis would be relevant laws or regulation.

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

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

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

2. ADDITIONAL ACKNOWLEDGEMENTS

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

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

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

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

(e) this Award, any Shares acquired under the Plan and the income from and value of same, are not intended to replace any pension right or compensation;

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

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

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

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

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

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

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

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

3. LANGUAGE

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

4. INSIDER TRADING/MARKET ABUSE LAWS

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

5. EXCHANGE CONTROL, TAX AND/OR FOREIGN ASSET/ACCOUNT REPORTING

Recipient’s country through a designated bank or broker within a certain time after receipt. The Recipient acknowledges that it is his or her responsibility to be compliant with such regulations and that the Recipient should consult with his or her personal legal advisor for any details.

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Appendix B

Jurisdiction-Specific Terms and Conditions

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

Terms and Conditions

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

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

Notifications

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

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

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

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AUSTRALIA

Terms and Conditions

Australia Offer Document . This Award is intended to comply with the provisions of the Corporations Act 2011, Australia Securities and Investments Commission ( “ASIC” ) Regulatory Guide 49 and ASIC Class Order CO 14/1000. Additional details are set forth in the Offer Document which will be provided to the Recipient.

Notifications

Tax Information . Subdivision 83A-C of the Income Tax Assessment Act 1997 applies to this Award granted in accordance with the terms and conditions of the Plan and the Agreement (subject to the requirements of the Income Tax Assessment Act 1997).

Exchange Control Information . Exchange control reporting is required for cash transactions exceeding AUD 10,000 and international fund transfers. If an Australian bank is assisting the Recipient with the transaction, the bank will file the report on the Recipient’s behalf. If there is no Australian bank involved in the transfer, the Recipient will be required to file the report.

BELGIUM

Notifications

Stock Exchange Act . From January 1, 2017, a stock exchange tax applies to transactions executed through a non-Belgian financial intermediary. The stock exchange tax will likely apply when Shares are sold. The Recipient should consult with his or her personal tax advisor to determine the Recipient’s obligations with respect to the stock exchange tax.

GERMANY

Notifications

Exchange Control Information . Cross-border payments in excess of €12,500 must be reported monthly to the German Federal Bank. If the Recipient receives a payment in excess of this amount, the Recipient is responsible for electronically reporting to the German Federal Bank by the fifth day of the month following the month in which the payment occurs. The form of the report ( Allgemeines Meldeportal Statistik ) can be accessed via the German Federal Bank’s website ( www.bundesbank.de ) and is available in both German and English.

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HONG KONG

Terms and Conditions

Share Sale Restriction . Shares received at vesting are accepted as a personal investment. In the event that this Award vests and Shares are issued to the Recipient (or the Recipient’s heirs) within six months of the Grant Date, the Recipient (or the Recipient’s heirs) agrees that the Shares will not be offered to the public or otherwise disposed of prior to the six-month anniversary of the Grant Date.

Notifications

Securities Law Information . WARNING. The contents of this document have not been reviewed by any regulatory authority in Hong Kong. The Recipient is advised to exercise caution in relation to the offer. If the Recipient is in any doubt about any of the contents of this document, the Recipient should obtain independent professional advice. Neither the grant of this Award nor the Shares acquired upon vesting constitutes a public offering of securities under Hong Kong law and is available only to employees of the Company and its Subsidiaries. This Agreement, the Plan and other incidental communication materials distributed in connection with this Award (i) have not been prepared in accordance with and are not intended to constitute a “prospectus” for a public offering of securities under the applicable securities legislation in Hong Kong, and (ii) are intended only for the personal use of each eligible employee of the Company or its Subsidiaries and may not be distributed to any other person.

ITALY

Terms and Conditions

Plan Document Acknowledgement . In accepting this Award, the Recipient acknowledges that he or she has received a copy of the Plan and the Agreement and has reviewed the Plan and the Agreement in their entirety and fully understands and accepts all provisions of the Plan and the Agreement. The Recipient further acknowledges that he or she has read and specifically and expressly approves the following sections of this Agreement: Section 1 , Section 2 , Section 5 , Section 10 , Section 25 , Section 27 and Section 29 , as well as the entire Appendix A .

