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 September 30, 2016
☐ |
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 |
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25-1214948 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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375 Saxonburg Boulevard |
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Saxonburg, PA |
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16056 |
(Address of principal executive offices) |
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(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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
☒ |
Accelerated filer |
☐ |
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Non-accelerated filer |
☐ |
Smaller reporting company |
☐ |
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 November 4, 2016, 62,279,166 shares of Common Stock, no par value, of the registrant were outstanding.
INDEX
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Page No. |
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Item 1. |
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Condensed Consolidated Balance Sheets – September 30, 2016 and June 30, 2016 (Unaudited) |
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3 |
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4 |
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5 |
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6 |
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7 |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
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8 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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21 |
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Item 3. |
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28 |
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Item 4. |
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29 |
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Item 1. |
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29 |
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Item 1A. |
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29 |
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Item 2. |
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29 |
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Item 6. |
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30 |
2
PART I - FINANCIAL INFORMATION
II-VI Incorporated and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
($000)
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September 30, |
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June 30, |
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2016 |
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2016 |
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Assets |
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Current Assets |
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Cash and cash equivalents |
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$ |
220,096 |
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$ |
218,445 |
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Accounts receivable - less allowance for doubtful accounts of $1,740 at September 30, 2016 and $2,016 at June 30, 2016 |
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155,954 |
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164,817 |
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Inventories |
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182,647 |
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175,133 |
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Prepaid and refundable income taxes |
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5,807 |
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6,535 |
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Prepaid and other current assets |
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20,060 |
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18,033 |
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Total Current Assets |
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584,564 |
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582,963 |
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Property, plant & equipment, net |
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260,912 |
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242,857 |
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Goodwill |
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233,604 |
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233,755 |
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Other intangible assets, net |
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121,444 |
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124,590 |
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Investment |
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11,684 |
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11,354 |
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Deferred income taxes |
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6,568 |
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7,848 |
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Other assets |
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9,711 |
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8,614 |
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Total Assets |
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$ |
1,228,487 |
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$ |
1,211,981 |
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Liabilities and Shareholders' Equity |
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Current Liabilities |
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Current portion of long-term debt |
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$ |
20,000 |
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$ |
20,000 |
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Accounts payable |
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62,138 |
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53,796 |
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Accrued compensation and benefits |
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39,162 |
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59,012 |
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Accrued income taxes payable |
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11,382 |
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12,588 |
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Other accrued liabilities |
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21,544 |
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25,846 |
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Total Current Liabilities |
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154,226 |
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171,242 |
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Long-term debt |
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228,206 |
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215,307 |
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Deferred income taxes |
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11,734 |
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11,103 |
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Other liabilities |
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33,764 |
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31,991 |
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Total Liabilities |
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427,930 |
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429,643 |
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Shareholders' Equity |
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Preferred stock, no par value; authorized - 5,000,000 shares; none issued |
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- |
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- |
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Common stock, no par value; authorized - 300,000,000 shares; issued - 73,250,344 shares at September 30, 2016; 72,840,257 shares at June 30, 2016 |
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249,447 |
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243,812 |
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Accumulated other comprehensive loss |
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(14,711 |
) |
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(14,017 |
) |
Retained earnings |
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669,082 |
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652,788 |
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903,818 |
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882,583 |
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Treasury stock, at cost - 11,053,874 shares at September 30, 2016 and 10,965,925 shares at June 30, 2016 |
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(103,261 |
) |
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(100,245 |
) |
Total Shareholders' Equity |
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800,557 |
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782,338 |
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Total Liabilities and Shareholders' Equity |
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$ |
1,228,487 |
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$ |
1,211,981 |
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- See notes to condensed consolidated financial statements.
3
II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Earnings (Unaudited)
($000 except per share data)
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Three Months Ended |
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September 30, |
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2016 |
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2015 |
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Revenues |
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Domestic |
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$ |
69,318 |
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$ |
70,751 |
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International |
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152,202 |
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118,456 |
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Total Revenues |
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221,520 |
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189,207 |
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Costs, Expenses and Other Expense (Income) |
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Cost of goods sold |
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133,918 |
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118,018 |
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Internal research and development |
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21,832 |
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13,151 |
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Selling, general and administrative |
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42,079 |
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36,310 |
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Interest expense |
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1,246 |
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649 |
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Other expense (income), net |
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(1,402 |
) |
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(1,057 |
) |
Total Costs, Expenses and Other Expense (Income) |
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197,673 |
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167,071 |
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Earnings Before Income Taxes |
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23,847 |
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22,136 |
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Income Taxes |
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7,553 |
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4,922 |
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Net Earnings |
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$ |
16,294 |
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$ |
17,214 |
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Basic Earnings Per Share |
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$ |
0.26 |
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$ |
0.28 |
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Diluted Earnings Per Share |
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$ |
0.26 |
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$ |
0.27 |
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- See notes to condensed consolidated financial statements.
4
II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
($000)
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Three Months Ended |
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September 30, |
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2016 |
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2015 |
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Net earnings |
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$ |
16,294 |
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$ |
17,214 |
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Other comprehensive income (loss): |
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Foreign currency translation adjustments |
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(582 |
) |
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(8,151 |
) |
Pension adjustment, net of taxes of ($52) and $10 for the three months ended, respectively |
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(112 |
) |
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36 |
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Comprehensive income |
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$ |
15,600 |
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$ |
9,099 |
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- See notes to condensed consolidated financial statements.
5
II-VI Incorporated and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
($000)
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Three Months Ended |
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September 30, |
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2016 |
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2015 |
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Cash Flows from Operating Activities |
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Net earnings |
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$ |
16,294 |
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$ |
17,214 |
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Adjustments to reconcile net earnings to net cash provided by operating activities: |
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Depreciation |
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11,708 |
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10,345 |
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Amortization |
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3,174 |
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2,960 |
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Share-based compensation expense |
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3,073 |
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4,009 |
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Loss (gain) on foreign currency remeasurements and transactions |
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582 |
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(712 |
) |
Earnings from equity investment |
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(331 |
) |
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(264 |
) |
Deferred income taxes |
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1,521 |
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(360 |
) |
Excess tax benefits from share-based compensation expense |
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(139 |
) |
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(30 |
) |
Increase (decrease) in cash from changes in: |
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Accounts receivable |
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8,283 |
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6,459 |
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Inventories |
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(7,551 |
) |
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(5,489 |
) |
Accounts payable |
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8,338 |
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|
(5,073 |
) |
Income taxes |
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|
166 |
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|
|
766 |
|
Accrued compensation and benefits |
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(19,756 |
) |
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(7,183 |
) |
Other operating net assets |
|
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(5,849 |
) |
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(463 |
) |
Net cash provided by operating activities |
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|
19,513 |
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22,179 |
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Cash Flows from Investing Activities |
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Additions to property, plant & equipment |
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(29,994 |
) |
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(9,424 |
) |
Other investing activities |
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|
145 |
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|
25 |
|
Net cash used in investing activities |
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(29,849 |
) |
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(9,399 |
) |
Cash Flows from Financing Activities |
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Proceeds from borrowings |
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24,000 |
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|
4,000 |
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Payments on borrowings |
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(10,000 |
) |
|
|
(17,500 |
) |
Purchases of treasury stock |
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|
- |
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(5,884 |
) |
Proceeds from exercises of stock options |
|
|
1,745 |
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|
|
766 |
|
Payments in satisfaction of employees' minimum tax obligations |
|
|
(2,230 |
) |
|
|
(1,680 |
) |
Debt issuance costs |
|
|
(1,384 |
) |
|
|
- |
|
Other financing activities |
|
|
139 |
|
|
|
30 |
|
Net cash provided by (used in) financing activities |
|
|
12,270 |
|
|
|
(20,268 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
(283 |
) |
|
|
(2,367 |
) |
Net increase (decrease) in cash and cash equivalents |
|
|
1,651 |
|
|
|
(9,855 |
) |
Cash and Cash Equivalents at Beginning of Period |
|
|
218,445 |
|
|
|
173,634 |
|
Cash and Cash Equivalents at End of Period |
|
$ |
220,096 |
|
|
$ |
163,779 |
|
Cash paid for interest |
|
$ |
1,092 |
|
|
$ |
657 |
|
Cash paid for income taxes |
|
$ |
5,721 |
|
|
$ |
4,535 |
|
|
|
|
|
|
|
|
|
|
Non cash transactions: |
|
|
|
|
|
|
|
|
Purchases of treasury stock recorded in Other accrued liabilities |
|
$ |
- |
|
|
$ |
400 |
|
- See notes to condensed consolidated financial statements.
6
e II-VI Incorporated and Subsidiaries
Condensed Consolidated Statement of Shareholders’ Equity (Unaudited)
(000)
|
|
|
|
|
|
|
|
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Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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Other |
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|
|
|
|
|
|
|
|
|
Common Stock |
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Comprehensive |
|
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Retained |
|
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Treasury Stock |
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||||||||||||
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Shares |
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Amount |
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Income |
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Earnings |
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Shares |
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Amount |
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Total |
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Balance - June 30, 2016 |
|
|
72,840 |
|
|
$ |
243,812 |
|
|
$ |
(14,017 |
) |
|
$ |
652,788 |
|
|
|
(10,966 |
) |
|
$ |
(100,245 |
) |
|
$ |
782,338 |
|
Shares issued under share-based compensation plans |
|
|
373 |
|
|
|
1,745 |
|
|
|
- |
|
|
|
- |
|
|
|
(104 |
) |
|
|
(2,230 |
) |
|
|
(485 |
) |
Net earnings |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
16,294 |
|
|
|
- |
|
|
|
- |
|
|
|
16,294 |
|
Treasury stock under deferred compensation arrangements |
|
|
37 |
|
|
|
786 |
|
|
|
- |
|
|
|
- |
|
|
|
16 |
|
|
|
(786 |
) |
|
|
- |
|
Foreign currency translation adjustments |
|
|
- |
|
|
|
- |
|
|
|
(582 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(582 |
) |
Share-based compensation expense |
|
|
- |
|
|
|
3,073 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,073 |
|
Pension adjustment, net of taxes of ($52) |
|
|
- |
|
|
|
- |
|
|
|
(112 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(112 |
) |
Net tax benefits from share-based compensation expense |
|
|
- |
|
|
|
31 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
31 |
|
Balance - September 30, 2016 |
|
|
73,250 |
|
|
$ |
249,447 |
|
|
$ |
(14,711 |
) |
|
$ |
669,082 |
|
|
|
(11,054 |
) |
|
$ |
(103,261 |
) |
|
$ |
800,557 |
|
- See notes to condensed consolidated financial statements.
7
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” or the “Company”) for the three months ended September 30, 2016 and 2015 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 Annual Report on Form 10-K for the fiscal year ended June 30, 2016. The consolidated results of operations for the three months ended September 30, 2016 are not necessarily indicative of the results to be expected for the full fiscal year. The June 30, 2016 Condensed Consolidated Balance Sheet information was derived from the Company’s audited financial statements.
Certain amounts from prior periods have been reclassified on the Condensed Consolidated Statements of Cash Flows to conform to the current year presentation relating to Accrued compensation and benefits in Net cash provided by operating activities and Payments in satisfaction of employees’ minimum tax obligations in Net cash provided by (used in) financing activities.
Note 2. |
Recent Accounting Pronouncements |
Adopted Pronouncements
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This ASU requires entities to present debt issuance costs in the balance sheet as a direct deduction from the carrying amount of the corresponding debt liability, consistent with debt discounts. The Company adopted ASU 2015-03, as clarified by ASU 2015-15, which did not have a material impact on the Company’s Consolidated Financial Statements other than corresponding reductions to total assets and total liabilities on the Condensed Consolidated Balance Sheets. Prior to adoption, the Company recorded deferred financing costs as Other assets on the Consolidated Balance Sheets. Upon adoption, the Company reclassified these costs as unamortized debt issuance costs that reduce long term debt on the consolidated balance sheet and retrospectively reclassified $0.6 million that were previously presented as deferred financing costs, an asset on the consolidated balance sheet as of June 30, 2016. There was no effect on the consolidated statements of operations as a result of the adoption.
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. This update requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The adoption of this standard did not have a material effect on the Company’s Consolidated Financial Statements.
In April 2015, the FASB issued ASU 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. This update provides guidance about whether a cloud computing arrangement includes a software license. The adoption of this standard did not have a material effect on the Company’s Consolidated Financial Statements.
In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which affects reporting organizations that are required to evaluate whether they should consolidate certain legal entities. The adoption of this standard did not have a material effect on the Company’s Consolidated Financial Statements.
Pronouncements Currently Under Evaluation
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The amendments in the update provide guidance on eight specific cash flow issues. The update will be effective for the Company’s 2019 fiscal year. Early adoption is permitted. The Company is evaluating the impact of this guidance on the Company’s Consolidated Financial Statements.
In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The amendments in the update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this update affect only narrow aspects of Topic 606. The update will be effective for the Company’s 2019 fiscal year. The Company is evaluating the impact of this guidance on the Company’s Consolidated Financial Statements.
8
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This update simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, and classification in the statement of cash flows. The standard will be effective for the Company’s 2018 fiscal year. Early adoption is permitted. The Company is evaluating the impact of this guidance on the Company’s Consolidated Financial Statements.
In March 2016, the FASB issued ASU 2016-07, Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. This update eliminates the requirement to retrospectively apply the equity method as a result of an increase in the level of ownership interest. The ASU also requires unrealized holding gains or losses in accumulated other comprehensive income related to an available for sale security that becomes eligible for the equity method to be recognized in earnings when it qualifies for the equity method. The standard will be effective for the Company’s 2018 fiscal year. Early adoption is permitted. The adoption of this ASU is not expected to have a material effect on the Company’s Consolidated Financial Statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This update requires that a lessee recognize leased assets with terms greater than 12 months on the balance sheet for the rights and obligations created by those leases. The standard will be effective for the Company’s 2020 fiscal year. Early adoption is permitted. The Company is evaluating the impact of this guidance on the Company’s Consolidated Financial Statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Recognition and measurement of Financial Assets and Financial Liabilities (Topic 825). This update requires that public entities measure equity investments with readily determinable fair values, at fair value, with changes in their fair value recorded through net income. This ASU also clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entity’s other deferred tax assets. The standard will be effective for the Company’s 2018 fiscal year. The Company is evaluating the impact on the Company’s Consolidated Financial Statements.
In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. This update simplifies the measurement of inventory valuation at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The new inventory measurement requirements will be effective for the Company’s 2018 fiscal year and will replace the current inventory valuation guidance that requires the use of a lower of cost or market framework. The adoption of this ASU is not expected to have a material effect on the Company’s Consolidated Financial Statements.
In May 2014, the FASB issued ASU 2014-09: Revenue from Contracts with Customers (Topic 606) which supersedes virtually all existing revenue recognition guidance under U.S. GAAP. The update's core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The update allows for the use of either the retrospective or modified retrospective approach of adoption. On July 9, 2015 the FASB approved a one year deferral of the effective date of the update. The update will be effective for the Company’s 2019 fiscal year. The Company has not yet selected a transition method and is currently evaluating the impact of this guidance on the Company’s Consolidated Financial Statements.
In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements-Going Concern”. This update provides U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued. The update is effective for the Company’s 2017 fiscal year. The adoption of this ASU is not expected to have a material effect on the Company’s Consolidated Financial Statements.
Note 3. |
Acquisitions |
EpiWorks, Inc.
In February 2016, the Company acquired all the outstanding shares of EpiWorks, Inc. (“EpiWorks”) a privately held company based in Illinois. Under the terms of the merger agreement, the consideration consisted of initial cash paid at the acquisition date of $43.0 million, net of cash acquired and a working capital adjustment of $0.2 million. In addition, the agreement provides up to a maximum of $6.0 million of additional cash earnout opportunities based upon EpiWorks achieving certain agreed upon financial and operational targets for capacity, wafer output and gross margin, which if earned would be payable in the amount of $2.0 million for the achievement of each specific annual target over the next three years. EpiWorks develops and manufactures compound semiconductor epitaxial wafers for applications in optical components, wireless devices and high-speed communication systems. EpiWorks is a
9
business unit of the Company’s II-VI Laser Solutions operating segment for financial reporting purposes. The Company completed its valuation of the assets of EpiWorks during the quarter ended September 30, 2016.
The following table presents the purchase price at the date of acquisition ($000):
Net cash paid at acquisition |
|
$ |
|
42,981 |
|
Cash paid for working capital adjustment |
|
|
|
163 |
|
Fair value of cash earnout arrangement |
|
|
|
4,352 |
|
Purchase price |
|
$ |
|
47,496 |
|
The following table presents the final allocation of the purchase price of the assets acquired and liabilities assumed at the date of acquisition. ($000):
Assets |
|
|
|
|
|
Accounts receivable |
|
$ |
|
2,121 |
|
Inventories |
|
|
|
2,435 |
|
Prepaid and other assets |
|
|
|
68 |
|
Property, plant & equipment |
|
|
|
9,043 |
|
Intangible assets |
|
|
|
14,124 |
|
Goodwill |
|
|
|
27,588 |
|
Total assets acquired |
|
$ |
|
55,379 |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
Accounts payable |
|
$ |
|
605 |
|
Other accrued liabilities |
|
|
|
859 |
|
Deferred tax liabilities |
|
|
|
6,419 |
|
Total liabilities assumed |
|
|
|
7,883 |
|
Net assets acquired |
|
$ |
|
47,496 |
|
The goodwill of $27.6 million is included in the II-VI Laser Solutions segment and is attributed to the expected synergies and the assembled workforce of EpiWorks. None of the goodwill is deductible for income tax purposes. The fair value of accounts receivable acquired was $2.1 million with the gross contractual amount being $2.1 million. At the time of acquisition, the Company expected to collect all of the accounts receivable.
ANADIGICS, Inc.
In March 2016, the Company acquired all the outstanding shares of ANADIGICS, Inc.,(“ANADIGICS”) a previously publicly traded company based in New Jersey. Under the terms of the merger agreement, the consideration consisted of both a working capital advance of $3.5 million and cash paid of $78.2 million at the acquisition date, net of cash acquired of $2.7 million. ANADIGICS has a 6-inch gallium arsenide wafer fabrication capability allowing for the production of high performance lasers and integrated circuits in high volume. In addition, at the time of the acquisition, ANADIGICS designed and manufactured innovative radiofrequency (RF) solutions for CATV infrastructure, small-cell, WIFI and cellular markets. The Company divested this portion of the business in June 2016. In conjunction with the sale of the RF business, the Company renamed ANADIGICS as II-VI OptoElectronic Devices Division (“OED”). OED is a business unit of the Company’s II-VI Laser Solutions operating segment for financial reporting purposes.
10
The following table presents the final allocation of the purchase price of the assets acquired and liabilities assumed at the date of acquisition ($000):
Assets |
|
|
|
|
|
Accounts receivable |
|
$ |
|
3,973 |
|
Inventories |
|
|
|
8,322 |
|
Prepaid and other assets |
|
|
|
2,347 |
|
Property, plant & equipment |
|
|
|
25,810 |
|
Intangible assets |
|
|
|
1,060 |
|
Goodwill |
|
|
|
48,312 |
|
Total assets acquired |
|
$ |
|
89,824 |
|
Liabilities |
|
|
|
|
|
Accounts payable |
|
$ |
|
3,586 |
|
Other accrued liabilities |
|
|
|
7,226 |
|
Total liabilities assumed |
|
|
|
10,812 |
|
Net assets acquired |
|
$ |
|
79,012 |
|
The goodwill of $48.3 million is included in the II-VI Laser Solutions segment and is attributed to the expected synergies and the assembled workforce of ANADIGICS. None of the goodwill is deductible for income tax purposes. The fair value of accounts receivable acquired was $4.0 million with the gross contractual amount being $4.0 million. At the time of acquisition, the Company expected to collect all of the accounts receivable.
Deferred Income Taxes
In connection with above acquisitions, the Company adopted an accounting policy to apply acquired deferred tax liabilities to pre-existing deferred tax assets before evaluating the need for a valuation allowance for acquired deferred tax assets. During fiscal year 2016, the Company recorded a $36.2 million valuation allowance within purchase accounting as a result of the company incurring a cumulative U.S. three year loss.
Divesture of the RF Business of ANADIGICS
On June 3, 2016, the Company sold the RF business of ANADIGICS that it acquired on March 15, 2016. The consideration consisted of $45.0 million of cash received at closing, a working capital adjustment of $0.6 million to be received within 60 days after closing and $5.0 million contingent consideration to be earned based upon supplying minimum volumes of wafers to the purchaser over an 18-month period through December 2017. The $5.0 million contingent consideration will be recognized in net earnings when earned and received from the purchaser. During the quarter ended September 30, 2016, the Company recorded $1.25 million of this contingent consideration in Other income, net in the Condensed Consolidated Statement of Earnings. The Company believes the sale of this non-strategic business will allow the Company to focus its financial resources and devote greater attention to the 6-inch wafer fab business. The Company incurred approximately $0.4 million in transaction expenses and recorded an immaterial gain of less than $0.1 million on the sale of the RF business in fiscal year 2016.
The following table presents the carrying value of the assets and liabilities included as part of the disposal of the RF business of ANADIGICS ($000):
Assets |
|
|
|
|
|
Inventories |
|
$ |
|
5,378 |
|
Equipment |
|
|
|
5,813 |
|
Goodwill |
|
|
|
35,352 |
|
|
|
$ |
|
46,543 |
|
Liabilities |
|
|
|
|
|
Accounts payable |
|
$ |
|
963 |
|
|
|
|
|
|
|
Total Consideration |
|
$ |
|
45,580 |
|
11
Note 4. |
Inventories |
The components of inventories were as follows ($000):
|
|
September 30, |
|
|
June 30, |
|
||
|
|
2016 |
|
|
2016 |
|
||
Raw materials |
|
$ |
72,808 |
|
|
$ |
70,623 |
|
Work in progress |
|
|
60,806 |
|
|
|
57,566 |
|
Finished goods |
|
|
49,033 |
|
|
|
46,944 |
|
|
|
$ |
182,647 |
|
|
$ |
175,133 |
|
Note 5. |
Property, Plant and Equipment |
Property, plant and equipment consists of the following ($000):
|
|
September 30, |
|
|
June 30, |
|
||
|
|
2016 |
|
|
2016 |
|
||
Land and land improvements |
|
$ |
5,001 |
|
|
$ |
4,990 |
|
Buildings and improvements |
|
|
110,703 |
|
|
|
110,219 |
|
Machinery and equipment |
|
|
420,306 |
|
|
|
409,551 |
|
Construction in progress |
|
|
52,277 |
|
|
|
34,602 |
|
|
|
|
588,287 |
|
|
|
559,362 |
|
Less accumulated depreciation |
|
|
(327,375 |
) |
|
|
(316,505 |
) |
|
|
$ |
260,912 |
|
|
$ |
242,857 |
|
Note 6. |
Goodwill and Other Intangible Assets |
Changes in the carrying amount of goodwill were as follows ($000):
|
|
Three Months Ended September 30, 2016 |
|
|||||||||||||
|
|
II-VI Laser |
|
|
II-VI |
|
|
II-VI Performance |
|
|
|
|
|
|||
|
|
Solutions |
|
|
Photonics |
|
|
Products |
|
|
Total |
|
||||
Balance-beginning of period |
|
$ |
84,105 |
|
|
$ |
96,760 |
|
|
$ |
52,890 |
|
|
$ |
233,755 |
|
Foreign currency translation |
|
|
8 |
|
|
|
(159 |
) |
|
|
- |
|
|
|
(151 |
) |
Balance-end of period |
|
$ |
84,113 |
|
|
$ |
96,601 |
|
|
$ |
52,890 |
|
|
$ |
233,604 |
|
Note 1 of the Notes to Consolidated Financial Statements in the Company’s most recent Annual Report on Form 10-K describes the significant accounting policies and methods used in the preparation of the Company’s Consolidated Financial Statements. Management has evaluated goodwill for indicators of impairment and has concluded that there are no indicators of impairment as of September 30, 2016.