Notifications

Foreign Asset and Account Reporting Information . If the Recipient is an Italian resident and holds investments or financial assets outside of Italy ( e.g., cash, Shares) during any fiscal year which may generate income tax liability in Italy, the Recipient is required to report such investments or assets on his or her annual tax return for such fiscal year (on UNICO Form, RW Schedule, or on a special form if the Recipient is not required to file a tax return). These reporting obligations will also apply to Italian residents who are the beneficial owners of foreign financial assets under Italian money laundering provisions. The Recipient should consult his or her personal advisor to ensure compliance with applicable reporting obligations.

Foreign Asset Tax . The value of financial assets held outside of Italy by individual residents of Italy is subject to a foreign asset tax. The taxable amount will be the fair market value of the

IIVI RSU (1 Year) Shares 111618

financial assets ( e.g., Shares) assessed at the end of the calendar year. The value of the financial assets held abroad must be reported in Form RM of the annual tax return. The Recipient should consult his or her personal tax advisor for additional information about the foreign financial assets tax.

JAPAN

Notifications

SINGAPORE

Terms and Conditions

Sale Restriction . The Recipient agrees that any Shares acquired pursuant to the Awards will not be offered for sale in Singapore prior to the six-month anniversary of the Grant Date, unless such sale or offer is made pursuant to the exemptions under Part XIII Division (1) Subdivision (4) (other than section 280) of the Securities and Futures Act (Chapter 289, 2006 Ed.) (“ SFA ”).

Notifications

Securities Law Information . The grant of this Award is being made pursuant to the “Qualifying Person” exemption under section 273(1)(f) of the SFA under which it is exempt from the prospectus and registration requirements and is not made with a view to the underlying Shares being subsequently offered for sale to any other party. The Plan has not been and will not be lodged or registered as a prospectus with the Monetary Authority of Singapore.

Chief Executive Officer and Director Notification Requirement . The Chief Executive Officer (“ CEO ”) and the directors of a Singapore Subsidiary are subject to certain notification requirements under the Singapore Companies Act. The CEO and directors must notify the Singapore Subsidiary in writing of an interest ( e.g., Awards, Shares) in the Company or any related company within two business days of (i) its acquisition or disposal, (ii) any change in a previously-disclosed interest ( e.g., upon vesting of the Award or when Shares acquired under the Plan are subsequently sold), or (iii) becoming the CEO/a director.

SWITZERLAND

IIVI RSU (1 Year) Shares 111618

Notifications

Securities Law Information . The grant of this Award and any Shares acquired under the Plan are not intended to be publicly offered in or from Switzerland. Neither this document nor any other materials related to this Award (i) constitutes a prospectus as such term is understood pursuant to article 652a of the Swiss Code of Obligations, (ii) may be publicly distributed or otherwise made publicly available in Switzerland, or (iii) have been or will be filed with, approved or supervised by any Swiss regulatory authority (in particular, the Swiss Financial Market Supervisory Authority ( FINMA )).

TAIWAN

Notifications

UNITED KINGDOM

Responsibility for Taxes . The following provision supplements Section 10 of the Agreement.

Without limitation to Section 10 of the Agreement, the Recipient agrees that he or she is liable for all Tax-Related Items and hereby covenants to pay all such Tax-Related Items, as and when requested by the Company or the Employer or by Her Majesty’s Revenue and Customs ( “HMRC” ) (or any other tax authority or any other relevant authority). The Recipient also agrees to indemnify and keep indemnified the Company and the Employer against any Tax-Related Items that they are required to pay or withhold or have paid or will pay to HMRC on the Recipient’s behalf (or any other tax authority or other relevant authority).