The gross carrying amount and accumulated amortization of the Company’s intangible assets other than goodwill as of September 30, 2016 and June 30, 2016 were as follows ($000):
|
|
September 30, 2016 |
|
|
June 30, 2016 |
|
||||||||||||||||||
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
Gross |
|
|
|
|
|
|
Net |
|
||||
|
|
Carrying |
|
|
Accumulated |
|
|
Book |
|
|
Carrying |
|
|
Accumulated |
|
|
Book |
|
||||||
|
|
Amount |
|
|
Amortization |
|
|
Value |
|
|
Amount |
|
|
Amortization |
|
|
Value |
|
||||||
Technology and Patents |
|
$ |
54,297 |
|
|
$ |
(23,780 |
) |
|
$ |
30,517 |
|
|
$ |
54,344 |
|
|
$ |
(22,724 |
) |
|
$ |
31,620 |
|
Trade Names |
|
|
15,852 |
|
|
|
(1,241 |
) |
|
|
14,611 |
|
|
|
15,869 |
|
|
|
(1,209 |
) |
|
|
14,660 |
|
Customer Lists |
|
|
112,113 |
|
|
|
(35,869 |
) |
|
|
76,244 |
|
|
|
112,141 |
|
|
|
(33,912 |
) |
|
|
78,229 |
|
Other |
|
|
1,571 |
|
|
|
(1,499 |
) |
|
|
72 |
|
|
|
1,571 |
|
|
|
(1,490 |
) |
|
|
81 |
|
Total |
|
$ |
183,833 |
|
|
$ |
(62,389 |
) |
|
$ |
121,444 |
|
|
$ |
183,925 |
|
|
$ |
(59,335 |
) |
|
$ |
124,590 |
|
12
Amortization expense recorded on the Company’s intangible assets was $3.2 million and $3.0 million for the three months ended September 30, 2016 and 2015, respectively. The technology and patents are being amortized over a range of 60 to 240 months, with a weighted average remaining life of approximately 98 months. The customer lists are being amortized over a range of approximately 60 to 240 months with a weighted average remaining life of approximately 142 months. The gross carrying amount of trade names includes $14.1 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 German and Chinese subsidiaries.
At September 30, 2016, the estimated amortization expense for existing intangible assets for each of the five succeeding fiscal years is as follows ($000):
Year Ending June 30, |
|
|
|
|
|
|
Remaining 2017 |
|
|
|
$ |
9,514 |
|
2018 |
|
|
|
$ |
12,108 |
|
2019 |
|
|
|
$ |
11,789 |
|
2020 |
|
|
|
$ |
11,048 |
|
2021 |
|
|
|
$ |
10,181 |
|
Note 7. |
Debt |
The components of debt for the periods indicated were as follows ($000):
|
September 30, |
|
|
June 30, |
|
||
|
2016 |
|
|
2016 |
|
||
Line of credit, interest at LIBOR, as defined, plus 1.5% |
$ |
147,000 |
|
|
$ |
188,000 |
|
Term loan, interest at LIBOR, as defined, plus 1.5% |
|
100,000 |
|
|
|
45,000 |
|
Yen denominated line of credit, interest at LIBOR, as defined, plus 0.625% |
|
2,966 |
|
|
|
2,917 |
|
Total debt |
|
249,966 |
|
|
|
235,917 |
|
Current portion of long-term debt |
|
(20,000 |
) |
|
|
(20,000 |
) |
Unamortized debt issuance costs |
|
(1,760 |
) |
|
|
(610 |
) |
Long-term debt, less current portion and debt issuance costs |
$ |
228,206 |
|
|
$ |
215,307 |
|
On July 28, 2016, the Company entered into a Third Amended and Restated Credit Agreement (the “Amended Credit Facility”) which amended the related prior credit facility. The Amended Credit Facility provides for a revolving credit facility of $325 million (increased from $225 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 commencing 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 0.075% and if the Euro-Rate Option is selected for a borrowing, the Applicable Margin is 0.75% to 1.75%. The Applicable Margin is based on the Company’s ratio of 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 part of entering into the Amended Credit Facility, the Company incurred $1.4 million of new debt issuance costs which are being amortized over the term of the facility. As of September 30, 2016, the Company was in compliance with all financial covenants under its Amended Credit Facility.
The Company’s Yen denominated line of credit is a 500 million Yen (approximately $4.9 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 1.50%. At September 30, 2016 and June 30, 2016, the Company had 300 million Yen borrowed. Additionally, the facility is subject to certain covenants,
13
including those relating to minimum interest coverage and maximum leverage ratios. As of September 30, 2016, the Company was in compliance with all financial covenants under its Yen facility.
The Company had aggregate availability of $178.7 million and $37.7 million under its lines of credit as of September 30, 2016 and June 30, 2016, respectively. The amounts available under the Company’s lines of credit are reduced by outstanding letters of credit. As of September 30, 2016 and June 30, 2016, total outstanding letters of credit supported by these credit facilities was $1.2 million for both periods.
The weighted average interest rate of total borrowings was 2.0% and 1.5% for the three months ended September 30, 2016 and 2015, respectively.
Remaining annual principal payments under the Company’s existing credit facilities as of September 30, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar |
|
|
|
|
|
|
|
|
Term |
|
|
Yen Line |
|
|
Line of |
|
|
|
|
|
|||
Period |
|
Loan |
|
|
of Credit |
|
|
Credit |
|
|
Total |
|
||||
Year 1 |
|
$ |
20,000 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
20,000 |
|
Year 2 |
|
|
20,000 |
|
|
|
- |
|
|
|
- |
|
|
|
20,000 |
|
Year 3 |
|
|
20,000 |
|
|
|
- |
|
|
|
- |
|
|
|
20,000 |
|
Year 4 |
|
|
20,000 |
|
|
|
2,966 |
|
|
|
- |
|
|
|
22,966 |
|
Year 5 |
|
|
20,000 |
|
|
|
- |
|
|
|
147,000 |
|
|
|
167,000 |
|
Total |
|
$ |
100,000 |
|
|
$ |
2,966 |
|
|
$ |
147,000 |
|
|
$ |
249,966 |
|
Note 8. |
Income Taxes |
The Company’s year-to-date effective income tax rate at September 30, 2016 and 2015 was 31.7% and 22.2%, respectively. The variations between the Company’s effective tax rate and the U.S. statutory rate of 35.0% were primarily due to the consolidation of the Company’s foreign operations, which are subject to income taxes at lower statutory rates.
U.S. GAAP clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As of September 30, 2016 and June 30, 2016, the Company’s gross unrecognized income tax benefit was $7.3 million and $5.6 million, respectively. The Company has classified the majority of the uncertain tax positions as noncurrent income tax liabilities, as the amounts are not expected to be paid within one year. If recognized, substantially all of the gross unrecognized tax benefits at September 30, 2016 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 $0.9 million and $0.1 million at September 30, 2016 and June 30, 2016, respectively. Fiscal years 2013 to 2017 remain open to examination by the United States Internal Revenue Service, fiscal years 2011 to 2017 remain open to examination by certain state jurisdictions, and fiscal years 2006 to 2017 remain open to examination by certain foreign taxing jurisdictions. The Company’s fiscal years 2012 through 2015 New Jersey state income tax returns and fiscal years 2006 through 2014 Vietnam income tax returns are currently under examination. The Company believes its income tax reserves for these tax matters are adequate.
14
Note 9. |
Earnings Per Share |
The following table sets forth the computation of earnings per share for the periods indicated. Weighted average shares issuable upon the exercises of stock options and the release of performance and restricted shares not included in the calculation were approximately 368,000 and 232,000 for the three months ended September 30, 2016 and 2015, respectively, because they were anti-dilutive. ($000 except per share data):
|
|
Three Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
16,294 |
|
|
$ |
17,214 |
|
Divided by: |
|
|
|
|
|
|
|
|
Weighted average shares |
|
|
62,020 |
|
|
|
61,223 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share: |
|
$ |
0.26 |
|
|
$ |
0.28 |
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
$ |
16,294 |
|
|
$ |
17,214 |
|
Divided by: |
|
|
|
|
|
|
|
|
Weighted average shares |
|
|
62,020 |
|
|
|
61,223 |
|
Dilutive effect of common stock equivalents |
|
|
1,570 |
|
|
|
1,506 |
|
Diluted weighted average common shares |
|
|
63,590 |
|
|
|
62,729 |
|
|
|
|
|
|
|
|
|
|
Diluted earnings per common share: |
|
$ |
0.26 |
|
|
$ |
0.27 |
|
Note 10. |
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, production requirements and facilities unique to each segment.
The II-VI Laser Solutions segment is located in the U.S., Singapore, China, Germany, Switzerland, Japan, Belgium, the U.K., Italy, South Korea and the Philippines. II-VI Laser Solutions is directed by the President of II-VI Laser Solutions, while each geographic location is directed by a general manager, and is further divided into production and administrative units that are directed by managers. II-VI Laser Solutions designs, manufactures and markets optical and electro-optical components and materials sold under the II-VI Infrared brand name and used primarily in high-power CO2 lasers, fiber-delivered beam delivery systems and processing tools and direct diode lasers for industrial lasers sold under the II-VI HIGHYAG and II-VI Laser Enterprise brand names. II-VI Laser Solutions also manufactures compound semiconductor epitaxial wafers for applications in optical components, wireless devices, and high-speed communication systems and manufactures 6-inch gallium arsenide wafers allowing for the production of high performance lasers, vertical cavity surface emitting lasers (“VCSELs”) and integrated circuits in high volume sold under the II-VI EpiWorks and II-VI OptoElectronic Devices Division brand names.
The II-VI Photonics segment is located in the U.S., China, Vietnam, Germany, Japan, the U.K., Italy, Hong Kong and the Philippines. II-VI Photonics is directed by the President of II-VI Photonics and is further divided into production and administrative units that are directed by managers. II-VI Photonics manufactures crystal materials, optics, microchip lasers and opto-electronic modules for use in optical communication networks and other diverse consumer and commercial applications. In addition, the segment also manufactures pump lasers, optical amplifiers and micro-optics for optical amplifiers for both terrestrial and submarine applications within the optical communications market.
The II-VI Performance Products segment is located in the U.S., Vietnam, Japan, China, Germany and the Philippines. II-VI Performance Products is directed by the President of II-VI Performance Products, while each geographic location is directed by a general manager. II-VI Performance Products is further divided into production and administrative units that are directed by managers. II-VI Performance Products designs, manufactures and markets infrared optical components and high-precision optical assemblies for
15
military, medical and commercial laser imaging applications. In addition, the segment designs, manufactures and markets unique engineered materials for thermo-electric and silicon carbide (“SiC”) applications servicing the semiconductor, military and medical markets.
The accounting policies of the segments are the same as those of the Company. The Company’s corporate expenses are allocated to the segments. The Company evaluates segment performance based upon reported segment operating income, which is defined as earnings from continuing operations before income taxes, interest and other income or expense. Inter-segment sales and transfers are eliminated.
The following tables summarize selected financial information of the Company’s operations by segment ($000):
|
|
Three Months Ended September 30, 2016 |
|
|||||||||||||||||
|
|
II-VI |
|
|
|
|
|
|
II-VI |
|
|
|
|
|
|
|
|
|
||
|
|
Laser |
|
|
II-VI |
|
|
Performance |
|
|
|
|
|
|
|
|
|
|||
|
|
Solutions |
|
|
Photonics |
|
|
Products |
|
|
Eliminations |
|
|
Total |
|
|||||
Revenues |
|
$ |
79,290 |
|
|
$ |
95,819 |
|
|
$ |
46,411 |
|
|
$ |
- |
|
|
$ |
221,520 |
|
Inter-segment revenues |
|
|
5,940 |
|
|
|
3,438 |
|
|
|
1,733 |
|
|
|
(11,111 |
) |
|
|
- |
|
Operating income |
|
|
6,698 |
|
|
|
13,890 |
|
|
|
3,103 |
|
|
|
- |
|
|
|
23,691 |
|
Interest expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,246 |
) |
Other income, net |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,402 |
|
Income taxes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(7,553 |
) |
Net earnings |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
16,294 |
|
Depreciation and amortization |
|
|
5,650 |
|
|
|
4,848 |
|
|
|
4,384 |
|
|
|
- |
|
|
|
14,882 |
|
Segment assets |
|
|
476,617 |
|
|
|
473,569 |
|
|
|
278,301 |
|
|
|
- |
|
|
|
1,228,487 |
|
Expenditures for property, plant & equipment |
|
|
20,125 |
|
|
|
6,597 |
|
|
|
3,272 |
|
|
|
- |
|
|
|
29,994 |
|
Investment |
|
|
- |
|
|
|
- |
|
|
|
11,684 |
|
|
|
- |
|
|
|
11,684 |
|
Goodwill |
|
|
84,113 |
|
|
|
96,601 |
|
|
|
52,890 |
|
|
|
- |
|
|
|
233,604 |
|
|
|
Three Months Ended September 30, 2015 |
|
|||||||||||||||||
|
|
II-VI |
|
|
|
|
|
|
II-VI |
|
|
|
|
|
|
|
|
|
||
|
|
Laser |
|
|
II-VI |
|
|
Performance |
|
|
|
|
|
|
|
|
|
|||
|
|
Solutions |
|
|
Photonics |
|
|
Products |
|
|
Eliminations |
|
|
Total |
|
|||||
Revenues |
|
$ |
71,583 |
|
|
$ |
71,895 |
|
|
$ |
45,729 |
|
|
$ |
- |
|
|
$ |
189,207 |
|
Inter-segment revenues |
|
|
4,530 |
|
|
|
3,031 |
|
|
|
2,395 |
|
|
|
(9,956 |
) |
|
|
- |
|
Operating income |
|
|
12,175 |
|
|
|
6,284 |
|
|
|
3,269 |
|
|
|
- |
|
|
|
21,728 |
|
Interest expense |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(649 |
) |
Other income, net |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,057 |
|
Income taxes |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,922 |
) |
Net earnings |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
17,214 |
|
Depreciation and amortization |
|
|
3,704 |
|
|
|
5,093 |
|
|
|
4,508 |
|
|
|
- |
|
|
|
13,305 |
|
Expenditures for property, plant & equipment |
|
|
5,880 |
|
|
|
2,152 |
|
|
|
1,392 |
|
|
|
- |
|
|
|
9,424 |
|
Note 11. |
Share-Based Compensation |
The Board of Directors adopted the II-VI Incorporated Amended and Restated 2012 Omnibus Incentive Plan (the “Plan”), which was approved by the 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 4,900,000 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.
16
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 |
|
|||||
September 30, |
|
|
2016 |
|
|
|
2015 |
|
Stock Options and Cash-Based Stock Appreciation Rights |
|
$ |
1,663 |
|
|
$ |
2,386 |
|
Restricted Share Awards and Cash-Based Restricted Share Unit Awards |
|
|
1,878 |
|
|
|
1,231 |
|
Performance Share Awards and Cash-Based Performance Share Unit Awards |
|
|
608 |
|
|
|
248 |
|
|
|
$ |
4,149 |
|
|
$ |
3,865 |
|
Note 12. |
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 September 30, 2016, 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. Foreign currency gain related to these contracts was immaterial for the three months ended September 30, 2016. The Company also had a contingent earnout arrangement related to the acquisition of EpiWorks recorded at fair value. The EpiWorks earnout arrangement provides up to a maximum of $6.0 million of additional cash payments based upon EpiWorks achieving certain agreed upon financial and operational targets for capacity, wafer output and gross margin, which if earned would be payable for the achievement of each specific annual target over the next three years. The fair value of the contingent earnout arrangement was measured using valuations based upon other unobservable inputs that are significant to the fair value measurement (Level 3).
The following table provides a summary by level of the fair value of financial instruments that are measured on a recurring basis for the periods presented ($000):
|
|
Fair Value Measurements at September 30, 2016 Using: |
|
|||||||||||||
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant |
|
|
|
|
|
||
|
|
|
|
|
|
Active Markets |
|
|
Other |
|
|
Significant |
|
|||
|
|
|
|
|
|
for Identical |
|
|
Observable |
|
|
Unobservable |
|
|||
|
|
|
|
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|||
|
|
September 30, 2016 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
$ |
163 |
|
|
$ |
- |
|
|
$ |
163 |
|
|
$ |
- |
|
Contingent earnout arrangement |
|
$ |
4,410 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
4,410 |
|
17
|
|
Fair Value Measurements at June 30, 2016 Using: |
|
|||||||||||||
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant |
|
|
|
|
|
||
|
|
|
|
|
|
Active Markets |
|
|
Other |
|
|
Significant |
|
|||
|
|
|
|
|
|
for Identical |
|
|
Observable |
|
|
Unobservable |
|
|||
|
|
|
|
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|||
|
|
June 30, 2016 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forward contracts |
|
$ |
511 |
|
|
$ |
- |
|
|
$ |
511 |
|
|
$ |
- |
|
Contingent earnout arrangement |
|
$ |
4,352 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
4,352 |
|
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 September 30, 2016.
The following table presents a reconciliation of the beginning and ending fair value measurements of the Company’s level 3 contingent earnout arrangement related to the acquisition of EpiWorks ($000):
|
Significant |
|
|
|
Unobservable Inputs |
|
|
|
(Level 3) |
|
|
Balance at July 1, 2016 |
$ |
4,352 |
|
Payments |
|
- |
|
Changes in fair value |
|
58 |
|
|
|
|
|
Balance at September 30, 2016 |
$ |
4,410 |
|
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 are considered Level 2 among the fair value hierarchy and are variable interest rates and accordingly their carrying amounts approximate fair value.
Note 13. |
Derivative Instruments |
The Company, from time to time, purchases foreign currency forward exchange contracts, primarily in Japanese Yen, that permit it to sell specified amounts of these foreign currencies expected to be received from its export sales for pre-established U.S. dollar amounts at specified dates. The Company enters into these contracts to limit transactional exposure to changes in currency exchange rates of export sales transactions in which settlement will occur in future periods and which otherwise would expose the Company, on the basis of its aggregate net cash flows in respective currencies, to foreign currency risk.
The Company has recorded the fair market value of these contracts in the Company’s Condensed Consolidated Financial Statements. These contracts had a total notional amount of $12.2 million and $9.2 million at September 30, 2016 and June 30, 2016, respectively. As of September 30, 2016, these forward contracts had expiration dates ranging from October 2016 through January 2017, with Japanese Yen denominations individually ranging from 300 million Yen to 350 million Yen. The Company does not account for these contracts as hedges as defined by U.S. GAAP, and records the change in the fair value of these contracts in Other expense (income), net in the Condensed Consolidated Statements of Earnings as they occur. The fair value measurement takes into consideration foreign currency rates and the current creditworthiness of the counterparties to these contracts, as applicable, and is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instruments and thus represents a Level 2 measurement. These contracts are recorded in Other accrued liabilities in the Company’s Condensed Consolidated Balance Sheets as of September 30, 2016 and June 30, 2016. The change in the fair value of these contracts for each of the three months ended September 30, 2016 and 2015 was insignificant.
18
Note 14. |
Commitments and Contingencies |
The Company records a warranty reserve as a charge against earnings based on a percentage of sales utilizing actual warranty claims over the last twelve months. The following table summarizes the change in the carrying value of the Company’s warranty reserve, which is a component of Other accrued liabilities in the Company’s Condensed Consolidated Balance Sheets ($000):
|
Three Months Ended |
|
|
|
September 30, 2016 |
|
|
Balance-beginning of period |
$ |
3,908 |
|
Payments made during the period |
|
(985 |
) |
Additional warranty liability recorded |
|
795 |
|
Balance-end of period |
$ |
3,718 |
|
Note 15. |
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 |
|
|||||
|
|
September 30, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
Service cost |
|
$ |
897 |
|
|
$ |
683 |
|
Interest cost |
|
|
40 |
|
|
|
111 |
|
Expected return on plan assets |
|
|
(181 |
) |
|
|
(280 |
) |
Net amortization |
|
|
(164 |
) |
|
|
46 |
|
Net periodic pension costs |
|
$ |
592 |
|
|
$ |
560 |
|
The Company contributed $0.9 million and $0.5 million to the Swiss Plan during the three months ended September 30, 2016 and 2015, respectively. The Company currently anticipates contributing an additional estimated amount of approximately $2.7 million to the Swiss Plan during the remainder of fiscal year 2017.
Note 16. |
Share Repurchase Program |
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 September 30, 2016, the Company has purchased 1,316,587 shares of its Common Stock pursuant to the Program for approximately $19.0 million.
Note 17. |
Accumulated Other Comprehensive Income (Loss) |
The changes in accumulated other comprehensive income (“AOCI") by component, net of tax, for the three months ended September 30, 2016 were as follows ($000):
|
|
Foreign |
|
|
|
|
|
|
Total |
|
||
|
|
Currency |
|
|
Defined |
|
|
Accumulated Other |
|
|||
|
|
Translation |
|
|
Benefit |
|
|
Comprehensive |
|
|||
|
|
Adjustment |
|
|
Pension Plan |
|
|
Loss |
|
|||
AOCI - June 30, 2016 |
|
$ |
(6,185 |
) |
|
$ |
(7,832 |
) |
|
$ |
(14,017 |
) |
Other comprehensive loss before reclassifications |
|
|
(582 |
) |
|
|
- |
|
|
|
(582 |
) |
Amounts reclassified from AOCI |
|
|
- |
|
|
|
(112 |
) |
|
|
(112 |
) |
Net current-period other comprehensive loss |
|
|
(582 |
) |
|
|
(112 |
) |
|
|
(694 |
) |
AOCI - September 30, 2016 |
|
$ |
(6,767 |
) |
|
$ |
(7,944 |
) |
|
$ |
(14,711 |
) |
19
Note 18. |
Subsequent Event |
On October 17, 2016, the Company entered into a lease effective January 1, 2017 relating to their facility in Warren, New Jersey. The lease will be classified as a capital lease for financial statement purposes upon the effective date.