Notwithstanding the foregoing, if the Recipient is a director or executive officer of the Company (within the meaning of Section 13(k) of the Exchange Act), the Recipient understands that he or she may not be able to indemnify the Company for the amount of any Tax-Related Items not collected from or paid by the Recipient, if the indemnification could be considered to be a loan. In this case, the Tax-Related Items not collected or paid may constitute a benefit to the Recipient on which additional income tax and National Insurance Contributions ( “NICs ”) may be payable. The Recipient understands that he or she will be responsible for reporting and paying any income tax due on this additional benefit directly to HMRC under the self-assessment regime and for

paying to the Company and/or the Employer (as appropriate) the amount of any NICs due on this additional benefit, which may also be recovered from the Recipient by any of the means referred to in Section 10 of the Agreement.

IIVI RSU (1 Year) Shares 111618

UNITED STATES - CALIFORNIA

Terms and Conditions

Non-Solicitation; Confidentiality

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

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

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

IIVI RSU (1 Year) Shares 111618

Exhibit 10.03

II-VI INCORPORATED

RESTRICTED SHARE UNIT SETTLED IN CASH

AWARD AGREEMENT

All capitalized terms used herein, to the extent not defined herein, shall have the meanings set forth in the II-VI 2018 Omnibus Incentive Plan (as amended and/or restated from time to time, the “Plan”) , a copy of which can be found on the Solium Shareworks System, and/or the applicable Employee Grant Details. Terms of the Plan and the Employee Grant Details are incorporated herein by reference. This Agreement shall constitute an Award Agreement as that term is defined in the Plan.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Recipient and II-VI agree as follows:

1. Restricted Share Unit Award . II-VI hereby grants to the Recipient an Award of Restricted Share Units under the Plan, as specified in the applicable Employee Grant Details, subject to the terms, conditions and restrictions set forth in this Agreement (this “Award”). For the purposes of this Agreement, a “Restricted Share Unit” is the contingent right to receive the equivalent value of one (1) Share, in the event the Restricted Share Unit vests and becomes payable pursuant to the terms of this Agreement. Restricted Share Units shall be payable and settled solely in cash based on the Fair Market Value as of the date of the vesting event.

2. Restrictions . Except as otherwise provided in this Agreement, the Restricted Share Units shall vest and become payable, subject to the terms of the Plan, as follows:


Vesting Date	% Vesting
First anniversary of Grant Date	33%
Second anniversary of Grant Date	33%
Third anniversary of Grant Date	34%

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Only a whole number of Restricted Share Units shall become vested as of any given vesting date. If the number of Restricted Share Units determined as of a vesting date is a fractional number, the number vesting shall be rounded down to the nearest whole number with any fractional portion carried forward. Restricted Share Units that have not vested may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated. Restricted Share Units that have not vested shall be subject to forfeiture as provided in Section 3 . Notwithstanding the foregoing, in the event of the Recipient’s Separation from Service upon normal retirement, as defined in II-VI’s Global Retirement Policy, any unvested Restricted Share Units shall immediately vest and payment in respect thereof shall be made to the Recipient no later than the seventy-fifth (75 ^th ) calendar day following the date of Separation from Service. Upon the Recipient’s Separation from Service due to death or permanent and total disability, as defined in Code Section 22(e)(3) (a “Disability” ), any unvested Restricted Share Units shall immediately vest and payment in respect thereof shall be made to the Recipient no later than the seventy-fifth (75 ^th ) calendar day following the date of Separation from Service.

4. Change in Control; Adjustments to Payments .

(a) Change in Control . Upon a Change in Control, the Award shall be subject to Section 10 of the Plan, with “Cause” and “Good Reason” for such purpose as defined below.

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(ii) the willful engaging by the Recipient in any act that is damaging to the Company or the Employer;

(iii)the conviction of the Recipient of, or a plea of “guilty” or “no contest” to, (A) any felony or (B) a criminal offense involving fraud, dishonesty or other moral turpitude;

(iv)any breach by the Recipient of the terms of any written agreement between the Recipient and the Company relating to proprietary information, confidentiality, non-disclosure, ownership of inventions, non-competition, non-solicitation, non-interference or non-disparagement;

(v)the engaging by the Recipient in any willful act of dishonesty resulting or intended to result, directly or indirectly, in personal gain to the Recipient; or

(vi)the commission of any act by the Recipient that is in violation of the Company’s Code of Business Conduct and Ethics.

(i)a material reduction of the Recipient’s employment responsibilities from those immediately prior to the Change in Control;

(iii)a material increase in the amount of the Recipient’s business travel that produces a constructive relocation of the Recipient;

(v)the relocation of the Recipient to a facility or a location more than thirty (30) miles from the Recipient’s principal place of employment immediately prior to the Change in Control.

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(d) Adjustments to Payments .

(i)Notwithstanding any provision to the contrary in this Agreement, if it is determined that any payment or distribution by the Company or the Employer to the Recipient or for the Recipient’s benefit (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (the “Payments” ) would be subject to the excise tax imposed by Code Section 4999, or any interest or penalty is incurred by the Recipient with respect to such excise tax (such excise tax, together with any such interest and penalties, collectively referred to as the “Excise Tax” ), then the Payments shall be reduced (but not below zero) if and to the extent that such reduction would result in the Recipient retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the imposition of the Excise Tax), than if the Recipient received all of the Payments. The Payments shall be reduced or eliminated by first reducing or eliminating the portion of the Payments that are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits that are to be paid the farthest in time from the determination.

(ii)All determinations required to be made under this Section 4(d) , including whether and when an adjustment to any Payments is required and, if applicable, which Payments are to be so adjusted, shall be made by an independent accounting firm selected by II-VI from among the four (4) largest accounting firms in the United States or any nationally-recognized financial planning and benefits consulting company (the “Accounting Firm” ), which shall provide detailed supporting calculations both to II-VI and to the Recipient within fifteen (15) business days of the receipt of notice from the Recipient that there has been a Payment, or such earlier time as is requested by II-VI. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, II-VI shall appoint another nationally-recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by II-VI. If the Accounting Firm determines that no Excise Tax is payable by the Recipient, it shall furnish the Recipient with a written opinion that failure to report the Excise Tax on the Recipient’s applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Recipient.

5. Delivery of Payment . II-VI shall pay to the Recipient an amount in cash equal to the product of (a) the number of Restricted Share Units vested and payable on the applicable vesting date specified in the schedule in Section 2 and (b) the Fair Market Value on such applicable vesting date, with such cash payment being made on the applicable vesting date specified in the schedule in Section 2 (or as soon as administratively practicable thereafter, but in no event later than the seventy-fifth (75th) calendar day following such applicable vesting date). In the event of the death of the Recipient, delivery of the applicable form of consideration set forth in this Section 5 shall be made to the Recipient’s estate.

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6. Limitation of Rights; Dividend Equivalents . The Recipient shall not have any rights of ownership of the Shares underlying the Restricted Share Units, including voting rights or the rights to receive dividends or other distributions, before the vesting of this Award. The Recipient, however, shall be entitled to receive a cash payment equal to the cash dividends that would have been paid during the applicable vesting period (i.e., the period from the Grant Date through the applicable vesting date or earlier vesting event pursuant to Section 2 or Section 4 ) on the number of Shares underlying the Restricted Share Units then vesting if such Shares had been issued and outstanding during the applicable vesting period. Such cash dividend equivalents will not vest or be paid prior to vesting of the Restricted Share Units to which they relate, as specified in this Agreement, and will be subject to cancellation and forfeiture to the same extent that the related Restricted Share Units do not vest or are forfeited.

9. Responsibility for Taxes .

(a)Regardless of any action the Company or the Employer takes with respect to any or all income tax, social insurance, payroll tax, fringe benefit tax, payment on account or other tax-related items related to the Recipient’s participation in the Plan ( “Tax-Related Items” ), the Recipient acknowledges that the ultimate liability for all Tax-Related Items owed by the Recipient is and remains the Recipient’s responsibility and that the Company (i) makes no representations or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of this Award, including the grant or vesting of this Award; and (ii) does not commit to structure the terms of the grant or any aspect of this Award to reduce or eliminate the Recipient’s liability for Tax-Related Items or achieve a particular tax result. Further, if the Recipient is subject to Tax-Related Items in more than one jurisdiction, the Recipient acknowledges and agrees that the Company or the Employer may be required to withhold or account for Tax-Related Items in more than one jurisdiction.