20
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; the impact of acquisitions on our business and our ability to assimilate recently acquired businesses; 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; and changes in local market laws and practices. There are additional risk factors that could materially affect the Company’s business, results of operations or financial condition as set forth in Part I, Item 1A of the Company’s most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission on August 26, 2016.
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 predict 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, optical communications, military, life sciences, semiconductor equipment, and consumer markets. The Company produces a wide variety of application-specific photonic and electronic materials and components, and deploys them in various forms, including as integrated 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 (“OEMs”), laser end users, system integrators of high-power lasers, manufacturers of equipment and devices for industrial, optical communications, security and monitoring applications, U.S. government prime contractors, various U.S. government agencies and thermoelectric solutions suppliers.
During the quarter ended March 31, 2016, the Company completed the acquisitions of EpiWorks, Inc. and ANADIGICS, Inc. (“ANADIGICS”). The results of operations for these two acquisitions are included in the II-VI Laser Solutions segment since the respective acquisition dates.
21
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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 the Consolidated Financial Statements in the Company’s most recent Annual Report on Form 10-K describes the significant accounting policies and methods used in the preparation of the Company’s consolidated financial statements. There have been no changes in significant accounting policies as of September 30, 2016.
New Accounting Standards
See “Note 2. Recent Accounting Pronouncements” to our unaudited 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 table sets forth bookings and select items from our Condensed Consolidated Statements of Earnings for the three months ended September 30, 2016 and 2015, respectively:
|
|
Three Months Ended |
|
|
Three Months Ended |
|
||||||||||
|
|
September 30, 2016 |
|
|
September 30, 2015 |
|
||||||||||
Bookings |
|
$ |
244.3 |
|
|
|
|
|
|
$ |
187.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
||
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
Revenues |
|
||
Total Revenues |
|
$ |
221.5 |
|
|
|
100.0 |
% |
|
$ |
189.2 |
|
|
|
100.0 |
% |
Cost of goods sold |
|
|
133.9 |
|
|
|
60.5 |
|
|
|
118.0 |
|
|
|
62.4 |
|
Gross margin |
|
|
87.6 |
|
|
|
39.5 |
|
|
|
71.2 |
|
|
|
37.6 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Internal research and development |
|
|
21.8 |
|
|
|
9.8 |
|
|
|
13.2 |
|
|
|
7.0 |
|
Selling, general and administrative |
|
|
42.1 |
|
|
|
19.0 |
|
|
|
36.3 |
|
|
|
19.2 |
|
Interest and other, net |
|
|
(0.2 |
) |
|
|
(0.1 |
) |
|
|
(0.5 |
) |
|
|
(0.3 |
) |
Earnings before income tax |
|
|
23.9 |
|
|
|
10.8 |
|
|
|
22.2 |
|
|
|
11.7 |
|
Income taxes |
|
|
7.6 |
|
|
|
3.4 |
|
|
|
5.0 |
|
|
|
2.6 |
|
Net Earnings |
|
$ |
16.3 |
|
|
|
7.4 |
% |
|
$ |
17.2 |
|
|
|
9.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
$ |
0.26 |
|
|
|
|
|
|
$ |
0.27 |
|
|
|
|
|
Executive Summary
Net earnings for the three months ended September 30, 2016 were $16.3 million ($0.26 per-share diluted), compared to $17.2 million ($0.27 per-share diluted) for the same period last fiscal year. The decrease in net earnings for the three months ended September 30, 2016 compared to the same period last year was primarily the result of Company’s investment in internal research and development to support its new technology platform investment as well as additional income taxes. The decrease in net earnings was somewhat offset by increased revenues, favorable product mix and improved operational performance from the Company’s II-VI Photonics segment. The revenue increase for this segment of approximately $24.0 million was driven by broad-based demand across the whole spectrum of optical communication markets, including data center infrastructure build-outs, the China broadband initiatives and continued expansion of undersea network deployment.
Consolidated
Bookings. Bookings are defined as customer orders received that are expected to be converted to revenues over the next twelve months. For long-term customer orders, the Company does not include in bookings the portion of the customer order that is beyond twelve months, due to the inherent uncertainty of an order that far out in the future. Bookings for the three months ended September 30, 2016 increased 31% to $244.3 million, compared to $187.2 million for the same period last fiscal year. All of the Company’s operating segments experienced increased booking volumes compared to last year. The increase in bookings was primarily lead by II-
22
VI Photonics which realized increased bookings of $39.4 million or 60% over the prior fiscal period. This segment has continued to experience strong orders from the China broadband initiatives as well as increased demand for 100G metro deployments in the United States and continued demand for products that serve the data center expansion.
Revenues. Revenues for the three months ended September 30, 2016 increased 17% to $221.5 million compared to $189.2 million for the same period last fiscal year. The increase in revenues for the three months ended September 30, 2016 was driven by optical and data communication markets continuing to undergo a cycle of investment and expansion. The Company’s II-VI Photonics segment has capitalized on these market dynamics and realized increased revenues of $23.9 million or 33% for the current three months ended compared to the same period last fiscal year.
Gross margin. Gross margin for the three months ended September 30, 2016 was $87.6 million or 39.5% of total revenues, compared to $71.2 million or 37.6% of total revenues, for the same period last fiscal year. The improvement in gross margin for the three months ended September 30, 2016 compared to the same period last fiscal year was primarily driven by incremental margins realized on the Company’s higher revenue levels and operational efficiencies across the Company’s operating segments. Additionally, the product mix at II-VI Photonics continues to shift towards higher margin products relating to the undersea network build out and 980 nanometer (“nm”) pump lasers. In addition, gross margin was favorably impacted by a $1.6 million reduction in cost of goods sold relating to the receipt of insurance proceeds from the prior year’s flooding in Fuzhou, China.
Internal research and development. Company-funded internal research and development expenses for the three months ended September 30, 2016 were $21.8 million, or 9.8% of revenues, compared to $13.2 million, or 7.0% of revenues, for the same period last fiscal year. The increase in internal research and development expense is the result of the Company’s continued investments in the development of the technology required to produce new opto-electronic devices in large volume for future applications as well as new product introductions across the Company’s business units. The Company anticipates the internal research and development expenses as a percentage of revenues to increase as the Company continues to invest in its growth strategy around the high-volume VCSELs platform.
Selling, general and administrative. Selling, general and administrative (“SG&A”) expenses for the three months ended September 30, 2016 were $42.1 million, or 19.0% of revenues, compared to $36.3 million, or 19.2% of revenues, for the same period last fiscal year. On a percentage of revenue basis, SG&A expenses during the current quarter were consistent with the same period last fiscal year. The $5.8 million dollar increase in SG&A expenses in the current fiscal period was to support the increased revenue base.
Interest and other, net. Interest and other, net for the three months ended September 30, 2016 was income of $0.2 million, compared to income of $0.5 million for the same period last fiscal year. Included in interest and other, net were earnings on the Company’s equity interest in Guangdong Fuxin Electronic Technology (“Fuxin”), interest expense on borrowings, interest income on excess cash reserves, unrealized gains and losses on the Company’s deferred compensation plan, foreign currency gains and losses and contingent earnout income from the sale of the ANADIGICS designed and manufactured innovative radio frequency (“RF”) business that occurred in June 2016. The majority of the unfavorable change during the three months ended September 30, 2016 compared to the same period last fiscal year was due to higher levels of interest expense as the Company increased its outstanding amounts under the Company’s Third Amended and Restated Credit Agreement (the “Amended Credit Facility”). During the current fiscal quarter, the Company recorded $1.3 million of the contingent earnout.
Income taxes. The Company’s year-to-date effective income tax rate at September 30, 2016 was 31.7%, compared to an effective tax rate of 22.2% for the same period last fiscal year. The variation between the Company’s effective tax rate and the U.S. statutory rate of 35% was primarily due to the Company’s foreign operations, which are subject to income taxes at lower statutory rates. The higher effective tax rate during the current fiscal year is due to an increase in the Company’s income tax reserve relating to the ongoing audits.
Segment Reporting
Bookings, revenues and operating income for the Company’s reportable segments are discussed below. Operating income differs from net earnings in that operating income excludes certain operational expenses included in other expense (income) – net as reported. Management believes operating income to be a useful measure for investors, as it reflects the results of segment performance over which management has direct control and is used by management in its evaluation of segment performance. See “Note 10. Segment Reporting,” to our unaudited financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the Company’s reportable segments and for the reconciliation of the Company’s operating income to net earnings, which is incorporated herein by reference.
23
II- VI Laser Solutions ($ in millions)
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
Three Months Ended |
|
|
Increase |
|
|
||||||
|
|
September 30, |
|
|
(Decrease) |
|
|
||||||
|
|
2016 |
|
|
2015 |
|
|
|
|
|
|
||
Bookings |
|
$ |
80.6 |
|
|
$ |
69.1 |
|
|
|
17 |
% |
|
Revenues |
|
$ |
79.3 |
|
|
$ |
71.6 |
|
|
|
11 |
% |
|
Operating income |
|
$ |
6.7 |
|
|
$ |
12.2 |
|
|
|
(45 |
%) |
|
The above operating results for the three months ended September 30, 2016 include the Company’s acquisitions of II-VI EpiWorks and II-VI Optical Electronics Division. II-VI EpiWorks was acquired on February 1, 2016 and II-VI OptoElectronic Division was acquired on March 15, 2016.
Bookings for the three months ended September 30, 2016 for II-VI Laser Solutions increased 17% to $80.6 million, compared to $69.1 million for the same period last fiscal year. Included in the current year’s bookings was $9.8 million of bookings attributed to the recent acquisitions of II-VI EpiWorks and II-VI OptoElectronics Division. Exclusive of this amount, bookings were consistent with the same period last fiscal year.
Revenues for the three months ended September 30, 2016 for II-VI Laser Solutions increased 11% to $79.3 million, compared to revenues of $71.6 million for the same period last fiscal year. Included in the current year’s revenues was $5.8 million of revenue attributed to the recent acquisitions of II-VI EpiWorks and II-VI OptoElectronics Division. Exclusive of this amount, revenues were consistent with the same period last fiscal year.
Operating income for the three months ended September 30, 2016 for II-VI Laser Solutions decreased 45% to $6.7 million, compared to $12.2 million for the same period last fiscal year. Included in the current year’s operating income was $1.5 million of operating losses attributed to the recent acquisitions of II-VI EpiWorks and II-VI OptoElectronics Division as well as incremental investments in internal research and development to increase its capability to produce new opto-electronic devices.
II- VI Photonics ($ in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
% |
|
||||||
|
|
September 30, |
|
|
Increase |
|
||||||
|
|
2016 |
|
|
2015 |
|
|
|
|
|
||
Bookings |
|
$ |
104.6 |
|
|
$ |
65.2 |
|
|
|
60 |
% |
Revenues |
|
$ |
95.8 |
|
|
$ |
71.9 |
|
|
|
33 |
% |
Operating income |
|
$ |
13.9 |
|
|
$ |
6.3 |
|
|
|
121 |
% |
Bookings for the three months ended September 30, 2016 for II-VI Photonics increased 60% to $104.6 million, compared to $65.2 million for the same period last fiscal year. The increase in bookings was the result of market demand from the China broadband initiatives, 100G metro deployments in the United States and undersea 980nm pumps and high performance optical amplifiers.
Revenues for the three months ended September 30, 2016 for II-VI Photonics increased 33% to $95.8 million, compared to $71.9 million for the same period last fiscal year. The increase in revenues for the three months ended September 30, 2016 compared to the same period last fiscal year was mainly attributable to increased customer demand for optical components and modules in three main areas, continued growth in China attributable to the China broadband initiatives, the North American Metro network build out, and the overall Data Center growth.
24
Operating income for the three months ended September 30, 2016 for II-VI Photonics increased 121% to $13.9 million, compared to $6.3 million for the same period last fiscal year. The increase in operating income was primarily due to incremental margins realized on the higher revenue levels as well as continued shifting of the product mix to higher margin products including 980 nm pumps and optical amplifiers.
II-VI Performance Products ($ in millions)
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
Three Months Ended |
|
|
Increase |
|
||||||
|
|
September 30, |
|
|
(Decrease) |
|
||||||
|
|
2016 |
|
|
2015 |
|
|
|
|
|
||
Bookings |
|
$ |
59.1 |
|
|
$ |
52.9 |
|
|
|
12 |
% |
Revenues |
|
$ |
46.4 |
|
|
$ |
45.7 |
|
|
|
2 |
% |
Operating income |
|
$ |
3.1 |
|
|
$ |
3.3 |
|
|
|
(6 |
%) |
Bookings for the three months ended September 30, 2016 for II-VI Performance Products increased 12% to $59.1 million, compared to $52.9 million for the same period last fiscal year. The increase was driven by higher demand for SiC substrates addressing high-power high-frequency semiconductor devices as well as increased demand in the power generation market.
Revenues for the three months ended September 30, 2016 for II-VI Performance Products increased 2% to $46.4 million, compared to $45.7 million for the same period last fiscal year. The increase in revenues for the three months ended September 30, 2016 was driven by increased SiC and semiconductor sales due to increased demand in these markets compared to the same period last fiscal year.
Operating income for the three months ended September 30, 2016 for II-VI Performance Products decreased 6% to $3.1 million, compared to $3.3 million for the same period last fiscal year. Operating income for the three months ended September 30, 2016 decreased due to higher levels of corporate allocations to the segment than in the prior fiscal quarter.
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, sale of equity instruments and proceeds received on earnout arrangements. 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, purchases of treasury stock and payments in satisfaction of employees’ minimum tax obligations. Supplemental information pertaining to our sources and uses of cash for the periods indicated is presented as follows:
Sources (uses) of Cash (millions):
|
|
Three Months Ended |
|
|||||
|
|
September 30, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
19.5 |
|
|
$ |
22.2 |
|
Additions to property, plant & equipment |
|
|
(30.0 |
) |
|
|
(9.4 |
) |
Net proceeds (payments) on long-term borrowings |
|
|
14.0 |
|
|
|
(13.5 |
) |
Purchases of treasury shares |
|
|
- |
|
|
|
(5.9 |
) |
Proceeds from exercises of stock options |
|
|
1.7 |
|
|
|
0.8 |
|
Payments in satisfaction of employees' minimum tax obligations |
|
|
(2.2 |
) |
|
|
(1.7 |
) |
Debt issuance costs |
|
|
(1.4 |
) |
|
|
- |
|
Effect of exchange rate changes on cash and cash equivalents and other |
|
|
0.1 |
|
|
|
(2.4 |
) |
Net cash provided by operating activities:
Net cash provided by operating activities was $19.5 million for the three months ended September 30, 2016, compared to net cash provided by operating activities of $22.2 million for the same period last fiscal year. The decrease in cash provided by operating activities was due to lower net earnings, higher levels of bonus payouts during the current fiscal quarter compared to last year and higher working capital requirements to accommodate the Company’s current increased business activities.
25
Net cash used in investing activities:
Net cash used in investing activities was $29.8 million for the three months ended September 30, 2016, compared to net cash used of $9.4 million for the same period last fiscal year. The net cash used in investing activities during the three months ended September 30, 2016 and 2015 consisted mostly of cash paid for capital expenditures. The increase in capital expenditures in the current fiscal period compared to the same period last year was driven by additional capital expenditures to increase the Company’s capability to produce new opto-electronic devices as it continues to accelerate its new technology investment platform.
Net cash provided by (used in) financing activities:
Net cash provided by financing activities was $12.3 million for the three months ended September 30, 2016 compared to net cash used in financing activities of $20.3 million. During the current three months, the Company borrowed $24.0 million and received $1.8 million of proceeds from stock option exercises reflecting the increased share price of the Company’s stock. Offsetting the increase in cash were payments made on outstanding borrowings of $10.0 million, $2.2 million of minimum tax withholding obligations on vesting of employees’ restricted and performance shares and $1.4 million of debt issuance costs associated with the Amended Credit Facility entered into on July 28, 2016. Net cash used in financing activities was $20.3 million for the three months ended September 30, 2015, was primarily composed of $13.5 million of net payments on borrowings, $5.9 million of treasury stock repurchases and $1.7 million of employees’ minimum tax withholding obligations on vesting of employees’ restricted and performance shares offset by $0.8 million of cash proceeds from stock option exercises.
On July 28, 2016, the Company entered into a the Amended Credit Facility which amended the related prior credit facility. The Amended Credit Facility provides for a revolving credit facility of $325 million (increased from $225 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 commencing 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 0.075% and if the Euro-Rate Option is selected for a borrowing, the Applicable Margin is 0.75% to 1.75%. The Applicable Margin is based on the Company’s ratio of consolidated indebtedness to consolidated EBITDA. Additionally, the Amended Credit Facility is subject to certain covenants, including those relating to minimum interest coverage and maximum leverage ratios. As of September 30, 2016, the Company was in compliance with all financial covenants under its Amended Credit Facility.
The Company’s Yen denominated line of credit is a 500 million Yen (approximately $4.9 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 1.50%. At each of September 30, 2016 and June 30, 2016, 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 September 30, 2016, the Company was in compliance with all financial covenants under its Yen facility.
The Company had aggregate availability of $178.7 million and $37.7 million under its lines of credit as of September 30, 2016 and June 30, 2016, respectively. The amounts available under the Company’s lines of credit are reduced by outstanding letters of credit. As of September 30, 2016 and June 30, 2016, total outstanding letters of credit supported by the credit facilities were $1.2 million.
The weighted average interest rate of total borrowings under all credit facilities was 2.0% and 1.5% for the three months ended September 30, 2016 and 2015, respectively.
26
In August 2014, the Company’s Board of Directors authorized the Company to purchase up to $50 million of its issued and outstanding 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 date 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 September 30, 2016, the Company has 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):
|
|
September 30, |
|
|
June 30, |
|
||
|
|
2016 |
|
|
2016 |
|
||
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
220.1 |
|
|
$ |
218.4 |
|
Available borrowing capacity |
|
|
178.7 |
|
|
|
37.7 |
|
Total debt obligation |
|
|
250.0 |
|
|
|
235.9 |
|
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 long-term borrowings, investments in internal research and development, 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 September 30, 2016 and June 30, 2016, the Company held approximately $193 million and $177 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, but, under current law, would potentially be subject to United States federal income tax, less applicable foreign tax credits. The Company has not recorded deferred income taxes related to the majority of its undistributed earnings outside of the United States, as the majority of the earnings of the Company’s foreign subsidiaries are indefinitely reinvested.
Contractual Obligations
The following table presents information about the Company’s contractual obligations and commitments as of September 30, 2016.
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 |
$ |
249,966 |
|
|
$ |
20,000 |
|
|
$ |
40,000 |
|
|
$ |
189,966 |
|
|
|
- |
|
Interest payments(1) |
|
18,691 |
|
|
|
4,856 |
|
|
|
8,525 |
|
|
|
5,310 |
|
|
|
- |
|
Capital lease obligations |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Operating lease obligations(2) |
|
64,886 |
|
|
|
13,121 |
|
|
|
18,374 |
|
|
|
12,025 |
|
|
|
21,366 |
|
Purchase obligations(3)(4) |
|
39,912 |
|
|
|
36,786 |
|
|
|
3,126 |
|
|
|
- |
|
|
|
- |
|
Other long-term liabilities reflected on the Registrant's balance sheet under GAAP |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total |
|
373,455 |
|
|
|
74,763 |
|
|
|
70,025 |
|
|
|
207,301 |
|
|
|
21,366 |
|
(1) |
Variable rate interest obligations are based on the interest rate in place at September 30, 2016 and relate to the Amended Credit Facility. |
(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 2056. |
(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. |
27
(4) |
Includes cash earnout opportunities based upon II-VI EpiWorks for the achievement of certain agreed upon financial and operational targets for capacity, wafer output and gross margin. |
Pension obligations are not included in the table above. The Company expects the remaining defined benefit plan employer contributions for fiscal year 2017 to be $2.7 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. The funded status of our defined benefit plans is disclosed in Note 15 to the Company’s Consolidated Financial Statements.
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. 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. The Company enters into foreign currency forward contracts that permit it to sell specified amounts of foreign currencies expected to be received from its export sales for pre-established U.S. dollar amounts at specified dates. The forward contracts are denominated in the same foreign currencies in which export sales are denominated. These contracts provide the Company with an economic hedge in which settlement will occur in future periods, thereby limiting the Company’s exposure. These contracts had a total notional amount of $12.2 million and $9.2 million at September 30, 2016 and June 30, 2016, respectively. The Company continually 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.
A 10% change in the Yen to U.S. dollar exchange rate would have changed revenues in the range from a decrease of $1.6 million to an increase of $2.0 million for the three months ended September 30, 2016.
The Company has short-term intercompany notes that are denominated in U.S. dollars with certain 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 $1.9 million to an increase of $2.4 million for the three months ended September 30, 2016.
For all other foreign subsidiaries, the functional currency is the applicable local currency. Assets and liabilities of those operations are translated into U.S. dollars using period-end exchange rates, while income and expenses are translated using the average exchange rates for the reporting period. Translation adjustments are recorded as accumulated other comprehensive income within shareholders’ equity.
Interest Rate Risks
As of September 30, 2016, the Company’s total outstanding borrowings of $250.0 million were from a line of credit of $3.0 million denominated in Japanese Yen, borrowings under a term loan of $100.0 million under the Company’s Amended Credit Facility denominated in U.S. dollars and a line of credit borrowing of $147.0 million under the Company’s Amended Credit Facility denominated in U.S. dollars. As such, the Company is exposed to market risks arising from changes in interest rates. A change in the interest rate of these borrowings of 1% would have changed net earnings by $0.6 million, or $0.01 per-share diluted for the three months ended September 30, 2016.
28
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.
The Company and its subsidiaries are involved in various claims and lawsuits incidental to its business. The resolution of each of these matters is subject to various uncertainties, and it is possible that these matters may be resolved unfavorably to the Company. Management believes, after consulting with legal counsel, that the ultimate liabilities, if any, resulting from such legal proceedings will not materially affect the Company’s financial condition, liquidity or results of operation.
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 Annual Report on Form 10-K for the year ended June 30, 2016, 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.
The following table sets forth repurchases of our common stock during the quarter ended September 30, 2016:
|
|
|
|
|
|
|
|
|
|
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 (a) |
|
|
Program |
|
||||
July 1, 2016 to July 31, 2016 |
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
30,906,904 |
|
August 1, 2016 to August 31, 2016 |
|
|
96,586 |
|
(b) |
$ |
21.39 |
|
|
|
- |
|
|
$ |
30,906,904 |
|
September 1, 2016 to September 30, 2016 |
|
|
7,275 |
|
(c) |
$ |
22.47 |
|
|
|
- |
|
|
$ |
30,906,904 |
|
Total |
|
|
103,861 |
|
|
$ |
21.47 |
|
|
|
- |
|
|
|
|
|
(b) |
Includes 96,586 shares of our Common Stock transferred to the Company from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted share awards. |
(c) |
Includes 7,275 shares of our Common Stock transferred to the Company from employees in satisfaction of minimum tax withholding obligations associated with the vesting of restricted share awards. |
29
Exhibit |
|
Description of Exhibit |
|
Reference |
|
|
|
|
|
10.01 |
|
Third Amended and Restated Credit Agreement by and among II-VI Incorporated and the Guarantors Party Thereto and The Lenders Party Thereto and PNC Bank, National Association, as Administrative and Documentation Agent and Bank of America, N.A., as Syndication Agent dated as of July 28, 2016. |
|
Incorporated herein by reference to Exhibit 10.1 to II-VI’s Current Report on Form 8-K (File No. 000-16195) filed on August 2, 2016. |
|
|
|
|
|
10.02 |
|
Employment Agreement by and between II-VI Incorporated and Vincent D. Mattera, Jr., dated as of August 1, 2016. |
|
Incorporated herein by reference to Exhibit 10.1 to II-VI’s Current Report on Form 8-K (File No. 000-16195) filed on August 2, 2016. |
|
|
|
|
|
10.03 |
|
Nonqualified Stock Option Agreement |
|
Filed herewith. |
|
|
|
|
|
10.04 |
|
Stock Appreciation Rights Agreement |
|
Filed herewith. |
|
|
|
|
|
10.05 |
|
Restricted Share Award Agreement (3 year) |
|
Filed herewith. |
|
|
|
|
|
10.06 |
|
Restricted Share Award Agreement (1 year) |
|
Filed herewith. |
|
|
|
|
|
10.07 |
|
Restricted Share Unit Award Agreement |
|
Filed herewith. |
|
|
|
|
|
10.08 |
|
Performance Share Award Agreement |
|
Filed herewith. |
|
|
|
|
|
10.09 |
|
Performance Unit Award Agreement |
|
Filed herewith. |
|
|
|
|
|
10.10 |
|
Performance Share Award Agreement (June 30, 2019) |
|
Filed herewith. |
|
|
|
|
|
10.11 |
|
Total Shareholder Return Performance Share Award Agreement |
|
Filed herewith. |
|
|
|
|
|
10.12 |
|
Total Shareholder Return Performance Unit Award Agreement |
|
Filed herewith. |
|
|
|
|
|
31.01 |
|
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. |
|
|
|
|
|
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. |
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.
30
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 |
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|
|
(Registrant) |
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|
|
|
|
Date: November 8, 2016 |
|
By: |
/s/ Vincent D. Mattera, Jr. |
|
|
|
Vincent D. Mattera, Jr. |
|
|
|
President and Chief Executive Officer |
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|
|
|
Date: November 8, 2016 |
|
By: |
/s/ Mary Jane Raymond |
|
|
|
Mary Jane Raymond |
|
|
|
Chief Financial Officer and Treasurer |
31
EXHIBIT INDEX
Exhibit Number |
|
Description of Exhibit |
|
Reference |
|
|
|
|
|
10.01 |
|
Third Amended and Restated Credit Agreement by and among II-VI Incorporated and the Guarantors Party Thereto and The Lenders Party Thereto and PNC Bank, National Association, as Administrative and Documentation Agent and Bank of America, N.A., as Syndication Agent dated as of July 28, 2016. |
|
Incorporated herein by reference to Exhibit 10.1 to II-VI’s Current Report on Form 8-K (File No. 000-16195) filed on August 2, 2016. |
|
|
|
|
|
10.02 |
|
Employment Agreement by and between II-VI Incorporated and Vincent D. Mattera, Jr., dated as of August 1, 2016. |
|
Incorporated herein by reference to Exhibit 10.1 to II-VI’s Current Report on Form 8-K (File No. 000-16195) filed on August 2, 2016. |
|
|
|
|
|
10.03 |
|
Nonqualified Stock Option Agreement |
|
Filed herewith. |
|
|
|
|
|
10.04 |
|
Stock Appreciation Rights Agreement |
|
Filed herewith. |
|
|
|
|
|
10.05 |
|
Restricted Share Award Agreement (3 year) |
|
Filed herewith. |
|
|
|
|
|
10.06 |
|
Restricted Share Award Agreement (1 year) |
|
Filed herewith. |
|
|
|
|
|
10.07 |
|
Restricted Share Unit Award Agreement |
|
Filed herewith. |
|
|
|
|
|
10.08 |
|
Performance Share Award Agreement |
|
Filed herewith. |
|
|
|
|
|
10.09 |
|
Performance Unit Award Agreement |
|
Filed herewith. |
|
|
|
|
|
10.10 |
|
Performance Share Award Agreement (June 30, 2019) |
|
Filed herewith. |
|
|
|
|
|
10.11 |
|
Total Shareholder Return Performance Share Award Agreement |
|
Filed herewith. |
|
|
|
|
|
10.12 |
|
Total Shareholder Return Performance Unit Award Agreement |
|
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. |
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.
32
Exhibit 10.03
II-VI INCORPORATED
NONQUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION AGREEMENT (this “Agreement”) is dated as of the Grant Date, as specified in the applicable Summary of Award (as defined below), by and between II-VI Incorporated, a Pennsylvania corporation (“II-VI”), and the Optionee, as specified in the applicable Summary of Award, who is a director, employee or consultant of II-VI or one of its Subsidiaries (the “Optionee”). For purposes of this Agreement, the term “Company” shall include II-VI and/or any Subsidiary of II-VI that the Optionee is employed by or may become employed by or provide services to during the Optionee’s employment by II-VI or any such Subsidiary.
Reference is made to the Summary of Award (the “Summary of Award”) issued to the Optionee with respect to the applicable Award, which may be found on Morgan Stanley StockPlan Connect system www.stockplanconnect.com (or any successor system selected by II-VI) (the “StockPlan Connect System”). Reference further is made to the Summary Plan Description relating to the Plan (as defined below), which also may be found on the StockPlan Connect System.
All capitalized terms used herein, to the extent not defined herein, shall have the meanings set forth in the II-VI 2012 Omnibus Incentive Plan (as amended and/or restated from time to time, the “Plan”), a copy of which can be found on the StockPlan Connect System, and/or the applicable Summary of Award. Terms of the Plan and the Summary of Award 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 Summary of Award (the “Shares”), at the price per share equal to the Option Price, as specified in the applicable Summary of Award (the “Option Price”), 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 Summary of Award, 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 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 from Service 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 from Service during the applicable periods set forth in Section 3(b).
(b)Notwithstanding Section 2(a), upon the Optionee’s Separation from Service, any portion of the Option that is unvested at the time of such Separation from Service shall vest and 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.
Page 2 of 18
NQ017 NQSO 072016
(iii)Retirement. If the Optionee incurs a Separation from 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).
(iv)Separation from Service for Cause. Notwithstanding any provision of this Agreement to the contrary, if the Optionee incurs a Separation from Service 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. Notwithstanding any provision to the contrary in this Agreement or in any offer letter, employment agreement or other applicable employment or service agreement between the Optionee and the Company that discusses the effect of a Change in Control on the Optionee’s Awards, in the event of a Change in Control, the following provisions shall apply, unless provided otherwise by the Committee prior to the date of the Change in Control:
(i)To the extent this Award is assumed, converted or replaced by the resulting entity in the Change in Control, if within two (2) years after the date of the Change in Control the Optionee has a Separation from Service either (A) by the Company other than for Cause (as defined below) or (B) by the Optionee for Good Reason (as defined below), then this Award shall become vested in full and may be exercised by the Optionee any time prior to the Expiration Date.
(ii)To the extent this Award is not assumed, converted or replaced by the resulting entity in the Change in Control, then this Award shall become vested in full upon the Change in Control.
(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 (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
Page 3 of 18
NQ017 NQSO 072016
Company specifying in reasonable detail the duties or responsibilities that the Company believes are not being adequately performed;
(ii)the willful engaging by the Optionee in any act that is damaging to the Company;
(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;
(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 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 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 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
Page 4 of 18
NQ017 NQSO 072016
(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 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 to the 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 Company shall reduce or eliminate the Payments by first reducing or eliminating the portion of the Payments that are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits that are to be paid the farthest in time from the determination.
(ii)All determinations required to be made under this Section 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
Page 5 of 18
NQ017 NQSO 072016
this Award Agreement. II-VI may require the exercise of such Option to be accomplished via a notice of exercise submitted via the StockPlan Connect 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 of II-VI Common Stock), (c) a “net exercise” under which II-VI reduces 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 of II-VI Common Stock shall be made by delivering properly endorsed stock certificates to II-VI or otherwise causing such II-VI Common Stock to be transferred to the account of II-VI, either physically or through attestation. In 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. The grant and exercise of this Award, and the issuance of any Shares or other amounts under this Award, and all other obligations of the Company under this Agreement, shall be subject to all applicable laws, rules and regulations and to such approvals by any regulatory or governmental agency as may be required. 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 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.
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.
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8. Adjustments. Upon any event described in Section 12 of the Plan (entitled “Adjustments”) or any successor provision thereto, the terms of such Section 12 of the Plan or any successor provision thereto shall apply to this Award.
9. Responsibility for Taxes.
(a)Regardless of any action the Company takes with respect to any or all income tax, payroll tax or other tax-related withholding (“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 this Award, including the grant, vesting or exercise 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 Optionee’s liability for Tax-Related Items.
(b)Prior to the time any Tax-Related Items become due in connection with this Award, the Optionee shall pay or make adequate arrangements satisfactory to the Company to satisfy all minimum withholding obligations of the Company. In this regard, the Optionee authorizes the Company to withhold all applicable minimum Tax-Related Items legally payable by the Optionee from the Optionee’s wages or other cash compensation paid to the Optionee by the Company or from proceeds of the sale of Shares. Alternatively, or in addition, to the extent permissible under applicable law, the Company may (i) sell or arrange for the sale of Shares that the Optionee acquires to meet the minimum withholding obligation for Tax-Related Items, and/or (ii) withhold Shares otherwise issuable upon exercise of this Award, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum withholding amount. Finally, the Optionee shall pay to the Company any amount of Tax-Related Items that the Company may be required to withhold 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 and deliver Shares upon exercise of this Award if the Optionee fails to comply with the Optionee’s obligations in connection with the Tax-Related Items as described in this Section 9.
(c)The Optionee acknowledges the receipt of tax information relating to this Award, including the need to consult the Optionee’s own tax advisors.
10. Plan Provisions. In the event of any conflict between the provisions of this Agreement and the Plan, the Plan shall control, except that capitalized terms specifically defined in this Agreement shall have the meaning given to them in this Agreement with respect to their usage in this Agreement, notwithstanding the definitions given to such terms in the Plan (which definitions shall control as they relate to the usage of such terms in the Plan).
11. No Continued Rights. The granting of 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.
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12. Non-Competition; Non-Solicitation; Confidentiality.
(a) 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 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, within the United States of America and/or any other country within which II-VI or its Subsidiaries have customers or prospective customers.
(ii) (A) solicit for the purpose of selling or distributing any products or services that are the same or similar to those developed, manufactured, marketed or sold by 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, 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; provided that this clause (B) shall not apply to any individual whose employment with II-VI or its Subsidiaries has been terminated for a period of one (1) year or longer.
(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 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
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enterprise, other than the Company, any proprietary confidential information or trade secrets; provided that the foregoing shall not apply to information which is not unique to 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 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.
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 Section 12 will not exceed the one (1)-year period set forth above.
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, and (ii) to the extent that the Optionee sold or transferred any such Shares, disgorge and/or repay to II-VI any profits or other economic value (as reasonably determined by II-VI) made or realized by the Optionee with respect to such Shares, including 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 Optionee by
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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, 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 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 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 this Award and 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.
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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. 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. The Company 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 StockPlan Connect 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 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 Summary of Award) contains the entire understanding between the parties and supersedes any prior understanding and agreements between them regarding the subject matter hereof with respect to the 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 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.
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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 this Award 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 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 the StockPlan Connect 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. Appendix A. The Optionee acknowledges and agrees that, if the Optionee is an employee outside the U.S., this Award is subject to the general terms applicable to Awards granted to employees outside the U.S. set forth in Appendix A hereto. Appendix A constitutes part of this Agreement. 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 Optionee
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to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.
26. 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 Optionee pursuant to II-VI’s instructions to the Optionee (including via the StockPlan Connect 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 StockPlan Connect 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 |
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David G. Wagner |
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Vice President, Human Resources |
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Electronic Acceptance via the |
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General Terms Applicable to Awards Granted to Employees Outside the U.S.
1.DATA PRIVACY
By accepting this Award, the Optionee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Optionee’s personal data as described in this document and any other grant materials by the Company for the exclusive purpose of implementing, administering and managing this Award.
The Optionee understands that the Company holds certain personal information about the Optionee, including the Optionee’s name, home address, telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of any entitlement to Shares or equivalent benefits awarded, canceled, vested, unvested or outstanding in the Optionee’s favor (the “Data”), for the purpose of implementing, administering and managing the Optionee’s participation in the Plan. The Optionee understands that the Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these Data recipients may be located in the Optionee’s country or elsewhere (for example, the United States) and that the Data recipient’s country may have different data privacy laws and protections from the Optionee’s country. The Optionee understands that the Optionee may request a list with the names and addresses of any potential recipients of the Data by contacting the Optionee’s local human resources representative. The Optionee authorizes the Data recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the exclusive purposes of implementing, administering and managing the Optionee’s participation in the Plan. The Optionee understands that the Data will be held only as long as is necessary to implement, administer and manage the Optionee’s participation in the Plan. The Optionee understands that the Optionee may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Optionee’s local human resources representative. Further, the Optionee understands that the Optionee is providing the consents herein on a purely voluntary basis. If the Optionee does not consent, or if the Optionee later seeks to revoke the Optionee’s consent, the Optionee’s employment status or service and career with the Company will not be adversely affected; the only adverse consequence of refusing or withdrawing the Optionee’s consent is that the Company would not be able to grant to the Optionee this Award or other awards or administer or maintain this Award or such other awards. Therefore, the Optionee understands that refusing or withdrawing the Optionee’s consent may affect the Optionee’s ability to benefit from this Award. For more information on the consequences of the Optionee’s refusal to consent or withdrawal of consent, the Optionee understands that the Optionee may contact the Optionee’s local human resources representative.
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By entering into this Agreement and accepting this Award evidenced hereby, the Optionee acknowledges, understands and agrees that:
(a)the Plan is established voluntarily by the Company, and all awards under the Plan are discretionary in nature;
(b)the grant of this Award is voluntary and occasional and does not create any contractual or other right to receive future awards or benefits in lieu of awards, even if such awards have been awarded in the past;
(c)all decisions with respect to future awards, if any, will be at the sole discretion of the Company;
(d)the grant of this Award shall not create a right to employment with the Company and shall not interfere with the ability of the Company to terminate the Optionee’s employment or service relationship (if any);
(e)the Optionee is voluntarily participating in the Plan;
(f)this Award and any payment made pursuant to this Award, and the value and income of the same, are not part of normal or expected compensation or salary for any purposes, including calculating any severance, resignation, termination, redundancy, dismissal, end-of-service, bonus, long-service, pension, retirement or similar benefits, payments or awards;
(g)unless otherwise agreed with the Company, this Award and any Shares subject to this Award, and the value and income of the same, are not granted as consideration for, or in connection with, any service the Optionee may provide as a director of II-VI or any 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 Shares that may be delivered under this Award (pursuant to the terms of this Award) is unknown, indeterminable and cannot be predicted with certainty;
(j)no claim or entitlement to compensation or damages shall arise from forfeiture of this Award resulting from termination of the Optionee’s employment or service (for any reason whatsoever, whether or not such termination is later found to be invalid or in breach of the
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employment laws in the jurisdiction where the Optionee is employed or providing services or the terms of the Optionee’s employment or service agreement, if any) or recoupment of all or any portion of any payment made pursuant to this Award as provided by any applicable Company compensation recoupment, clawback or similar policy or any applicable law related to such actions, as may be in effect from time to time and, in consideration of the grant of this Award to which the Optionee is not otherwise entitled, the Optionee irrevocably agrees never to institute any claim against II-VI or any Subsidiary, waives the Optionee’s ability, if any, to bring any such claim, and releases II-VI and its Subsidiaries from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Optionee shall be deemed irrevocably to have agreed not to pursue such claim, and the Optionee agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim;
(k)for purposes of this Award, the Optionee’s employment will be considered terminated as of the date the Optionee is no longer actively employed and providing services to the Company (for any reason whatsoever, whether or not such termination is later found to be invalid or in breach of the employment laws in the jurisdiction where the Optionee is employed or providing services or the terms of the Optionee’s employment or service agreement, if any), and unless otherwise expressly provided in this Agreement or otherwise determined by the Company, the Optionee’s right to vest in any portion of this Award (and any related dividend equivalents or similar rights) under the Plan, if any, will terminate as of such date and will not be extended by any notice period (for example, the Optionee’s active employment or period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under the employment laws in the jurisdiction where the Optionee is employed or providing services or the terms of the Optionee’s employment or service agreement, if any); the Company, in its sole discretion, shall determine when the Optionee is no longer actively employed or providing services for purposes of this Award (including whether the Optionee may still be considered to be actively employed or providing services while on an approved leave of absence);
(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)unless otherwise provided in the Plan or by the Company in its sole discretion, this Award and the benefits evidenced by this Agreement do not create any entitlement to have this Award or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Shares; and
(n)the Company shall not 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 this Award, any payment made pursuant to this Award or the subsequent sale of any Shares acquired under the Plan.
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If the Optionee has received this Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version differs from the English version, the English version shall control.
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Exhibit 10.04
II-VI INCORPORATED
STOCK APPRECIATION RIGHTS AGREEMENT
THIS STOCK APPRECIATION RIGHTS AGREEMENT (this “Agreement”) is dated as of the Grant Date, as specified in the applicable Summary of Award (as defined below), by and between II-VI Incorporated, a Pennsylvania corporation (“II-VI”), and the Recipient, as specified in the applicable Summary of Award, who is a director, employee or consultant of II-VI or one of its Subsidiaries (the “Recipient”). For purposes of this Agreement, the term “Company” shall include II-VI and/or any Subsidiary of II-VI that the Recipient is employed by or may become employed by or provide services to during the Recipient’s employment by II-VI or any such Subsidiary.
Reference is made to the Summary of Award (the “Summary of Award”) issued to the Recipient with respect to the applicable Award, which may be found on Morgan Stanley StockPlan Connect system www.stockplanconnect.com (or any successor system selected by II-VI) (the “StockPlan Connect System”). Reference further is made to the Summary Plan Description relating to the Plan (as defined below) which also may be found on the StockPlan Connect System.
All capitalized terms used herein, to the extent not defined herein, shall have the meanings set forth in the II-VI 2012 Omnibus Incentive Plan (as amended and/or restated from time to time, the “Plan”), a copy of which can be found on the StockPlan Connect System, and/or the applicable Summary of Award. Terms of the Plan and the Summary of Award 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.Grant. II-VI hereby grants the Recipient on and as of the Grant Date Stock Appreciation Rights (“SARs”) with respect to the number of Shares specified in the applicable Summary of Award (the “Shares”), at the price per share equal to the Base Price, as specified in the applicable Summary of Award (the “Base Price”), subject to the terms and conditions of this Agreement and the Plan. The SARs shall expire on the Expiration Date, as specified in the applicable Summary of Award, unless such SARs otherwise terminate or expire earlier in accordance with the terms hereof.
1
CI-#9582331-v2-SAR16_SAR_073015
(a)The SARs, pursuant to the terms of the Plan, shall vest and become exercisable in installments, as follows:
(i)Upon and after the one (1)-year anniversary of the Grant Date, the Recipient may exercise the SARs with respect to any number of Shares (except with respect to fractional shares) not in excess of twenty-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 Recipient may exercise the SARs 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 SARs, less the number of Shares as to which the SARs were previously exercised, if any.
(iii)Upon and after the three (3)-year anniversary of the Grant Date, the Recipient may exercise the SARs with respect to any number of Shares (except with respect to fractional shares) not in excess of seventy-five percent (75%) of the total number of Shares underlying the SARs, less the number of Shares as to which the SARs were previously exercised, if any.
(iv)Upon and after the four (4)-year anniversary of the Grant Date, the Recipient may exercise the SARs with respect to any number of Shares (except with respect to fractional shares) not in excess of one-hundred percent (100%) of the total number of Shares underlying the SARs, less the number of Shares as to which the SARs were previously exercised, if any.
(b)In no event may the SARs be exercised at any time following the ten (10)-year anniversary of the Grant Date.
3.Post-Separation from Service Exercise.
(a)Except as otherwise specifically provided in this Agreement, upon the Recipient’s Separation from Service for any reason, the SARs, to the extent not then vested and exercisable pursuant to Section 2, shall immediately lapse and become null and void on and as of the date of such Separation from Service. The vested portion of the SARs, if any, as of the date of such Separation from Service, may be exercised post-Separation from Service during the applicable periods set forth in Section 3(b).
(b)Notwithstanding Section 2(a), upon the Recipient’s Separation from Service for the reasons set forth below, the SARs may be exercised as follows:
(i)Death. In the event of the death of the Recipient (i) while an employee or a Nonemployee Director of the Company, (ii) within the one (1)-year period after the Recipient’s 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 the
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Recipient’s Separation from Service because of normal retirement, as defined in II-VI’s Global Retirement Policy, any unvested portion of the SARs will immediately vest and the SARs may be exercised by the Recipient’s estate at any time, or from time to time, within one (1) year of the date of the Recipient’s death but in no event later than the Expiration Date.
(ii)Disability. If the Recipient incurs a Separation from Service due to the Recipient’s Disability, any unvested portion of such the Recipient’s SARs will immediately vest and the SARs may be exercised at any time, or from time to time, within one (1) year after such Separation from Service, but in no event later than the Expiration Date.
(iii)Retirement. If the Recipient incurs a Separation from Service because of normal retirement, as defined in the Company’s Global Retirement Policy, any unvested portion of the SARs will continue to vest and may be exercised by the Recipient from time to time prior to the Expiration Date in accordance with the schedule set forth in Section 2(a).
(iv)Separation from Service for Cause. Notwithstanding any provision of this Agreement to the contrary, if the Recipient incurs a Separation from Service by the Company for Cause (as defined below), all of the Recipient’s rights to exercise the SARs (whether vested or unvested) shall terminate on the date of such Separation from Service.