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(d) Finally, the Recipient shall pay to the Company or the Employer any amount of Tax-Related Items that the Company or the Employer may be required to withhold or account for as a result of the Recipient’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to make the Payments if the Recipient fails to comply with the Recipient’s obligations in connection with the Tax-Related Items as described in this Section 9 .

11. No Continued Rights . The granting of this Award shall not give the Recipient any rights to similar grants in future years or any right to continuance of employment or other service with II-VI or its Subsidiaries, nor shall it interfere in any way with any right that the Company or the Employer would otherwise have to terminate the Recipient’s employment or other service at any time, the right of the Company or the Employer to assign the Recipient to a position that is ineligible for this Restricted Share Unit Award, or the right of the Recipient to terminate his or her employment or other service at any time.

12. Rights Unsecured . The Recipient shall have only II-VI’s unfunded, unsecured promise to pay pursuant to the terms of this Agreement. The rights of the Recipient hereunder shall be that of a general unsecured creditor of II-VI and the Recipient shall not have any security interest in any assets of II-VI.

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

(a)

While the Recipient is employed by the Company (including its

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

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

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Subsidiaries have customers or prospective customers as of the date of such Separation from Service.

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

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

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

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not retain or use for the Recipient’s account at any time any trade names, trademark or other proprietary business designation used or owned in connection with the business of II-VI and its Subsidiaries.

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

14. Remedies; Clawback .

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

(b) In the event that the Recipient violates or breaches any of the covenants set forth in Section 13 , the Restricted Share Units (whether vested or unvested) and the right to

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receive a cash payment in exchange for such Restricted Share Units shall be forfeited. II-VI shall also have the right, in its sole discretion, in addition to any other remedies or damages provided by law, in equity or otherwise, to demand and require the Recipient, to the extent that any cash payment was received with respect to such Restricted Share Units, to return and transfer to II-VI any such cash payment, including the value of any gift thereof.

15. Recipient Acknowledgments . The Recipient acknowledges and agrees that (a) as a result of the Recipient’s previous, current and future employment with the Company or the Employer, the Recipient has had access to, will have access to and/or possesses or will possess confidential and proprietary information of II-VI and its Subsidiaries, (b) II-VI and its Subsidiaries are engaged in a highly competitive business and conduct such business worldwide, (c) this Agreement does not constitute a contract of employment, does not imply that the Company or the Employer will continue the Recipient’s employment for any period of time and does not change the at-will nature of the Recipient’s employment, except as set forth in a separate written employment agreement between the Company or the Employer and the Recipient, (d) the restrictive covenants set forth in Section 13 are necessary and reasonable in time and scope (including the period, geographic, product and service and other restrictions) to protect the legitimate business interests of II-VI and its Subsidiaries, (e) the remedy, forfeiture and payment provisions contained in Section 14 are reasonable and necessary to protect the legitimate business interests of II-VI and its Subsidiaries, (f) acceptance of this Award and the Restricted Share Units and agreement to be bound by the provisions hereof is not a condition of the Recipient’s employment and (g) the Recipient’s receipt of the benefits provided under this Agreement is adequate consideration for the enforcement of the provisions contained in Section 13 and Section 14 .

16. Severability; Waiver . If any term, provision, covenant or restriction contained in this Agreement is held by a court or a federal regulatory agency of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions contained in this Agreement shall remain in full force and effect, and shall in no way be affected, impaired or invalidated. In particular, in the event that any of such provisions shall be adjudicated to exceed the time, geographic, product and service or other limitations permitted by

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applicable law in any jurisdiction, then such provisions shall be deemed reformed in such jurisdiction to the maximum time, geographic, product and service or other limitations permitted by applicable law. No delay or omission by II-VI in exercising any right under this Agreement will operate as a waiver of that or any other right. A waiver or consent given by II-VI on any one occasion is effective only in that instance and will not be construed as a bar to or waiver of any right on any other occasion.

17. Notice . II-VI may require any notice required or permitted under this Agreement to be transmitted, submitted or received, by II-VI or the Recipient, via the Solium Shareworks 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 the Recipient at his or her most recent home address on record with II-VI. Notices are effective upon receipt.

18. Controlling Law . The validity, construction and effect of this Agreement will be determined in accordance with the internal laws of the Commonwealth of Pennsylvania without giving effect to the conflict of laws principles thereof. The Recipient and II-VI hereby irrevocably submit to the exclusive jurisdiction of the state and Federal courts located in the Commonwealth of Pennsylvania and consent to the jurisdiction of any such court; provided, however, that, notwithstanding anything to the contrary set forth above, II-VI may file an action to enforce the covenants contained in Section 13 by seeking injunctive or other equitable relief in any appropriate court having jurisdiction, including where the Recipient resides or where the Recipient was employed by the Company or the Employer. The Recipient and II-VI also both irrevocably waive, to the fullest extent permitted by applicable law, any objection either may now or hereafter have to the laying of venue of any such dispute brought or injunctive or equitable relief sought in such court or any defense of inconvenient forum for the maintenance of such dispute and consent to the personal jurisdiction of any such court. For purposes of this Section 18 , the Employer shall be a third-party beneficiary of this Agreement.

19. Entire Agreement . This Agreement (including the Plan and the Employee Grant Details) contains the entire understanding between the parties and supersedes any prior understanding and agreements between them regarding the subject matter hereof with respect to this Award, and there are no other representations, agreements, arrangements or understandings, oral or written, between the parties relating to this Award which are not fully expressed herein. Notwithstanding anything to the contrary set forth in this Agreement, any restrictive covenants contained in this Agreement are independent, and are not intended to limit the enforceability, of any restrictive or other covenants contained in any other agreement between the Company or the Employer and the Recipient.

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20. Captions; Section References . Section and other headings contained in this Agreement are for reference purposes only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. Unless expressly provided otherwise, any reference in this Agreement to any Section refers to the corresponding Section of this Agreement.

21. Limitation of Actions . Any lawsuit commenced by the Recipient with respect to any matter arising out of or relating to this Agreement must be filed no later than one (1) year after the date that a denial of any claim hereunder is made or any earlier date that the claim otherwise accrues.

22. Section 409A . This Agreement and this Award are intended to satisfy all applicable requirements of Section 409A or an exception thereto and shall be construed accordingly. II-VI may in its sole discretion, and without the Recipient’s consent, take any action it deems necessary to comply with the requirements of Section 409A or an exception thereto, including amending the terms of this Award and this Agreement, in any manner it deems necessary to cause this Award and this Agreement to be excepted from Section 409A (or to comply therewith to the extent that II-VI determines that it is not excepted). Notwithstanding, the Recipient recognizes and acknowledges that Section 409A may affect the timing and recognition of payments due hereunder, and may impose upon the Recipient certain taxes or other charges for which the Recipient is and shall remain solely responsible. Notwithstanding anything to the contrary in this Agreement, if the Recipient is a Specified Employee, to the extent that the Award constitutes “nonqualified deferred compensation” subject to Section 409A of the Code, any payment due to the Recipient under the Award upon Separation from Service will be delayed in accordance with Section 18 of the Plan.

23. Assignment . Except as provided in Section 7 , the Recipient’s rights and obligations under this Agreement shall not be transferable by the Recipient, by assignment or otherwise, and any purported assignment, transfer or delegation thereof by the Recipient shall be void. II-VI may assign/delegate all or any portion of this Agreement and its respective rights hereunder without prior notice to the Recipient and without the Recipient providing any additional consent thereto, whereupon the Recipient shall continue to be bound hereby with respect to such assignee/delegatee.

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

25. Further Assurances . The Company and the Recipient shall use commercially reasonable efforts to, from time to time at the request of the other party, without any additional consideration, furnish the other party such further information or assurances, execute and deliver

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such additional documents and take such other actions and do such other things, as may be necessary to carry out the provisions of this Agreement.