(v)Other Separation from Service. Except as otherwise provided by the Committee, if the Recipient’s Separation from Service occurs for any reason other than those set forth in clauses (i) through (iv) of Section 3(a), the unvested portion of the SARs shall be deemed cancelled and forfeited on the date of the Recipient’s Separation from Service and the vested portion of the SARs, 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. Notwithstanding any provision to the contrary in this Agreement or in any offer letter, employment agreement or other applicable employment or service agreement between the Recipient and the Company that discusses the effect of a Change in Control on the Recipient’s Awards, in the event of a Change in Control, the following provisions shall apply, unless provided otherwise by the Committee prior to the date of the Change in Control:
(i)To the extent this Award is assumed, converted or replaced by the resulting entity in the Change in Control, if within two (2) years after the date of the Change in Control the Recipient has a Separation from Service either (A) by the Company other than for Cause (as defined below) or (B) by the Recipient for Good Reason (as defined below), then this Award shall become vested in full and may be exercised by the Recipient any time prior to the Expiration Date.
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(ii)To the extent this Award is not assumed, converted or replaced by the resulting entity in the Change in Control, then this Award shall become vested in full upon the Change in Control.
(b)“Cause” shall be defined as that term is defined in the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company; or, if there is no such definition, “Cause” shall mean a determination by the Company that any of the following has occurred:
(i)the willful failure by the Recipient to perform the Recipient’s duties and responsibilities to the Company (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 specifying in reasonable detail the duties or responsibilities that the Company believes are not being adequately performed;
(ii)the willful engaging by the Recipient in any act that is damaging to the Company;
(iii)the conviction of the Recipient of, or a plea of “guilty” or “no contest” to, (A) any felony or (B) a criminal offense involving fraud, dishonesty or other moral turpitude;
(iv)any breach by the Recipient of the terms of any written agreement between the Recipient and the Company relating to proprietary information, confidentiality, non-disclosure, ownership of inventions, non-competition, non-solicitation, non-interference or non-disparagement;
(v)the engaging by the Recipient in any willful act of dishonesty resulting or intended to result, directly or indirectly, in personal gain to the Recipient; or
(vi)the commission of any act by the Recipient that is in violation of the Company’s Code of Business Conduct and Ethics.
(c)“Good Reason” shall be defined as that term is defined in the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company; or, if there is no such definition, “Good Reason” shall mean that any of the following has occurred, without the Recipient’s express written consent:
(i)a material reduction of the Recipient’s employment responsibilities from those immediately prior to the Change in Control;
(ii)a material reduction by the Company 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 at one hundred percent (100%) performance, whether sales incentive, bonus or otherwise;
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(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 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 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 to the Recipient or for the Recipient’s benefit (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (the “Payments”) would be subject to the excise tax imposed by Code Section 4999, or any interest or penalty is incurred by the Recipient with respect to such excise tax (such excise tax, together with any such interest and penalties, collectively referred to as the “Excise Tax”), then the Payments shall be reduced (but not below zero) if and to the extent that such reduction would result in the Recipient retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the imposition of the Excise Tax), than if the Recipient received all of the Payments. The Company shall reduce or eliminate the Payments by first reducing or eliminating the portion of the Payments that are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits that are to be paid the farthest in time from the determination.
(ii)All determinations required to be made under this Section 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
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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.Exercise of SARs. Any exercisable portion of the SARs may be exercised in whole or in part, but in no event with respect to a fraction of a share, from time to time until the Expiration Date, unless otherwise terminated pursuant to the terms of the Plan or this Award Agreement. II-VI may require the exercise of such SARs to be accomplished via a notice of exercise submitted via the StockPlan Connect System or as otherwise required by II -VI, in accordance with the procedures established by II -VI for such exercise. Such exercise (subject to Section 8) shall be effective upon the actual receipt of such notice to II-VI. There shall be furnished with each exercise of any portion of the SARs such documents as II-VI in its sole discretion may deem necessary to ensure compliance with applicable rules and regulations of any stock exchange or governmental authority.
6.Payment Upon Exercise. As promptly as is commercially practicable following the receipt by II-VI of all requested information from the Recipient with respect to any portion of the SARs being exercised, the Recipient shall be entitled to receive from II-VI an amount in cash equal to the product of (A) the excess of the Fair Market Value on the date of exercise over the Base Price (the “Exercise Spread”) and (B) the number of underlying Shares with respect to which the SARs are being exercised. For the avoidance of doubt, no cash payment is payable by II-VI under this Section 6 if the Exercise Spread is zero or a negative number.
7.Limitation of Rights. The Recipient shall not have any rights of ownership with respect to the Shares underlying the SARs, including any right to vote such Shares or receive any dividends or distributions with respect to such Shares.
8.Compliance with Legal Requirements. The grant and exercise of this Award, and the issuance of any Shares or other amounts under this Award, and all other obligations of the Company under this Agreement, shall be subject to all applicable laws, rules and regulations and to such approvals by any regulatory or governmental agency as may be required. 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.
9.Nontransferability. Except as otherwise provided in the Plan, the SARs shall not be sold, pledged, assigned, hypothecated, transferred or disposed of (a “Transfer”) in any manner, other than by will or the laws of descent and distribution. Any attempt to Transfer the SARs in violation of this Agreement or the Plan shall render these SARs null and void.
10.Adjustments. Upon any event described in Section 12 of the Plan (entitled “Adjustments”) or any successor provision thereto, the terms of such Section 12 of the Plan or any successor provision thereto shall apply to this Award.
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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 the SARs 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 would otherwise have to terminate the Recipient’s employment or other service at any time, or the right of the Recipient to terminate his or her employment or other service at any time.
13.Non-Competition; Non-Solicitation; Confidentiality.
(a)While the Recipient is employed by the Company 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, 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, 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
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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; provided that this clause (B) shall not apply to any individual whose employment with II-VI or its Subsidiaries has been terminated for a period of one (1) year or longer.
(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 disclose or use for the Recipient’s own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise, other than the Company, any proprietary confidential information or trade secrets; provided that the foregoing shall not apply to information which is not unique to 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.
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 this Section 13 will not exceed the one (1)-year period set forth above.
14.Remedies; Clawback.
(a)Company 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 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
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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 SARs (whether vested or unvested) and the right to receive Shares upon exercise thereof shall be forfeited. II-VI shall also have the right, in its sole discretion, in addition to any other remedies or damages provided by law, in equity or otherwise, to demand and require the Recipient, to the extent that any portion of the SARs were exercised for Shares (i) to return and transfer to II -VI any Shares acquired through any exercise of the SARs that are directly or beneficially owned by the Recipient, and (ii) to the extent that the Recipient sold or transferred any such Shares, to disgorge and/or repay to II-VI any profits or other economic value (as reasonably determined by II-VI) made or realized by the Recipient with respect to such Shares, including the value of any gift thereof.
(c)This Award, and any amounts or benefits received or outstanding under the Plan, as well as any other incentive awards previously granted to the Recipient by the Company, shall be subject to potential clawback, cancellation, recoupment, rescission, payback, reduction, or other similar action in accordance with the terms or conditions of any applicable Company clawback or similar policy or any applicable law related to such actions, as may be in effect from time to time, including the requirements of (a) Section 304 of the Sarbanes Oxley Act and Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, (b) similar rules under the laws of any other jurisdiction, and (c) any policies adopted by the Company to implement such requirements. The Recipient acknowledges and consents to the Company’s application, implementation and enforcement of any applicable Company clawback or similar policy that may apply to the Recipient, whether adopted prior to or following the Grant Date, and any provision of applicable law relating to clawback, cancellation, recoupment, rescission, payback, or reduction of compensation, and agrees that the Company may take such actions as may be necessary to effectuate any such policy or applicable law, without further consideration or action.
15.Recipient Acknowledgments. The Recipient acknowledges and agrees that (a) as a result of the Recipient’s previous, current and future employment with the Company, 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 will continue the Recipient’s employment for any period of time and does not change the at-will nature of the Recipient’s employment, except as set forth in a separate written employment agreement between the Company and the Recipient, (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 the Company, (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 SARs and the Recipient’s 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
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under this Agreement is adequate consideration for the enforcement of the provisions contained in Section 13 and Section 14.
16.Severability; Waiver. If any term, provision, covenant or restriction contained in this Agreement is held by a court or a federal regulatory agency of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions contained in this Agreement shall remain in full force and effect, and shall in no way be affected, impaired or invalidated. In particular, in the event that any of such provisions shall be adjudicated to exceed the time, geographic, product and service or other limitations permitted by applicable law in any jurisdiction, then such provisions shall be deemed reformed in such jurisdiction to the maximum time, geographic, product and service or other limitations permitted by applicable law. No delay or omission by II-VI in exercising any right under this Agreement will operate as a waiver of that or any other right. A waiver or consent given by II-VI on any one occasion is effective only in that instance and will not be construed as a bar to or waiver of any right on any other occasion.
17.Controlling Law. The validity, construction and effect of this Agreement will be determined in accordance with the internal laws of the Commonwealth of Pennsylvania without giving effect to the conflict of laws 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. 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. The Company shall be a third-party beneficiary of this Agreement.
18.Notice. II-VI may require any notice required or permitted under this Agreement to be transmitted, submitted or received, by II-VI or the Recipient, via the StockPlan Connect 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 most recent home address on record with II-VI. Notices are effective upon receipt.
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19.Entire Agreement. This Agreement (including the Plan and the Summary of Award) contains the entire understanding between the parties and supersedes any prior understanding and agreements between them regarding the subject matter hereof with respect to the SARs, and there are no other representations, agreements, arrangements or understandings, oral or written, between the parties relating to the SARs which are not fully expressed herein. Notwithstanding anything to the contrary set forth in this Agreement, any restrictive covenants contained in this Agreement are independent, and are not intended to limit the enforceability, of any restrictive or other covenants contained in any other agreement between the Company and the Recipient.
20.Captions; Section 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.Responsibility for Taxes.
(a)Regardless of any action the Company takes with respect to any or all income tax, payroll tax or other tax-related withholding (“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, vesting or exercise 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.
(b)Prior to the time any Tax-Related Items become due in connection with this Award, the Recipient shall pay or make adequate arrangements satisfactory to the Company to satisfy all minimum withholding obligations of the Company. In this regard, the Recipient authorizes the Company to withhold all applicable minimum Tax-Related Items legally payable by the Recipient from the Recipient’s wages or other cash compensation paid to the Recipient by the Company or from proceeds of the sale of Shares. Alternatively, or in addition, to the extent permissible under applicable law, the Company may (i) sell or arrange for the sale of Shares that the Recipient acquires to meet the minimum withholding obligation for Tax-Related Items, and/or (ii) withhold in Shares otherwise issuable upon exercise of this Award, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum withholding amount. Finally, the Recipient shall pay to the Company any amount of Tax-Related Items that the Company may be required to withhold as a result of the Recipient’s participation in the Plan
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that cannot be satisfied by the means previously described. The Company may refuse to issue and deliver Shares upon exercise of this Award if the Recipient fails to comply with the Recipient’s obligations in connection with the Tax-Related Items as described in this Section 22.
23.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 the Company, and the Recipient shall not have any security interest in any assets of the Company.
24.Section 409A. This Agreement and the SARs 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 Recipient’s consent, may impose conditions on the timing and effectiveness of any exercise by the Recipient, or take any other action it deems necessary, including amending the terms of this Award and this Agreement to cause the SARs to be excepted from Section 409A (or to comply therewith to the extent that II-VI determines it is not excepted). Notwithstanding, the Recipient recognizes and acknowledges that Section 409A may affect the timing and recognition of payments due hereunder, and may impose upon the Recipient certain taxes or other charges for which the Recipient is and shall remain solely responsible.
25.Assignment. Except as provided in Section 9, 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 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.
26.Electronic Delivery. II-VI may, in its sole discretion, deliver any documents or correspondence related to this Agreement, the SARs, 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 StockPlan Connect System. Likewise, II-VI may require the Recipient to deliver or receive any documents or correspondence related to this Agreement by such electronic means.
27.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.
28.Appendix A. The Recipient acknowledges and agrees that, if the Recipient is an employee outside the U.S., this Award is subject to the general terms applicable to Awards
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granted to employees outside the U.S. set forth in Appendix A hereto. Appendix A constitutes part of this Agreement. 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.Amendments. This Agreement may be amended or modified at any time by an instrument in writing signed by the parties hereto, or as otherwise provided under the Plan or this Agreement.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the Grant Date set forth above. Electronic acceptance of this Agreement by the Recipient pursuant to II-VI’s instructions to the Recipient (including via the StockPlan Connect System) shall constitute execution of this Agreement by the Recipient.
The Recipient agrees that his or her electronic acceptance of this Agreement via electronic means, including via the StockPlan Connect 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.
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II-VI INCORPORATED |
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By: |
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Name: |
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David G. Wagner |
Title: |
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Vice President, Human Resources |
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PARTICIPANT |
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Electronic Acceptance via the |
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StockPlan Connect System |
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General Terms Applicable to Awards Granted to Employees Outside the U.S.
1.DATA PRIVACY
By accepting this Award, the Recipient hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Recipient’s personal data as described in this document and any other grant materials by the Company for the exclusive purpose of implementing, administering and managing this Award.
The Recipient understands that the Company holds certain personal information about the Recipient, including the Recipient’s name, home address, telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of any entitlement to Shares or equivalent benefits awarded, canceled, vested, unvested or outstanding in the Recipient’s favor (the “Data”), for the purpose of implementing, administering and managing the Recipient’s participation in the Plan. The Recipient understands that the Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these Data recipients may be located in the Recipient’s country or elsewhere (for example, the United States) and that the Data recipient’s country may have different data privacy laws and protections from the Recipient’s country. The Recipient understands that the Recipient may request a list with the names and addresses of any potential recipients of the Data by contacting the Recipient’s local human resources representative. The Recipient authorizes the Data recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the exclusive purposes of implementing, administering and managing the Recipient’s participation in the Plan. The Recipient understands that the Data will be held only as long as is necessary to implement, administer and manage the Recipient’s participation in the Plan. The Recipient understands that the Recipient may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Recipient’s local human resources representative. Further, the Recipient understands that the Recipient is providing the consents herein on a purely voluntary basis. If the Recipient does not consent, or if the Recipient later seeks to revoke the Recipient’s consent, the Recipient’s employment status or service and career with the Company will not be adversely affected; the only adverse consequence of refusing or withdrawing the Recipient’s consent is that the Company would not be able to grant to the Recipient this Award or other awards or administer or maintain this Award or such other awards. Therefore, the Recipient understands that refusing or withdrawing the Recipient’s consent may affect the Recipient’s ability to benefit from this Award. For more information on the consequences of the Recipient’s refusal to consent or withdrawal of consent, the Recipient understands that the Recipient may contact the Recipient’s local human resources representative.
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By entering into this Agreement and accepting this Award evidenced hereby, the Recipient acknowledges, understands and agrees that:
(a)the Plan is established voluntarily by the Company, and all awards under the Plan are discretionary in nature;
(b)the grant of this Award is voluntary and occasional and does not create any contractual or other right to receive future awards or benefits in lieu of awards, even if such awards have been awarded in the past;
(c)all decisions with respect to future awards, if any, will be at the sole discretion of the Company;
(d)the grant of this Award shall not create a right to employment with the Company and shall not interfere with the ability of the Company to terminate the Recipient’s employment or service relationship (if any);
(e)the Recipient is voluntarily participating in the Plan;
(f)this Award and any payment made pursuant to this Award, and the value and income of the same, are not part of normal or expected compensation or salary for any purposes, including calculating any severance, resignation, termination, redundancy, dismissal, end-of-service, bonus, long-service, pension, retirement or similar benefits, payments or awards;
(g)unless otherwise agreed with the Company, this Award and any Shares subject to this Award, and the value and income of the same, are not granted as consideration for, or in connection with, any service the Recipient may provide as a director of II-VI or any 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 Shares that may be delivered under this Award (pursuant to the terms of this Award) is unknown, indeterminable and cannot be predicted with certainty;
(j)no claim or entitlement to compensation or damages shall arise from forfeiture of this Award resulting from termination of the Recipient’s employment or service (for any reason whatsoever, whether or not such termination is later found to be invalid or in breach of the
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employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any) or recoupment of all or any portion of any payment made pursuant to this Award as provided by any applicable Company compensation recoupment, clawback or similar policy or any applicable law related to such actions, as may be in effect from time to time and, in consideration of the grant of this Award to which the Recipient is not otherwise entitled, the Recipient irrevocably agrees never to institute any claim against II-VI or any Subsidiary, waives the Recipient’s ability, if any, to bring any such claim, and releases II-VI and its Subsidiaries from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Recipient shall be deemed irrevocably to have agreed not to pursue such claim, and the Recipient agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim;
(k)for purposes of this Award, the Recipient’s employment will be considered terminated as of the date the Recipient is no longer actively employed and providing services to the Company (for any reason whatsoever, whether or not such termination is later found to be invalid or in breach of the employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any), and unless otherwise expressly provided in this Agreement or otherwise determined by the Company, the Recipient’s right to vest in any portion of this Award (and any related dividend equivalents or similar rights) under the Plan, if any, will terminate as of such date and will not be extended by any notice period (for example, the Recipient’s active employment or period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under the employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any); the Company, in its sole discretion, shall determine when the Recipient is no longer actively employed or providing services for purposes of this Award (including whether the Recipient may still be considered to be actively employed or providing services while on an approved leave of absence);
(l)the Recipient is solely responsible for investigating and complying with any exchange control laws applicable to the Recipient in connection with his or her participation in the Plan;
(m)unless otherwise provided in the Plan or by the Company in its sole discretion, this Award and the benefits evidenced by this Agreement do not create any entitlement to have this Award or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Shares; and
(n)the Company shall not 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, any payment made pursuant to this Award or the subsequent sale of any Shares acquired under the Plan.
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If the Recipient has received this Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version differs from the English version, the English version shall control.
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SAR17 SAR 072016
Exhibit 10.05
II-VI INCORPORATED
RESTRICTED SHARE AWARD AGREEMENT (3 YEAR)
THIS RESTRICTED SHARE AWARD AGREEMENT (this “Agreement”) is dated as of the Grant Date, as specified in the applicable Summary of Award (as defined below), by and between II-VI Incorporated, a Pennsylvania corporation (“II-VI”), and the Recipient, as specified in the applicable Summary of Award, who is a director, employee or consultant of II-VI or one of its Subsidiaries (the “Recipient”). For purposes of this Agreement, the term “Company” shall include II-VI and/or any Subsidiary of II-VI that the Recipient is employed by or may become employed by or provide services to during the Recipient’s employment by II-VI or any such Subsidiary.
Reference is made to the Summary of Award (the “Summary of Award”) issued to the Recipient with respect to the applicable Award, which may be found on Morgan Stanley StockPlan Connect system www.stockplanconnect.com (or any successor system selected by II-VI) (the “StockPlan Connect System”). Reference further is made to the Summary Plan Description relating to the Plan (as defined below) which also may be found on the StockPlan Connect System.
All capitalized terms used herein, to the extent not defined herein, shall have the meanings set forth in the II-VI 2012 Omnibus Incentive Plan (as amended and/or restated from time to time, the “Plan”), a copy of which can be found on the StockPlan Connect System, and/or the applicable Summary of Award. Terms of the Plan and the Summary of Award 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.Share Award. II-VI hereby grants to the Recipient an Award of the number of Shares specified in the applicable Summary of Award, subject to the terms, conditions and restrictions set forth in the this Agreement (the “Restricted Shares”).
2.Restrictions. Except as otherwise provided in this Agreement, the Restricted Shares shall vest and become transferable as follows:
Vesting Date |
% Vesting |
First anniversary of Grant Date |
33% |
Second anniversary of Grant Date |
33% |
Third anniversary of Grant Date |
34% |
Only a whole number of Restricted Shares shall become vested as of any given vesting date. If the number of Restricted Shares 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 Shares that have not vested may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated. Restricted Shares that have not vested shall be
subject to forfeiture as provided in Section 3. 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 Shares shall immediately vest and become transferable by the Recipient or the Recipient’s estate, as the case may be.
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 Shares which had been granted to the Recipient which have not yet become vested and transferable, 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 unvested Restricted Shares shall also vest under such special circumstances as the Committee deems appropriate.
4.Change in Control; Adjustments to Payments.
(a)Change in Control. Notwithstanding any provision to the contrary in this Agreement or in any offer letter, employment agreement or other applicable employment or service agreement between the Recipient and the Company that discusses the effect of a Change in Control on the Recipient’s Awards, in the event of a Change in Control, the following provisions shall apply, unless provided otherwise by the Committee prior to the date of the Change in Control:
(i)To the extent this Award is assumed, converted or replaced by the resulting entity in the Change in Control, if within two (2) years after the date of the Change in Control the Recipient has a Separation from Service either (A) by the Company other than for Cause (as defined below) or (B) by the Recipient for Good Reason (as defined below), then this Award shall become vested in full.
(ii)To the extent this Award is not assumed, converted or replaced by the resulting entity in the Change in Control, then this Award shall become vested in full upon the Change in Control.
(b)“Cause” shall be defined as that term is defined in the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company; or, if there is no such definition, “Cause” shall mean a determination by the Company that any of the following has occurred:
(i)the willful failure by the Recipient to perform the Recipient’s duties and responsibilities to the Company (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 specifying in reasonable detail the duties or responsibilities that the Company believes are not being adequately performed;
(ii)the willful engaging by the Recipient in any act that is damaging to the Company;
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(iii)the conviction of the Recipient of, or a plea of “guilty” or “no contest” to, (A) any felony or (B) a criminal offense involving fraud, dishonesty or other moral turpitude;
(iv)any breach by the Recipient of the terms of any written agreement between the Recipient and the Company relating to proprietary information, confidentiality, non-disclosure, ownership of inventions, non-competition, non-solicitation, non-interference or non-disparagement;
(v)the engaging by the Recipient in any willful act of dishonesty resulting or intended to result, directly or indirectly, in personal gain to the Recipient; or
(vi)the commission of any act by the Recipient that is in violation of the Company’s Code of Business Conduct and Ethics.
(c)“Good Reason” shall be defined as that term is defined in the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company; or, if there is no such definition, “Good Reason” shall mean that any of the following has occurred, without the Recipient’s express written consent:
(i)a material reduction of the Recipient’s employment responsibilities from those immediately prior to the Change in Control;
(ii)a material reduction by the Company 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 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 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 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.
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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 to the Recipient or for the Recipient’s benefit (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (the “Payments”) would be subject to the excise tax imposed by Code Section 4999, or any interest or penalty is incurred by the Recipient with respect to such excise tax (such excise tax, together with any such interest and penalties, collectively referred to as the “Excise Tax”), then the Payments shall be reduced (but not below zero) if and to the extent that such reduction would result in the Recipient retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the imposition of the Excise Tax), than if the Recipient received all of the Payments. The Company shall reduce or eliminate the Payments by first reducing or eliminating the portion of the Payments that are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits that are to be paid the farthest in time from the determination.