26. Appendices . The Recipient acknowledges and agrees that, if the Recipient resides outside the U.S., this Award is subject to the general terms applicable to Awards granted to recipients outside the U.S. set forth in Appendix A hereto. Further, this Award is subject to any additional terms and conditions set forth for the Recipient’s U.S. state or country in Appendix B hereto. Appendix A and Appendix B constitute part of this Agreement.

28. Imposition of Other Requirements . The Company reserves the right to impose other requirements on this Award to the extent that the Company determines that it is necessary or advisable in order to comply with local law or facilitate the administration of this Award and to require the Recipient to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

29. No Advice Regarding Grant . The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Recipient’s participation in the Plan or the Recipient’s Payments. The Recipient understands and agrees that the Recipient should consult with his or her own personal legal and financial advisors regarding the Recipient’s participation in the Plan before taking any action related to the Plan.

30. Amendments . This Agreement may be amended or modified at any time by an instrument in writing signed by the parties hereto, or as otherwise provided under the Plan or this Agreement.

[SIGNATURE PAGE FOLLOWS]

IIVI RSU Cash 111618

II-VI INCORPORATED

By:

Name: David G. Wagner

Title: Vice President, Human Resources

PARTICIPANT

Electronic Acceptance via the Solium Shareworks System

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Appendix A

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

1. DATA PRIVACY INFORMATION AND CONSENT

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

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

(d) Data Retention . The Company will use the Recipient’s personal data only as long as is necessary to implement, administer and manage the Recipient’s participation in the Plan or

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2. ADDITIONAL ACKNOWLEDGEMENTS

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

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

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

(e) this Award, any Payments made under the Plan and the income from and value of same, are not intended to replace any pension right or compensation;

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

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

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

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

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3. LANGUAGE

4. INSIDER TRADING/MARKET ABUSE LAWS

5.	EXCHANGE CONTROL, TAX AND/OR FOREIGN ASSET/ACCOUNT REPORTING

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

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Appendix B

Jurisdiction-Specific Terms and Conditions

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

Terms and Conditions

Notifications

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CHINA

Notifications

Foreign Asset and Account Reporting Information . Residents of the People’s Republic of China ( “PRC”) may be required to report to the State Administration of Foreign Exchange all details of their foreign financial assets and liabilities, as well as details of any economic transactions conducted with non-PRC residents. PRC residents should consult with their personal tax advisor to determine their personal reporting obligations.

KOREA

Notifications

Foreign Asset and Account Reporting Information . If the Recipient is a Korean resident, the Recipient must declare all of his or her foreign financial accounts ( e.g., non-Korean bank accounts, brokerage accounts, etc.) to the Korean tax authority and file a report with respect to such accounts if the value of such accounts exceeds KRW 1 billion (or any equivalent amount in foreign currency). The Recipient should consult with his or her personal tax advisor to determine the Recipient’s personal reporting obligations.

PHILIPPINES

No country-specific provisions.

THAILAND

No country-specific provisions.

VIETNAM

No country-specific provisions.

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Exhibit 10.04

II-VI INCORPORATED

RESTRICTED SHARE UNIT SETTLED IN SHARES

AWARD AGREEMENT

All capitalized terms used herein, to the extent not defined herein, shall have the meanings set forth in the II-VI 2018 Omnibus Incentive Plan (as amended and/or restated from time to time, the “Plan”) , a copy of which can be found on the Solium Shareworks System, and/or the applicable Employee Grant Details. Terms of the Plan and the Employee Grant Details are incorporated herein by reference. This Agreement shall constitute an Award Agreement as that term is defined in the Plan.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Recipient and II-VI agree as follows:

2. Restrictions . Except as otherwise provided in this Agreement, the Restricted Share Units shall vest and become payable, subject to the terms of the Plan, as follows:


Vesting Date	% Vesting
First anniversary of Grant Date	33%
Second anniversary of Grant Date	33%
Third anniversary of Grant Date	34%

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