(ii)All determinations required to be made under this Section 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.Book Entry Account. Within a reasonable time after the Grant Date, II-VI shall instruct its transfer agent to establish, if required, and to credit a book entry account in the Recipient’s name with the Restricted Shares, which book entry credit shall be effective as of the Grant Date, provided that II-VI shall retain control of such account until the Restricted Shares have vested in accordance with this Agreement.
6.Shareholder Rights. Upon the effective date of the book entry credit pursuant to Section 5, the Recipient shall have all of the rights of a shareholder with respect to the Restricted Shares, including the right to vote such Restricted Shares and to receive all dividends or other distributions paid or made available with respect to such Restricted Shares. Notwithstanding the foregoing, any stock dividends or other in–kind dividends or distributions paid or distributed by II-VI prior to vesting shall be held by II-VI until the related Restricted Shares have vested in accordance with this Agreement, and such dividends or distributions shall remain subject to the
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forfeiture provisions applicable to the Restricted Shares to which such dividends or distributions relate.
7.Nontransferability. Except as otherwise provided in the Plan, the Restricted Shares shall not be sold, pledged, assigned, hypothecated, transferred or disposed of (a “Transfer”) in any manner, other than by will or the laws of descent and distribution. Any attempt to Transfer the Restricted Shares in violation of this Section or the Plan shall render this Award null and void.
8.Adjustments. Upon any event described in Section 12 of the Plan (entitled “Adjustments”) or any successor provision thereto, the terms of such Section 12 of the Plan or any successor provision thereto shall apply to this Award.
9.Fractional Shares. II-VI shall not be required to issue any fractional Shares pursuant to this Award, and II-VI may round fractional Shares down to the nearest whole Share.
10.Responsibility for Taxes.
(a)Regardless of any action the Company takes with respect to any or all income tax, payroll tax or other tax-related withholding (“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.
(b)Prior to the time any Tax-Related Items become due in connection with this Award, the Recipient shall pay or make adequate arrangements satisfactory to the Company to satisfy all minimum withholding obligations of the Company. In this regard, the Recipient authorizes the Company to withhold all applicable minimum Tax-Related Items legally payable by the Recipient from the Recipient’s wages or other cash compensation paid to the Recipient by the Company or from proceeds of the sale of Shares. Alternatively, or in addition, to the extent permissible under applicable law, the Company may (i) sell or arrange for the sale of Shares that the Recipient acquires to meet the minimum withholding obligation for Tax-Related Items, and/or (ii) withhold in Shares, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum withholding amount. Finally, the Recipient shall pay to the Company any amount of Tax-Related Items that the Company may be required to withhold 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 and deliver 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.
(c)The Recipient acknowledges the receipt of tax information relating to this Award, including information on Code Section 83(b) elections and the need to consult the Recipient’s own tax advisors.
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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 would otherwise have to terminate the Recipient’s employment or other service at any time, the right of the Company to assign the Recipient to a position that is ineligible for this Restricted Share Award, or the right of the Recipient to terminate his or her employment or other service at any time.
13.Non-Competition; Non-Solicitation; Confidentiality.
(a)While the Recipient is employed by the Company and for a period of one (1) year after the 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, within the United States of America and/or any other country within which II-VI or its Subsidiaries have customers or prospective customers.
(ii)(A) solicit for the purpose of selling or distributing any products or services that are the same or similar to those developed, manufactured, marketed or sold by 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, 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
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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; 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 disclose or use for the Recipient’s own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise, other than the Company, any proprietary confidential information or trade secrets; provided that the foregoing shall not apply to information which is not unique to 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.
The Restricted Period will be tolled during and for any period of time during which the Recipient is in violation of the restrictive covenants contained in this Section 13 and for any period of time which may be necessary to secure an order of court or injunction, either preliminary or permanent, to enforce such covenants, such that the cumulative time period during which the Recipient is in compliance with the restrictive covenants contained in Section 13 will not exceed the one (1)-year period set forth above.
14.Remedies; 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
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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, any unvested Restricted Shares shall be forfeited. II-VI shall also have the right, in its sole discretion, in addition to any other remedies or damages provided by law, in equity or otherwise, to demand and require the Recipient to (i) forfeit and transfer to II-VI any or all of the Restricted Shares directly or beneficially owned by the Recipient; and (ii) to the extent that the Recipient sold or transferred any Restricted Shares, disgorge and/or repay to II-VI any profits or other economic value (as determined by II-VI) made or realized by the Recipient with respect to such Restricted Shares, including the value of any gift thereof.
(c)This Award, and any amounts or benefits received or outstanding under the Plan, as well as any other incentive awards previously granted to the Recipient by the Company, shall be subject to potential clawback, cancellation, recoupment, rescission, payback, reduction, or other similar action in accordance with the terms or conditions of any applicable Company clawback or similar policy or any applicable law related to such actions, as may be in effect from time to time, including the requirements of (a) Section 304 of the Sarbanes Oxley Act and Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, (b) similar rules under the laws of any other jurisdiction, and (c) any policies adopted by the Company to implement such requirements. The Recipient acknowledges and consents to the Company’s application, implementation and enforcement of any applicable Company clawback or similar policy that may apply to the Recipient, whether adopted prior to or following the Grant Date, and any provision of applicable law relating to clawback, cancellation, recoupment, rescission, payback, or reduction of compensation, and agrees that the Company may take such actions as may be necessary to effectuate any such policy or applicable law, without further consideration or action.
15.Recipient Acknowledgments. The Recipient acknowledges and agrees that (a) as a result of the Recipient’s previous, current and future employment with the Company, 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 will continue the Recipient’s employment for any period of time and does not change the at-will nature of the Recipient’s employment, except as set forth in a separate written employment agreement between the Company and the Recipient, (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 Shares 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.
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16.Severability; Waiver. If any term, provision, covenant or restriction contained in this Agreement is held by a court or a federal regulatory agency of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions contained in this Agreement shall remain in full force and effect, and shall in no way be affected, impaired or invalidated. In particular, in the event that any of such provisions shall be adjudicated to exceed the time, geographic, product and service or other limitations permitted by applicable law in any jurisdiction, then such provisions shall be deemed reformed in such jurisdiction to the maximum time, geographic, product and service or other limitations permitted by applicable law. No delay or omission by II-VI in exercising any right under this Agreement will operate as a waiver of that or any other right. A waiver or consent given by II-VI on any one occasion is effective only in that instance and will not be construed as a bar to or waiver of any right on any other occasion.
17.Notice. II-VI may require any notice required or permitted under this Agreement to be transmitted, submitted or received, by II-VI or the Recipient, via the StockPlan Connect System in accordance with the procedures established by II-VI for such notice. Otherwise, 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. 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. The Company shall be a third-party beneficiary of this Agreement.
19.Entire Agreement. This Agreement (including the Plan and the Summary of Award) contains the entire understanding between the parties and supersedes any prior understanding and agreements between them representing the subject matter hereof with respect
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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 and the Recipient.
20.Captions; Section References. Section and other headings contained in this Agreement are for reference purposes only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. Unless expressly provided otherwise, any reference in this Agreement to any Section refers to the corresponding Section of this Agreement.
21.Limitation of Actions. Any lawsuit commenced by the Recipient with respect to any matter arising out of or relating to this Agreement must be filed no later than one (1) year after the date that a denial of any claim hereunder is made or any earlier date that the claim otherwise accrues.
22.Section 409A. This Agreement and this Award is intended to be excepted from coverage under Section 409A and shall be interpreted and construed accordingly. II-VI, in its sole discretion and without the Recipient’s consent, may take any action it deems necessary, including amending the terms of this Award and this Agreement, to cause this Award to be excepted from Section 409A (or to comply therewith to the extent that II-VI determines it is not excepted). Notwithstanding, the Recipient recognizes and acknowledges that Section 409A may impose upon the Recipient certain taxes or interest charges for which the Recipient is and shall remain solely responsible.
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 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 Shares, 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 StockPlan Connect 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
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consideration, furnish the other party such further information or assurances, execute and deliver such additional documents and take such other actions and do such other things, as may be necessary to carry out the provisions of this Agreement.
26.Compliance with Legal Requirements. The grant of this Award and the issuance of any Shares or other amounts under this Award, and all other obligations of the Company under this Agreement, shall be subject to all applicable laws, rules and regulations and to such approvals by any regulatory or governmental agency as may be required. 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.
27.Appendix A. The Recipient acknowledges and agrees that, if the Recipient is an employee outside the U.S., this Award is subject to the general terms applicable to Awards granted to employees outside the U.S. set forth in Appendix A hereto. Appendix A constitutes part of this Agreement. 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.
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]
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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 StockPlan Connect System) shall constitute execution of this Agreement by the Recipient.
The Recipient agrees that his or her electronic acceptance of this Agreement via electronic means, including via the StockPlan Connect 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 |
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By: |
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Name: |
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David G. Wagner |
Title: |
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Vice President, Human Resources |
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PARTICIPANT |
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Electronic Acceptance via the |
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StockPlan Connect System |
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Appendix A
General Terms Applicable to Awards Granted to Employees Outside the U.S.
1. |
DATA PRIVACY |
By accepting this Award, the Recipient hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Recipient’s personal data as described in this document and any other grant materials by the Company for the exclusive purpose of implementing, administering and managing this Award.
The Recipient understands that the Company holds certain personal information about the Recipient, including the Recipient’s name, home address, telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of any entitlement to Shares or equivalent benefits awarded, canceled, vested, unvested or outstanding in the Recipient’s favor (the “Data”), for the purpose of implementing, administering and managing the Recipient’s participation in the Plan. The Recipient understands that the Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these Data recipients may be located in the Recipient’s country or elsewhere (for example, the United States) and that the Data recipient’s country may have different data privacy laws and protections from the Recipient’s country. The Recipient understands that the Recipient may request a list with the names and addresses of any potential recipients of the Data by contacting the Recipient’s local human resources representative. The Recipient authorizes the Data recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the exclusive purposes of implementing, administering and managing the Recipient’s participation in the Plan. The Recipient understands that the Data will be held only as long as is necessary to implement, administer and manage the Recipient’s participation in the Plan. The Recipient understands that the Recipient may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Recipient’s local human resources representative. Further, the Recipient understands that the Recipient is providing the consents herein on a purely voluntary basis. If the Recipient does not consent, or if the Recipient later seeks to revoke the Recipient’s consent, the Recipient’s employment status or service and career with the Company will not be adversely affected; the only adverse consequence of refusing or withdrawing the Recipient’s consent is that the Company would not be able to grant to the Recipient this Award or other awards or administer or maintain this Award or such other awards. Therefore, the Recipient understands that refusing or withdrawing the Recipient’s consent may affect the Recipient’s ability to benefit from this Award. For more information on the consequences of the Recipient’s refusal to consent or withdrawal of consent, the Recipient understands that the Recipient may contact the Recipient’s local human resources representative.
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2. |
ADDITIONAL ACKNOWLEDGEMENTS |
By entering into this Agreement and accepting this Award evidenced hereby, the Recipient acknowledges, understands and agrees that:
(a)the Plan is established voluntarily by the Company, and all awards under the Plan are discretionary in nature;
(b)the grant of this Award is voluntary and occasional and does not create any contractual or other right to receive future awards or benefits in lieu of awards, even if such awards have been awarded in the past;
(c)all decisions with respect to future awards, if any, will be at the sole discretion of the Company;
(d)the grant of this Award shall not create a right to employment with the Company and shall not interfere with the ability of the Company to terminate the Recipient’s employment or service relationship (if any);
(e)the Recipient is voluntarily participating in the Plan;
(f)this Award and any payment made pursuant to this Award, and the value and income of the same, are not part of normal or expected compensation or salary for any purposes, including calculating any severance, resignation, termination, redundancy, dismissal, end-of-service, bonus, long-service, pension, retirement or similar benefits, payments or awards;
(g)unless otherwise agreed with the Company, this Award and any Shares subject to this Award, and the value and income of the same, are not granted as consideration for, or in connection with, any service the Recipient may provide as a director of II-VI or any 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 Shares that may be delivered under this Award (pursuant to the terms of this Award) is unknown, indeterminable and cannot be predicted with certainty;
(j)no claim or entitlement to compensation or damages shall arise from forfeiture of this Award resulting from termination of the Recipient’s employment or service (for any reason whatsoever, whether or not such termination is later found to be invalid or in breach of the
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employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any) or recoupment of all or any portion of any payment made pursuant to this Award as provided by any applicable Company compensation recoupment, clawback or similar policy or any applicable law related to such actions, as may be in effect from time to time and, in consideration of the grant of this Award to which the Recipient is not otherwise entitled, the Recipient irrevocably agrees never to institute any claim against II-VI or any Subsidiary, waives the Recipient’s ability, if any, to bring any such claim, and releases II-VI and its Subsidiaries from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Recipient shall be deemed irrevocably to have agreed not to pursue such claim, and the Recipient agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim;
(k)for purposes of this Award, the Recipient’s employment will be considered terminated as of the date the Recipient is no longer actively employed and providing services to the Company (for any reason whatsoever, whether or not such termination is later found to be invalid or in breach of the employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any), and unless otherwise expressly provided in this Agreement or otherwise determined by the Company, the Recipient’s right to vest in any portion of this Award (and any related dividend equivalents or similar rights) under the Plan, if any, will terminate as of such date and will not be extended by any notice period (for example, the Recipient’s active employment or period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under the employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any); the Company, in its sole discretion, shall determine when the Recipient is no longer actively employed or providing services for purposes of this Award (including whether the Recipient may still be considered to be actively employed or providing services while on an approved leave of absence);
(l)the Recipient is solely responsible for investigating and complying with any exchange control laws applicable to the Recipient in connection with his or her participation in the Plan;
(m)unless otherwise provided in the Plan or by the Company in its sole discretion, this Award and the benefits evidenced by this Agreement do not create any entitlement to have this Award or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Shares; and
(n)the Company shall not 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, any payment made pursuant to this Award or the subsequent sale of any Shares acquired under the Plan.
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3. |
LANGUAGE |
If the Recipient has received this Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version differs from the English version, the English version shall control.
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Exhibit 10.06
II-VI INCORPORATED
RESTRICTED SHARE AWARD AGREEMENT (1 YEAR)
THIS RESTRICTED SHARE AWARD AGREEMENT (this “Agreement”) is dated as of the Grant Date, as specified in the applicable Summary of Award (as defined below), by and between II-VI Incorporated, a Pennsylvania corporation (“II-VI”), and the Recipient, as specified in the applicable Summary of Award, who is a director, employee or consultant of II-VI or one of its Subsidiaries (the “Recipient”). For purposes of this Agreement, the term “Company” shall include II-VI and/or any Subsidiary of II-VI that the Recipient is employed by or may become employed by or provide services to during the Recipient’s employment by II-VI or any such Subsidiary.
Reference is made to the Summary of Award (the “Summary of Award”) issued to the Recipient with respect to the applicable Award, which may be found on Morgan Stanley StockPlan Connect system www.stockplanconnect.com (or any successor system selected by II-VI) (the “StockPlan Connect System”). Reference further is made to the Summary Plan Description relating to the Plan (as defined below) which also may be found on the StockPlan Connect System.
All capitalized terms used herein, to the extent not defined herein, shall have the meanings set forth in the II-VI 2012 Omnibus Incentive Plan (as amended and/or restated from time to time, the “Plan”), a copy of which can be found on the StockPlan Connect System, and/or the applicable Summary of Award. Terms of the Plan and the Summary of Award 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. Share Award. II-VI hereby grants to the Recipient an Award of the number of Shares specified in the applicable Summary of Award, subject to the terms, conditions and restrictions set forth in the this Agreement (the “Restricted Shares”).
2. Restrictions. Except as otherwise provided in this Agreement, the Restricted Shares shall vest and become transferable as follows:
Vesting Date |
% Vesting |
First anniversary of Grant Date |
100% |
Second anniversary of Grant Date |
0% |
Third anniversary of Grant Date |
0% |
Only a whole number of Restricted Shares shall become vested as of any given vesting date. If the number of Restricted Shares 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 Shares that have not vested may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated. Restricted Shares that have not vested shall be
subject to forfeiture as provided in Section 3. 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 Shares shall immediately vest and become transferable by the Recipient or the Recipient’s estate, as the case may be.
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 Shares which had been granted to the Recipient which have not yet become vested and transferable, 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 unvested Restricted Shares shall also vest under such special circumstances as the Committee deems appropriate.
4. Change in Control; Adjustments to Payments.
(a)Change in Control. Notwithstanding any provision to the contrary in this Agreement or in any offer letter, employment agreement or other applicable employment or service agreement between the Recipient and the Company that discusses the effect of a Change in Control on the Recipient’s Awards, in the event of a Change in Control, the following provisions shall apply, unless provided otherwise by the Committee prior to the date of the Change in Control:
(i)To the extent this Award is assumed, converted or replaced by the resulting entity in the Change in Control, if within two (2) years after the date of the Change in Control the Recipient has a Separation from Service either (A) by the Company other than for Cause (as defined below) or (B) by the Recipient for Good Reason (as defined below), then this Award shall become vested in full.
(ii)To the extent this Award is not assumed, converted or replaced by the resulting entity in the Change in Control, then this Award shall become vested in full upon the Change in Control.
(b)“Cause” shall be defined as that term is defined in the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company; or, if there is no such definition, “Cause” shall mean a determination by the Company that any of the following has occurred:
(i)the willful failure by the Recipient to perform the Recipient’s duties and responsibilities to the Company (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 specifying in reasonable detail the duties or responsibilities that the Company believes are not being adequately performed;
(ii)the willful engaging by the Recipient in any act that is damaging to the Company;
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(iii)the conviction of the Recipient of, or a plea of “guilty” or “no contest” to, (A) any felony or (B) a criminal offense involving fraud, dishonesty or other moral turpitude;
(iv)any breach by the Recipient of the terms of any written agreement between the Recipient and the Company relating to proprietary information, confidentiality, non-disclosure, ownership of inventions, non-competition, non-solicitation, non-interference or non-disparagement;
(v)the engaging by the Recipient in any willful act of dishonesty resulting or intended to result, directly or indirectly, in personal gain to the Recipient; or
(vi)the commission of any act by the Recipient that is in violation of the Company’s Code of Business Conduct and Ethics.
(c)“Good Reason” shall be defined as that term is defined in the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company; or, if there is no such definition, “Good Reason” shall mean that any of the following has occurred, without the Recipient’s express written consent:
(i)a material reduction of the Recipient’s employment responsibilities from those immediately prior to the Change in Control;
(ii)a material reduction by the Company 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 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 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 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.
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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 to the Recipient or for the Recipient’s benefit (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (the “Payments”) would be subject to the excise tax imposed by Code Section 4999, or any interest or penalty is incurred by the Recipient with respect to such excise tax (such excise tax, together with any such interest and penalties, collectively referred to as the “Excise Tax”), then the Payments shall be reduced (but not below zero) if and to the extent that such reduction would result in the Recipient retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the imposition of the Excise Tax), than if the Recipient received all of the Payments. The Company shall reduce or eliminate the Payments by first reducing or eliminating the portion of the Payments that are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits that are to be paid the farthest in time from the determination.
(ii)All determinations required to be made under this Section 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. Book Entry Account. Within a reasonable time after the Grant Date, II-VI shall instruct its transfer agent to establish, if required, and to credit a book entry account in the Recipient’s name with the Restricted Shares, which book entry credit shall be effective as of the Grant Date, provided that II-VI shall retain control of such account until the Restricted Shares have vested in accordance with this Agreement.
6. Shareholder Rights. Upon the effective date of the book entry credit pursuant to Section 5, the Recipient shall have all of the rights of a shareholder with respect to the Restricted Shares, including the right to vote such Restricted Shares and to receive all dividends or other distributions paid or made available with respect to such Restricted Shares. Notwithstanding the foregoing, any stock dividends or other in–kind dividends or distributions paid or distributed by II-VI prior to vesting shall be held by II-VI until the related Restricted Shares have vested in accordance with this Agreement, and such dividends or distributions shall remain subject to the
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forfeiture provisions applicable to the Restricted Shares to which such dividends or distributions relate.
7. Nontransferability. Except as otherwise provided in the Plan, the Restricted Shares shall not be sold, pledged, assigned, hypothecated, transferred or disposed of (a “Transfer”) in any manner, other than by will or the laws of descent and distribution. Any attempt to Transfer the Restricted Shares in violation of this Section or the Plan shall render this Award null and void.
8. Adjustments. Upon any event described in Section 12 of the Plan (entitled “Adjustments”) or any successor provision thereto, the terms of such Section 12 of the Plan or any successor provision thereto shall apply to this Award.
9. Fractional Shares. II-VI shall not be required to issue any fractional Shares pursuant to this Award, and II-VI may round fractional Shares down to the nearest whole Share.
10. Responsibility for Taxes.
(a)Regardless of any action the Company takes with respect to any or all income tax, payroll tax or other tax-related withholding (“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.
(b)Prior to the time any Tax-Related Items become due in connection with this Award, the Recipient shall pay or make adequate arrangements satisfactory to the Company to satisfy all minimum withholding obligations of the Company. In this regard, the Recipient authorizes the Company to withhold all applicable minimum Tax-Related Items legally payable by the Recipient from the Recipient’s wages or other cash compensation paid to the Recipient by the Company or from proceeds of the sale of Shares. Alternatively, or in addition, to the extent permissible under applicable law, the Company may (i) sell or arrange for the sale of Shares that the Recipient acquires to meet the minimum withholding obligation for Tax-Related Items, and/or (ii) withhold in Shares, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum withholding amount. Finally, the Recipient shall pay to the Company any amount of Tax-Related Items that the Company may be required to withhold 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 and deliver 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.
(c)The Recipient acknowledges the receipt of tax information relating to this Award, including information on Code Section 83(b) elections and the need to consult the Recipient’s own tax advisors.
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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 would otherwise have to terminate the Recipient’s employment or other service at any time, the right of the Company to assign the Recipient to a position that is ineligible for this Restricted Share Award, or the right of the Recipient to terminate his or her employment or other service at any time.
13. Non-Competition; Non-Solicitation; Confidentiality.
(a)While the Recipient is employed by the Company and for a period of one (1) year after the 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, within the United States of America and/or any other country within which II-VI or its Subsidiaries have customers or prospective customers.
(ii)(A) solicit for the purpose of selling or distributing any products or services that are the same or similar to those developed, manufactured, marketed or sold by 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, 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
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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; 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 disclose or use for the Recipient’s own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise, other than the Company, any proprietary confidential information or trade secrets; provided that the foregoing shall not apply to information which is not unique to 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.
The Restricted Period will be tolled during and for any period of time during which the Recipient is in violation of the restrictive covenants contained in this Section 13 and for any period of time which may be necessary to secure an order of court or injunction, either preliminary or permanent, to enforce such covenants, such that the cumulative time period during which the Recipient is in compliance with the restrictive covenants contained in Section 13 will not exceed the one (1)-year period set forth above.
14. Remedies; 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
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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, any unvested Restricted Shares shall be forfeited. II-VI shall also have the right, in its sole discretion, in addition to any other remedies or damages provided by law, in equity or otherwise, to demand and require the Recipient to (i) forfeit and transfer to II-VI any or all of the Restricted Shares directly or beneficially owned by the Recipient; and (ii) to the extent that the Recipient sold or transferred any Restricted Shares, disgorge and/or repay to II-VI any profits or other economic value (as determined by II-VI) made or realized by the Recipient with respect to such Restricted Shares, including the value of any gift thereof.
(c) This Award, and any amounts or benefits received or outstanding under the Plan, as well as any other incentive awards previously granted to the Recipient by the Company, shall be subject to potential clawback, cancellation, recoupment, rescission, payback, reduction, or other similar action in accordance with the terms or conditions of any applicable Company clawback or similar policy or any applicable law related to such actions, as may be in effect from time to time, including the requirements of (a) Section 304 of the Sarbanes Oxley Act and Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, (b) similar rules under the laws of any other jurisdiction, and (c) any policies adopted by the Company to implement such requirements. The Recipient acknowledges and consents to the Company’s application, implementation and enforcement of any applicable Company clawback or similar policy that may apply to the Recipient, whether adopted prior to or following the Grant Date, and any provision of applicable law relating to clawback, cancellation, recoupment, rescission, payback, or reduction of compensation, and agrees that the Company may take such actions as may be necessary to effectuate any such policy or applicable law, without further consideration or action.
15. Recipient Acknowledgments. The Recipient acknowledges and agrees that (a) as a result of the Recipient’s previous, current and future employment with the Company, 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 will continue the Recipient’s employment for any period of time and does not change the at-will nature of the Recipient’s employment, except as set forth in a separate written employment agreement between the Company and the Recipient, (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 Shares 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.
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16. Severability; Waiver. If any term, provision, covenant or restriction contained in this Agreement is held by a court or a federal regulatory agency of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions contained in this Agreement shall remain in full force and effect, and shall in no way be affected, impaired or invalidated. In particular, in the event that any of such provisions shall be adjudicated to exceed the time, geographic, product and service or other limitations permitted by applicable law in any jurisdiction, then such provisions shall be deemed reformed in such jurisdiction to the maximum time, geographic, product and service or other limitations permitted by applicable law. No delay or omission by II-VI in exercising any right under this Agreement will operate as a waiver of that or any other right. A waiver or consent given by II-VI on any one occasion is effective only in that instance and will not be construed as a bar to or waiver of any right on any other occasion.
17. Notice. II-VI may require any notice required or permitted under this Agreement to be transmitted, submitted or received, by II-VI or the Recipient, via the StockPlan Connect System in accordance with the procedures established by II-VI for such notice. Otherwise, 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. 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. The Company shall be a third-party beneficiary of this Agreement.
19. Entire Agreement. This Agreement (including the Plan and the Summary of Award) contains the entire understanding between the parties and supersedes any prior understanding and agreements between them representing the subject matter hereof with respect
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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 and the Recipient.
20. Captions; Section References. Section and other headings contained in this Agreement are for reference purposes only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. Unless expressly provided otherwise, any reference in this Agreement to any Section refers to the corresponding Section of this Agreement.
21. Limitation of Actions. Any lawsuit commenced by the Recipient with respect to any matter arising out of or relating to this Agreement must be filed no later than one (1) year after the date that a denial of any claim hereunder is made or any earlier date that the claim otherwise accrues.
22. Section 409A. This Agreement and this Award is intended to be excepted from coverage under Section 409A and shall be interpreted and construed accordingly. II-VI, in its sole discretion and without the Recipient’s consent, may take any action it deems necessary, including amending the terms of this Award and this Agreement, to cause this Award to be excepted from Section 409A (or to comply therewith to the extent that II-VI determines it is not excepted). Notwithstanding, the Recipient recognizes and acknowledges that Section 409A may impose upon the Recipient certain taxes or interest charges for which the Recipient is and shall remain solely responsible.
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 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 Shares, 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 StockPlan Connect 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
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consideration, furnish the other party such further information or assurances, execute and deliver such additional documents and take such other actions and do such other things, as may be necessary to carry out the provisions of this Agreement.
26. Compliance with Legal Requirements. The grant of this Award and the issuance of any Shares or other amounts under this Award, and all other obligations of the Company under this Agreement, shall be subject to all applicable laws, rules and regulations and to such approvals by any regulatory or governmental agency as may be required. 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.
27. Appendix A. The Recipient acknowledges and agrees that, if the Recipient is an employee outside the U.S., this Award is subject to the general terms applicable to Awards granted to employees outside the U.S. set forth in Appendix A hereto. Appendix A constitutes part of this Agreement. 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.
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]
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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 StockPlan Connect System) shall constitute execution of this Agreement by the Recipient.
The Recipient agrees that his or her electronic acceptance of this Agreement via electronic means, including via the StockPlan Connect 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 |
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By: |
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Name: |
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David G. Wagner |
Title: |
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Vice President, Human Resources |
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PARTICIPANT |
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Electronic Acceptance via the |
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StockPlan Connect System |
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Appendix A
General Terms Applicable to Awards Granted to Employees Outside the U.S.
1.DATA PRIVACY
By accepting this Award, the Recipient hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Recipient’s personal data as described in this document and any other grant materials by the Company for the exclusive purpose of implementing, administering and managing this Award.
The Recipient understands that the Company holds certain personal information about the Recipient, including the Recipient’s name, home address, telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of any entitlement to Shares or equivalent benefits awarded, canceled, vested, unvested or outstanding in the Recipient’s favor (the “Data”), for the purpose of implementing, administering and managing the Recipient’s participation in the Plan. The Recipient understands that the Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these Data recipients may be located in the Recipient’s country or elsewhere (for example, the United States) and that the Data recipient’s country may have different data privacy laws and protections from the Recipient’s country. The Recipient understands that the Recipient may request a list with the names and addresses of any potential recipients of the Data by contacting the Recipient’s local human resources representative. The Recipient authorizes the Data recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the exclusive purposes of implementing, administering and managing the Recipient’s participation in the Plan. The Recipient understands that the Data will be held only as long as is necessary to implement, administer and manage the Recipient’s participation in the Plan. The Recipient understands that the Recipient may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Recipient’s local human resources representative. Further, the Recipient understands that the Recipient is providing the consents herein on a purely voluntary basis. If the Recipient does not consent, or if the Recipient later seeks to revoke the Recipient’s consent, the Recipient’s employment status or service and career with the Company will not be adversely affected; the only adverse consequence of refusing or withdrawing the Recipient’s consent is that the Company would not be able to grant to the Recipient this Award or other awards or administer or maintain this Award or such other awards. Therefore, the Recipient understands that refusing or withdrawing the Recipient’s consent may affect the Recipient’s ability to benefit from this Award. For more information on the consequences of the Recipient’s refusal to consent or withdrawal of consent, the Recipient understands that the Recipient may contact the Recipient’s local human resources representative.
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2.ADDITIONAL ACKNOWLEDGEMENTS
By entering into this Agreement and accepting this Award evidenced hereby, the Recipient acknowledges, understands and agrees that:
(a)the Plan is established voluntarily by the Company, and all awards under the Plan are discretionary in nature;
(b)the grant of this Award is voluntary and occasional and does not create any contractual or other right to receive future awards or benefits in lieu of awards, even if such awards have been awarded in the past;
(c)all decisions with respect to future awards, if any, will be at the sole discretion of the Company;
(d)the grant of this Award shall not create a right to employment with the Company and shall not interfere with the ability of the Company to terminate the Recipient’s employment or service relationship (if any);
(e)the Recipient is voluntarily participating in the Plan;
(f)this Award and any payment made pursuant to this Award, and the value and income of the same, are not part of normal or expected compensation or salary for any purposes, including calculating any severance, resignation, termination, redundancy, dismissal, end-of-service, bonus, long-service, pension, retirement or similar benefits, payments or awards;
(g)unless otherwise agreed with the Company, this Award and any Shares subject to this Award, and the value and income of the same, are not granted as consideration for, or in connection with, any service the Recipient may provide as a director of II-VI or any 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 Shares that may be delivered under this Award (pursuant to the terms of this Award) is unknown, indeterminable and cannot be predicted with certainty;
(j)no claim or entitlement to compensation or damages shall arise from forfeiture of this Award resulting from termination of the Recipient’s employment or service (for any reason whatsoever, whether or not such termination is later found to be invalid or in breach of the
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employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any) or recoupment of all or any portion of any payment made pursuant to this Award as provided by any applicable Company compensation recoupment, clawback or similar policy or any applicable law related to such actions, as may be in effect from time to time and, in consideration of the grant of this Award to which the Recipient is not otherwise entitled, the Recipient irrevocably agrees never to institute any claim against II-VI or any Subsidiary, waives the Recipient’s ability, if any, to bring any such claim, and releases II-VI and its Subsidiaries from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Recipient shall be deemed irrevocably to have agreed not to pursue such claim, and the Recipient agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim;
(k)for purposes of this Award, the Recipient’s employment will be considered terminated as of the date the Recipient is no longer actively employed and providing services to the Company (for any reason whatsoever, whether or not such termination is later found to be invalid or in breach of the employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any), and unless otherwise expressly provided in this Agreement or otherwise determined by the Company, the Recipient’s right to vest in any portion of this Award (and any related dividend equivalents or similar rights) under the Plan, if any, will terminate as of such date and will not be extended by any notice period (for example, the Recipient’s active employment or period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under the employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any); the Company, in its sole discretion, shall determine when the Recipient is no longer actively employed or providing services for purposes of this Award (including whether the Recipient may still be considered to be actively employed or providing services while on an approved leave of absence);
(l)the Recipient is solely responsible for investigating and complying with any exchange control laws applicable to the Recipient in connection with his or her participation in the Plan;
(m)unless otherwise provided in the Plan or by the Company in its sole discretion, this Award and the benefits evidenced by this Agreement do not create any entitlement to have this Award or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Shares; and
(n)the Company shall not 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, any payment made pursuant to this Award or the subsequent sale of any Shares acquired under the Plan.
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3.LANGUAGE
If the Recipient has received this Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version differs from the English version, the English version shall control.
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Exhibit 10.07
II-VI INCORPORATED
RESTRICTED SHARE UNIT AWARD AGREEMENT
THIS RESTRICTED SHARE UNIT AWARD AGREEMENT (this “Agreement”) is dated as of the Grant Date, as specified in the applicable Summary of Award (as defined below), by and between II-VI Incorporated, a Pennsylvania corporation (“II-VI”), and the Recipient, as specified in the applicable Summary of Award, who is a director, employee or consultant of II-VI or one of its Subsidiaries (the “Recipient”). For purposes of this Agreement, the term “Company” shall include II-VI and/or any Subsidiary of II-VI that the Recipient is employed by or may become employed by or provide services to during the Recipient’s employment by II-VI or any such Subsidiary.
Reference is made to the Summary of Award (the “Summary of Award”) issued to the Recipient with respect to the applicable Award, which may be found on Morgan Stanley StockPlan Connect system www.stockplanconnect.com (or any successor system selected by II-VI) (the “StockPlan Connect System”). Reference further is made to the Summary Plan Description relating to the Plan (as defined below) which also may be found on the StockPlan Connect System.
All capitalized terms used herein, to the extent not defined herein, shall have the meanings set forth in the II-VI 2012 Omnibus Incentive Plan (as amended and/or restated from time to time, the “Plan”), a copy of which can be found on the StockPlan Connect System, and/or the applicable Summary of Award. Terms of the Plan and the Summary of Award 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 Summary of Award, 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 solely in Shares provided, however, that Restricted Share Units may be settled 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% |
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 (whether in Shares or in cash, as determined by the Committee) shall be made to the Recipient no later than the seventy-fifth (75th) 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 (whether in Shares or in cash, as determined by the Committee) shall be made to the Recipient no later than the seventy-fifth (75th) calendar day following the date of Separation from Service.
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. Notwithstanding any provision to the contrary in this Agreement or in any offer letter, employment agreement or other applicable employment or service agreement between the Recipient and the Company that discusses the effect of a Change in Control on the Recipient’s Awards, in the event of a Change in Control, the following provisions shall apply, unless provided otherwise by the Committee prior to the date of the Change in Control:
(i)To the extent this Award is assumed, converted or replaced by the resulting entity in the Change in Control, if within two (2) years after the date of the Change in Control the Recipient has a Separation from Service either (A) by the Company other than for Cause (as defined below) or (B) by the Recipient for Good Reason (as defined below), then this Award shall become vested in full.
(ii)To the extent this Award is not assumed, converted or replaced by the resulting entity in the Change in Control, then this Award shall become vested in full upon the Change in Control.
(b)“Cause” shall be defined as that term is defined in the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the
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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 (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 specifying in reasonable detail the duties or responsibilities that the Company believes are not being adequately performed;
(ii)the willful engaging by the Recipient in any act that is damaging to the Company;
(iii)the conviction of the Recipient of, or a plea of “guilty” or “no contest” to, (A) any felony or (B) a criminal offense involving fraud, dishonesty or other moral turpitude;
(iv)any breach by the Recipient of the terms of any written agreement between the Recipient and the Company relating to proprietary information, confidentiality, non-disclosure, ownership of inventions, non-competition, non-solicitation, non-interference or non-disparagement;
(v)the engaging by the Recipient in any willful act of dishonesty resulting or intended to result, directly or indirectly, in personal gain to the Recipient; or
(vi)the commission of any act by the Recipient that is in violation of the Company’s Code of Business Conduct and Ethics.
(c)“Good Reason” shall be defined as that term is defined in the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company; or, if there is no such definition, “Good Reason” shall mean that any of the following has occurred, without the Recipient’s express written consent:
(i)a material reduction of the Recipient’s employment responsibilities from those immediately prior to the Change in Control;
(ii)a material reduction by the Company 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 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 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
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(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 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 to the Recipient or for the Recipient’s benefit (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (the “Payments”) would be subject to the excise tax imposed by Code Section 4999, or any interest or penalty is incurred by the Recipient with respect to such excise tax (such excise tax, together with any such interest and penalties, collectively referred to as the “Excise Tax”), then the Payments shall be reduced (but not below zero) if and to the extent that such reduction would result in the Recipient retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the imposition of the Excise Tax), than if the Recipient received all of the Payments. The Company shall reduce or eliminate the Payments by first reducing or eliminating the portion of the Payments that are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits that are to be paid the farthest in time from the determination.
(ii)All determinations required to be made under this Section 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
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to be issued to the Recipient on the third anniversary of the Grant Date (or as soon as administratively practicable thereafter, but in no event later than the 75th day following such date). In the event that the Committee determines that the Restricted Share Units shall be 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 set forth in the Summary of Award and (b) the Fair Market Value on the third anniversary of the Grant 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.
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, following each vesting date but in no event later than March 15th of the calendar year following the calendar year of the applicable vesting date, 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) 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.
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.
8. Adjustments. Upon any event described in Section 12 of the Plan (entitled “Adjustments”) or any successor provision thereto, the terms of such Section 12 of the Plan or any successor provision thereto shall apply to this Award.
9. Fractional Shares. II-VI shall not be required to issue any fractional Shares pursuant to this Award, and II-VI may round fractional Shares down to the nearest whole Share.
10. Responsibility for Taxes.
(a)Regardless of any action the Company takes with respect to any or all income tax, payroll tax or other tax-related withholding (“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.
(b)Prior to the time any Tax-Related Items become due in connection with this Award, the Recipient shall pay or make adequate arrangements satisfactory to the Company to satisfy all minimum withholding obligations of the Company. In this regard, the Recipient
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authorizes the Company to withhold all applicable minimum Tax-Related Items legally payable by the Recipient from the Recipient’s wages or other cash compensation paid to the Recipient by the Company or from proceeds of the sale of Shares. Alternatively, or in addition, to the extent permissible under applicable law, the Company may (i) sell or arrange for the sale of Shares that the Recipient acquires to meet the minimum withholding obligation for Tax-Related Items, and/or (ii) withhold in Shares, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum withholding amount. Finally, the Recipient shall pay to the Company any amount of Tax-Related Items that the Company may be required to withhold 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 and deliver 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.
(c)The Recipient acknowledges the receipt of tax information relating to this Award, including the need to consult the Recipient’s own tax advisors.
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 would otherwise have to terminate the Recipient’s employment or other service at any time, the right of the Company 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.
(a)While the Recipient is employed by the Company 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
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developed, manufactured, marketed or sold, by II-VI or its Subsidiaries while the Recipient was employed by the Company, 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, 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; 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 disclose or use for the Recipient’s own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise, other than the Company, any proprietary confidential information or trade secrets; provided that the foregoing shall not apply to information which is not unique to 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
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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.
The Restricted Period will be tolled during and for any period of time during which the Recipient is in violation of the restrictive covenants contained in this Section 14 and for any period of time which may be necessary to secure an order of court or injunction, either preliminary or permanent, to enforce such covenants, such that the cumulative time period during which the Recipient is in compliance with the restrictive covenants contained in Section 14 will not exceed the one (1)-year period set forth above.
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.
(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 and/or 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, (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, 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
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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, 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 will continue the Recipient’s employment for any period of time and does not change the at-will nature of the Recipient’s employment, except as set forth in a separate written employment agreement between the Company and the Recipient, (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.
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 StockPlan Connect 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:
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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. 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. The Company shall be a third-party beneficiary of this Agreement.
20. Entire Agreement. This Agreement (including the Plan and the Summary of Award) contains the entire understanding between the parties and supersedes any prior understanding and agreements between them regarding the subject matter hereof with respect to 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 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
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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.
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 StockPlan Connect 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. The grant of this Award and the issuance of any Shares or other amounts under this Award, and all other obligations of the Company under this Agreement, shall be subject to all applicable laws, rules and regulations and to such approvals by any regulatory or governmental agency as may be required. 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.
28. Appendix A. The Recipient acknowledges and agrees that, if the Recipient is an employee outside the U.S., this Award is subject to the general terms applicable to Awards granted to employees outside the U.S. set forth in Appendix A hereto. Appendix A constitutes part of this Agreement. 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
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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. 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 StockPlan Connect 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 StockPlan Connect 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.
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II-VI INCORPORATED |
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By: Name: David G. Wagner |
Title: Vice President, Human Resources |
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PARTICIPANT |
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Electronic Acceptance via the StockPlan Connect System |
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Appendix A
General Terms Applicable to Awards Granted to Employees Outside the U.S.
1.DATA PRIVACY
By accepting this Award, the Recipient hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Recipient’s personal data as described in this document and any other grant materials by the Company for the exclusive purpose of implementing, administering and managing this Award.
The Recipient understands that the Company holds certain personal information about the Recipient, including the Recipient’s name, home address, telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of any entitlement to Shares or equivalent benefits awarded, canceled, vested, unvested or outstanding in the Recipient’s favor (the “Data”), for the purpose of implementing, administering and managing the Recipient’s participation in the Plan. The Recipient understands that the Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these Data recipients may be located in the Recipient’s country or elsewhere (for example, the United States) and that the Data recipient’s country may have different data privacy laws and protections from the Recipient’s country. The Recipient understands that the Recipient may request a list with the names and addresses of any potential recipients of the Data by contacting the Recipient’s local human resources representative. The Recipient authorizes the Data recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the exclusive purposes of implementing, administering and managing the Recipient’s participation in the Plan. The Recipient understands that the Data will be held only as long as is necessary to implement, administer and manage the Recipient’s participation in the Plan. The Recipient understands that the Recipient may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Recipient’s local human resources representative. Further, the Recipient understands that the Recipient is providing the consents herein on a purely voluntary basis. If the Recipient does not consent, or if the Recipient later seeks to revoke the Recipient’s consent, the Recipient’s employment status or service and career with the Company will not be adversely affected; the only adverse consequence of refusing or withdrawing the Recipient’s consent is that the Company would not be able to grant to the Recipient this Award or other awards or administer or maintain this Award or such other awards. Therefore, the Recipient understands that refusing or withdrawing the Recipient’s consent may affect the Recipient’s ability to benefit from this Award. For more information on the consequences of the Recipient’s refusal to consent or withdrawal of consent, the Recipient understands that the Recipient may contact the Recipient’s local human resources representative.
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2.ADDITIONAL ACKNOWLEDGEMENTS
By entering into this Agreement and accepting this Award evidenced hereby, the Recipient acknowledges, understands and agrees that:
(a)the Plan is established voluntarily by the Company, and all awards under the Plan are discretionary in nature;
(b)the grant of this Award is voluntary and occasional and does not create any contractual or other right to receive future awards or benefits in lieu of awards, even if such awards have been awarded in the past;
(c)all decisions with respect to future awards, if any, will be at the sole discretion of the Company;
(d)the grant of this Award shall not create a right to employment with the Company and shall not interfere with the ability of the Company to terminate the Recipient’s employment or service relationship (if any);
(e)the Recipient is voluntarily participating in the Plan;
(f)this Award and any payment made pursuant to this Award, and the value and income of the same, are not part of normal or expected compensation or salary for any purposes, including calculating any severance, resignation, termination, redundancy, dismissal, end-of-service, bonus, long-service, pension, retirement or similar benefits, payments or awards;
(g)unless otherwise agreed with the Company, this Award and any Shares subject to this Award, and the value and income of the same, are not granted as consideration for, or in connection with, any service the Recipient may provide as a director of II-VI or any 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 Shares that may be delivered under this Award (pursuant to the terms of this Award) is unknown, indeterminable and cannot be predicted with certainty;
(j)no claim or entitlement to compensation or damages shall arise from forfeiture of this Award resulting from termination of the Recipient’s employment or service (for any reason whatsoever, whether or not such termination is later found to be invalid or in breach of the
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employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any) or recoupment of all or any portion of any payment made pursuant to this Award as provided by any applicable Company compensation recoupment, clawback or similar policy or any applicable law related to such actions, as may be in effect from time to time and, in consideration of the grant of this Award to which the Recipient is not otherwise entitled, the Recipient irrevocably agrees never to institute any claim against II-VI or any Subsidiary, waives the Recipient’s ability, if any, to bring any such claim, and releases II-VI and its Subsidiaries from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Recipient shall be deemed irrevocably to have agreed not to pursue such claim, and the Recipient agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim;
(k)for purposes of this Award, the Recipient’s employment will be considered terminated as of the date the Recipient is no longer actively employed and providing services to the Company (for any reason whatsoever, whether or not such termination is later found to be invalid or in breach of the employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any), and unless otherwise expressly provided in this Agreement or otherwise determined by the Company, the Recipient’s right to vest in any portion of this Award (and any related dividend equivalents or similar rights) under the Plan, if any, will terminate as of such date and will not be extended by any notice period (for example, the Recipient’s active employment or period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under the employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any); the Company, in its sole discretion, shall determine when the Recipient is no longer actively employed or providing services for purposes of this Award (including whether the Recipient may still be considered to be actively employed or providing services while on an approved leave of absence);
(l)the Recipient is solely responsible for investigating and complying with any exchange control laws applicable to the Recipient in connection with his or her participation in the Plan;
(m)unless otherwise provided in the Plan or by the Company in its sole discretion, this Award and the benefits evidenced by this Agreement do not create any entitlement to have this Award or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Shares; and
(n)the Company shall not 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, any payment made pursuant to this Award or the subsequent sale of any Shares acquired under the Plan.
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3.LANGUAGE
If the Recipient has received this Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version differs from the English version, the English version shall control.
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Exhibit 10.08
II‑VI Incorporated
Performance Share Award AGREEMENT
THIS PERFORMANCE SHARE AWARD AGREEMENT (this “Agreement”) is dated as of the Grant Date, as specified in the applicable Summary of Award (as defined below), by and between II‑VI Incorporated, a Pennsylvania corporation (“II-VI”), and the Recipient, as specified in the applicable Summary of Award, who is a director, employee or consultant of II-VI or one of its Subsidiaries (the “Recipient”). For purposes of this Agreement, the term “Company” shall include II-VI and/or any Subsidiary of II-VI that the Recipient is employed by or may become employed by or provide services to during the Recipient’s employment by II-VI or any such Subsidiary.
Reference is made to the Summary of Award (the “Summary of Award”) issued to the Recipient with respect to the applicable Award, which may be found on Morgan Stanley StockPlan Connect system www.stockplanconnect.com (or any successor system selected by II-VI) (the “StockPlan Connect System”). Reference further is made to the Summary Plan Description relating to the Plan (as defined below) which also may be found on the StockPlan Connect System.
All capitalized terms used herein, to the extent not defined herein, shall have the meanings set forth in the II-VI 2012 Omnibus Incentive Plan (as amended and/or restated from time to time, the “Plan”), a copy of which can be found on the StockPlan Connect System, and/or the applicable Summary of Award. Terms of the Plan and the Summary of Award are incorporated herein by reference. This Agreement shall constitute an Award Agreement as that term is defined in the Plan and is intended to be a Qualified Performance-Based Award within the meaning of the Plan.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Recipient and II-VI agree as follows:
1.Performance Share Award. II-VI hereby grants to the Recipient an Award of the number of Performance Shares specified in the Summary of Award, to be earned based upon achievement of the Performance Objectives in accordance with Section 2 (this “Award”). For the purposes of this Award: (1) “Performance Period” shall mean the period from July 1, 2016 through and including June 30, 2019; (2) “Target Award” shall mean the Target Award set forth in the Summary of Award; and (3) “Maximum Award” means the maximum number of Performance Shares that may be earned under this Agreement as set forth in the Summary of Award, which number represents 200% of the Target Award.
2.Determination of Shares Earned. Subject to Section 6 and Section 7, Performance Shares shall be earned in accordance with the following schedule:
|
Performance Shares Earned as a |
If II-VI Consolidated Cash Flow from Operations |
0% |
If II-VI Consolidated Cash Flow from Operations |
50.0% to 99.99%(1) |
If II-VI Consolidated Cash Flow from Operations |
100.0% |
If II-VI Consolidated Cash Flow from Operations |
100.01% to 199.99%(2) |
If II-VI Consolidated Cash Flow from Operations |
200.0% (Maximum Award) |
(1) |
In the event that the II-VI Consolidated Cash Flow from Operations is greater than or equal to 75.0% and less than 100.0% of the Cash Flow Target, the Performance Shares earned as a percentage of the Target Award will be a percentage determined on a linear basis between 50.0% and 99.99% by adding 50.0% to the product of (A) 50.0% and (B)(i) the II-VI Consolidated Cash Flow from Operations as a percentage of the Cash Flow Target less 75.0% divided by (ii) 25.0% (which product cannot exceed 49.99%). |
(2) |
In the event that the II-VI Consolidated Cash Flow from Operations is greater than 100.0% and less than 140.0% of the Cash Flow Target, the Performance Shares earned as a percentage of the Target Award will be a percentage determined on a linear basis between 100.01% and 199.99% by adding 100.0% to the product of (A) 100.0% and (B)(i) the II-VI Consolidated Cash Flow from Operations as a percentage of the Cash Flow Target less 100.0% divided by (ii) 40.0% (which product cannot exceed 99.99%). |
For the purposes of this Award: (i) “II-VI Consolidated Cash Flow from Operations” shall mean the consolidated “Net cash flow provided by operating activities” of II-VI for the Performance Period, determined in accordance with generally accepted accounting principles in the United States, consistently applied; (ii) all targets are expressed in US dollars and performance for II-VI businesses that do not use US dollars as their reporting currency will be translated into US dollars via II-VI’s financial consolidation system at the appropriate exchange rates; and (iii) “Cash Flow Target” shall mean $. Only whole Performance Shares shall be earned in accordance with this Section 2. By way of example and not limitation, earning 66.67% of a Target Award of 100 Performance Shares would result in delivery of 66 Performance Shares.
3.Delivery of Shares. Unless the Recipient has elected to defer receipt of the Performance Shares in accordance with Section 4, and except as otherwise provided in Section 2,
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II-VI shall cause a stock certificate (or equivalent electronic book entry) representing Shares equal to the number of Performance Shares earned as provided in Section 2 to be issued or credited, as applicable, to the Recipient no later than the seventy-fifth (75th) calendar day following the end of the Performance Period.
4.Deferral. A the Recipient that is subject to US Federal income tax may elect in writing on or before the date that is twelve (12) months prior to the end of the Performance Period, or such earlier date as may be designated in writing by II-VI (the “Latest Deferral Date”) in order to satisfy the deferral election requirements of Section 409A, to defer the issuance of all or part of the Performance Shares earned. Any such election shall: (1) specify the date of issuance for the earned Performance Shares, which shall not be earlier than the fifth (5th) anniversary of the original payment date or such other minimum deferral period as may be designated by II-VI in order to satisfy the deferral election requirements of Section 409A; and (2) comply with all other applicable deferral election requirements of Section 409A.
5.Limitation of Rights; Dividend Equivalents. The Recipient shall not have any rights of ownership of the Shares underlying the Performance Shares before the issuance of such Shares, including the right to vote such shares. The Recipient, however, shall be entitled to receive, following the completion of the Performance Period but in no event later than March 15th of the calendar year following the completion of the Performance Period, a cash payment equal to the cash dividends that would have been paid during the Performance Period on the applicable number of Shares underlying the Performance Shares earned as provided in Section 2 if such Shares had been issued and outstanding during the Performance Period.
6.Separation from Service.
(a)Except as provided in Section 6(b) and Section 7 or as may be otherwise determined by the Committee, if the Recipient incurs a Separation from Service before the end of the Performance Period, this Award shall be forfeited on the date of such Separation from Service.
(b)Prorating in Certain Circumstances. Notwithstanding Section 6(a), if the Recipient’s Separation from Service occurs during the Performance Period due to the Recipient’s (i) normal retirement, as defined in II-VI’s Global Retirement Policy, (ii) death, (iii) permanent and total disability, as defined in Code Section 22(e)(3) (a “Disability”), (iv) termination by the Company other than for Cause (as defined below) other than within two years following a Change in Control or (v) termination by the Recipient for Good Reason (as defined below) other than within two years following a Change in Control, but only if the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company provides for severance upon Separation from Service for Good Reason (or a similar term), then in each case under clauses (i) - (v) of this paragraph the Recipient shall be entitled to a prorated portion of the Performance Shares to the extent earned pursuant to Section 2, determined at the end of the Performance Period and based on the ratio of the number of complete months the Recipient was employed or served (as applicable) during the Performance Period to the total number of months in the Performance Period. In the event of the death of the Recipient, delivery of the applicable number of Shares shall be made to the Recipient’s estate as soon as administratively practicable after the end of the Performance Period.
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7.Change in Control; Adjustments to Payments.
(a)Change in Control. Notwithstanding any provision to the contrary in this Agreement or in any offer letter, employment agreement or other applicable employment or service agreement between the Recipient and the Company that discusses the effect of a Change in Control on the Recipient’s Awards, in the event of a Change in Control during the Performance Period, the following provisions shall apply, unless provided otherwise by the Committee prior to the date of the Change in Control:
(i)To the extent this Award is assumed, converted or replaced by the resulting entity in the Change in Control, if within two (2) years after the Change in Control the Recipient has a Separation from Service either (A) by the Company other than for Cause (as defined below) or (B) by the Recipient for Good Reason (as defined below), then the target payout opportunities attainable under this Award shall be deemed to have been earned as of the applicable Separation from Service based upon the greater of: (1) an assumed achievement of all relevant performance goals at their “target” level, or (2) the actual level of achievement of all relevant performance goals against target as of the Company’s fiscal quarter end preceding the Change in Control. This Award, as adjusted for such deemed performance, shall become vested in full and shall be paid as soon as administratively practicable (not more than thirty (30) days) after the date of such Separation from Service.
(ii)To the extent this Award is not assumed, converted or replaced by the resulting entity in the Change in Control, then the target payout opportunities attainable under this Award shall be deemed to have been earned as of the Change in Control based upon the greater of: (1) an assumed achievement of all relevant performance goals at their “target” level, or (2) the actual level of achievement of all relevant performance goals against target as of the Company’s fiscal quarter end preceding the Change in Control. This Award, as adjusted for such deemed performance, shall become vested in full and shall be paid as soon as administratively practicable (not more than thirty (30) days) after the date of such Change in Control.
(b)“Cause” shall be defined as that term is defined in the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company; or, if there is no such definition, “Cause” shall mean a determination by the Company that any of the following has occurred:
(i)the willful failure by the Recipient to perform the Recipient’s duties and responsibilities to the Company (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 specifying in reasonable detail the duties or responsibilities that the Company believes are not being adequately performed;
(ii)the willful engaging by the Recipient in any act that is damaging to the Company;
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(iii)the conviction of the Recipient of, or a plea of “guilty” or “no contest” to, (A) any felony or (B) a criminal offense involving fraud, dishonesty or other moral turpitude;
(iv)any breach by the Recipient of the terms of any written agreement between the Recipient and the Company relating to proprietary information, confidentiality, non-disclosure, ownership of inventions, non-competition, non-solicitation, non-interference or non-disparagement;
(v)the engaging by the Recipient in any willful act of dishonesty resulting or intended to result, directly or indirectly, in personal gain to the Recipient; or
(vi)the commission of any act by the Recipient that is in violation of the Company’s Code of Business Conduct and Ethics.
(c)“Good Reason” shall be defined as that term is defined in the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company; or, if there is no such definition, “Good Reason” shall mean that any of the following has occurred, without the Recipient’s express written consent:
(i)a material reduction of the Recipient’s employment responsibilities from those immediately prior to the Change in Control;
(ii)a material reduction by the Company 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 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 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 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.
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(i)Notwithstanding any provision to the contrary in this Agreement, if it is determined that any payment or distribution by the Company to the Recipient or for the Recipient’s benefit (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (the “Payments”) would be subject to the excise tax imposed by Code Section 4999, or any interest or penalty is incurred by the Recipient with respect to such excise tax (such excise tax, together with any such interest and penalties, collectively referred to as the “Excise Tax”), then the Payments shall be reduced (but not below zero) if and to the extent that such reduction would result in the Recipient retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the imposition of the Excise Tax), than if the Recipient received all of the Payments. The Company shall reduce or eliminate the Payments by first reducing or eliminating the portion of the Payments that are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits that are to be paid the farthest in time from the determination.
(ii)All determinations required to be made under this Section 7(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.
8.Nontransferability. Except as otherwise provided in the Plan, the Performance Shares shall not be sold, pledged, assigned, hypothecated, transferred or disposed of (a “Transfer”) in any manner, other than by will or the laws of descent and distribution. Any attempt to Transfer the Performance Shares in violation of this Section or the Plan shall render this Award null and void.
9.Adjustments. Upon any event described in Section 12 of the Plan (entitled “Adjustments”) or any successor provision thereto, the terms of such Section 12 of the Plan or any successor provision thereto shall apply to this Award.
10.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.
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(a)Regardless of any action the Company takes with respect to any or all income tax, payroll tax or other tax-related withholding (“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.
(b)Prior to the time any Tax-Related Items become due in connection with this Award, the Recipient shall pay or make adequate arrangements satisfactory to the Company to satisfy all minimum withholding obligations of the Company. In this regard, the Recipient authorizes the Company to withhold all applicable minimum Tax-Related Items legally payable by the Recipient from the Recipient’s wages or other cash compensation paid to the Recipient by the Company or from proceeds of the sale of Shares. Alternatively, or in addition, to the extent permissible under applicable law, the Company may (i) sell or arrange for the sale of Shares that the Recipient acquires to meet the minimum withholding obligation for Tax-Related Items, and/or (ii) withhold in Shares, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum withholding amount. Finally, the Recipient shall pay to the Company any amount of Tax-Related Items that the Company may be required to withhold 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 and deliver Shares if the Recipient fails to comply with the Recipient’s obligations in connection with the Tax-Related Items as described in this Section 11.
12.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).
13.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 would otherwise have to terminate the Recipient’s employment or other service at any time, or the right of the Recipient to terminate his or her employment or other service at any time.
14.Rights Unsecured. II-VI shall remain the owner of all Performance Shares deferred by the Recipient pursuant to Section 4 and the Recipient shall have only II-VI’s unfunded, unsecured promise to pay pursuant to the terms of this Agreement and the II-VI Non-Qualified Executive Plan, as it may be amended and/or restated from time to time, and any predecessor or successor plan thereto. The rights of the Recipient hereunder and thereunder shall be those of a general unsecured creditor of II-VI and the Recipient shall not have any security interest in any assets of II-VI.
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15.Non-Competition; Non-Solicitation; Confidentiality.
(a)While the Recipient is employed by the Company 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, 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, 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; provided that this clause (B) shall not apply to any individual whose employment with II-VI or its Subsidiaries has been terminated for a period of one (1) year or longer.
(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 disclose or use for the Recipient’s own benefit or purposes or the benefit or purposes of any other person, firm,
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partnership, joint venture, association, corporation or other business organization, entity or enterprise, other than the Company, any proprietary confidential information or trade secrets; provided that the foregoing shall not apply to information which is not unique to 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.
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 15 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 15 will not exceed the one (1)-year period set forth above.
16.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 15 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 16(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 15, the Performance Shares and the right to receive Shares in exchange for such Performance Shares shall be forfeited. II-VI shall also have the right, in its sole discretion, in addition to any other remedies or damages provided by law, in equity or otherwise, to demand and require the Recipient, to the extent that any Shares were received with respect to such Performance Shares (i) return and transfer to II-VI any such shares directly or beneficially owned by the Recipient, and (ii) to the extent that the Recipient sold or transferred any such Shares, disgorge and/or repay to II-VI any profits or other economic value (as determined by II-VI) made or realized by the Recipient with respect to such Shares, including the value of any gift thereof.
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(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.
17.Recipient Acknowledgments. The Recipient acknowledges and agrees that (a) as a result of the Recipient’s previous, current and future employment with the Company, 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 conduct such business worldwide, (c) this Agreement does not constitute a contract of employment, does not imply that the Company will continue the Recipient’s employment for any period of time and does not change the at-will nature of the Recipient’s employment, except as set forth in a separate written employment agreement between the Company and the Recipient, (d) the restrictive covenants set forth in Section 15 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 16 are reasonable and necessary to protect the legitimate business interests of II-VI and its Subsidiaries, (f) acceptance of these Performance Shares 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 15 and Section 16.
18.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
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effective only in that instance and will not be construed as a bar to or waiver of any right on any other occasion.
19.Notice. II-VI may require any notice required or permitted under this Agreement to be transmitted, submitted or received, by II-VI or the Recipient, via the StockPlan Connect System in accordance with the procedures established by II-VI for such notice. Otherwise, any written notice required or permitted by this Agreement shall be mailed, certified mail (return receipt requested) or by overnight carrier, to II-VI at the following address:
II-VI Incorporated
Attention: Chief Financial Officer
375 Saxonburg Boulevard
Saxonburg, Pennsylvania 16056
or to the Recipient at his or her most recent home address on record with II-VI. Notices are effective upon receipt.
20.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 15 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. 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. The Company shall be a third-party beneficiary of this Agreement.
21.Entire Agreement. This Agreement (including the Plan and the Summary of Award) contains the entire understanding between the parties and supersedes any prior understanding and agreements between them regarding the subject matter hereof with respect to 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 and the Recipient.
22.Captions. Section and other headings contained in this Agreement are for reference purposes only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof.
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23.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.
24.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 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.
25.Assignment. Except as provided in Section 8, the Recipient’s rights and obligations under this Agreement shall not be transferable by the Recipient, by assignment or otherwise, and any purported assignment, transfer or delegation thereof by the Recipient shall be void. II-VI and the Company may assign/delegate all or any portion of this Agreement and its rights hereunder without prior notice to the Recipient and without the Recipient providing any additional consent thereto, whereupon the Recipient shall continue to be bound hereby with respect to such assignee/delegatee.
26.Electronic Delivery. II-VI may, in its sole discretion, deliver any documents or correspondence related to this Agreement, the Plan, the Performance Shares, the Recipient’s participation in the Plan or future awards that may be granted to the Recipient under the Plan, by electronic means. The Recipient hereby consents to receive such documents by electronic delivery and to 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 StockPlan Connect System. Likewise, II-VI may require the Recipient to deliver or receive any documents or correspondence related to this Agreement by such electronic means.
27.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.
28.Compliance with Legal Requirements. The grant of this Award and the issuance of any Shares or other amounts under this Award, and all other obligations of the Company under this Agreement, shall be subject to all applicable laws, rules and regulations and to such approvals by any regulatory or governmental agency as may be required. 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
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such information as it may consider appropriate in connection with the issuance or delivery of Shares in compliance with applicable laws, rules and regulations.
29.Appendix A. The Recipient acknowledges and agrees that, if the Recipient is an employee outside the U.S., this Award is subject to the general terms applicable to Awards granted to employees outside the U.S. set forth in Appendix A hereto. Appendix A constitutes part of this Agreement. 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.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 StockPlan Connect 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 StockPlan Connect 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 |
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By: |
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Name: |
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David G. Wagner |
Title: |
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Vice President, Human Resources |
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PARTICIPANT |
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Electronic Acceptance via the |
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StockPlan Connect System |
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General Terms Applicable to Awards Granted to Employees Outside the U.S.
1.DATA PRIVACY
By accepting this Award, the Recipient hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Recipient’s personal data as described in this document and any other grant materials by the Company for the exclusive purpose of implementing, administering and managing this Award.
The Recipient understands that the Company holds certain personal information about the Recipient, including the Recipient’s name, home address, telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of any entitlement to Shares or equivalent benefits awarded, canceled, vested, unvested or outstanding in the Recipient’s favor (the “Data”), for the purpose of implementing, administering and managing the Recipient’s participation in the Plan. The Recipient understands that the Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these Data recipients may be located in the Recipient’s country or elsewhere (for example, the United States) and that the Data recipient’s country may have different data privacy laws and protections from the Recipient’s country. The Recipient understands that the Recipient may request a list with the names and addresses of any potential recipients of the Data by contacting the Recipient’s local human resources representative. The Recipient authorizes the Data recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the exclusive purposes of implementing, administering and managing the Recipient’s participation in the Plan. The Recipient understands that the Data will be held only as long as is necessary to implement, administer and manage the Recipient’s participation in the Plan. The Recipient understands that the Recipient may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Recipient’s local human resources representative. Further, the Recipient understands that the Recipient is providing the consents herein on a purely voluntary basis. If the Recipient does not consent, or if the Recipient later seeks to revoke the Recipient’s consent, the Recipient’s employment status or service and career with the Company will not be adversely affected; the only adverse consequence of refusing or withdrawing the Recipient’s consent is that the Company would not be able to grant to the Recipient this Award or other awards or administer or maintain this Award or such other awards. Therefore, the Recipient understands that refusing or withdrawing the Recipient’s consent may affect the Recipient’s ability to benefit from this Award. For more information on the consequences of the Recipient’s refusal to consent or withdrawal of consent, the Recipient understands that the Recipient may contact the Recipient’s local human resources representative.
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By entering into this Agreement and accepting this Award evidenced hereby, the Recipient acknowledges, understands and agrees that:
(a)the Plan is established voluntarily by the Company, and all awards under the Plan are discretionary in nature;
(b)the grant of this Award is voluntary and occasional and does not create any contractual or other right to receive future awards or benefits in lieu of awards, even if such awards have been awarded in the past;
(c)all decisions with respect to future awards, if any, will be at the sole discretion of the Company;
(d)the grant of this Award shall not create a right to employment with the Company and shall not interfere with the ability of the Company to terminate the Recipient’s employment or service relationship (if any);
(e)the Recipient is voluntarily participating in the Plan;
(f)this Award and any payment made pursuant to this Award, and the value and income of the same, are not part of normal or expected compensation or salary for any purposes, including calculating any severance, resignation, termination, redundancy, dismissal, end-of-service, bonus, long-service, pension, retirement or similar benefits, payments or awards;
(g)unless otherwise agreed with the Company, this Award and any Shares subject to this Award, and the value and income of the same, are not granted as consideration for, or in connection with, any service the Recipient may provide as a director of II-VI or any 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 Shares that may be delivered under this Award (pursuant to the terms of this Award) is unknown, indeterminable and cannot be predicted with certainty;
(j)no claim or entitlement to compensation or damages shall arise from forfeiture of this Award resulting from termination of the Recipient’s employment or service (for any reason whatsoever, whether or not such termination is later found to be invalid or in breach of the
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employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any) or recoupment of all or any portion of any payment made pursuant to this Award as provided by any applicable Company compensation recoupment, clawback or similar policy or any applicable law related to such actions, as may be in effect from time to time and, in consideration of the grant of this Award to which the Recipient is not otherwise entitled, the Recipient irrevocably agrees never to institute any claim against II-VI or any Subsidiary, waives the Recipient’s ability, if any, to bring any such claim, and releases II-VI and its Subsidiaries from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Recipient shall be deemed irrevocably to have agreed not to pursue such claim, and the Recipient agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim;
(k)for purposes of this Award, the Recipient’s employment will be considered terminated as of the date the Recipient is no longer actively employed and providing services to the Company (for any reason whatsoever, whether or not such termination is later found to be invalid or in breach of the employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any), and unless otherwise expressly provided in this Agreement or otherwise determined by the Company, the Recipient’s right to vest in any portion of this Award (and any related dividend equivalents or similar rights) under the Plan, if any, will terminate as of such date and will not be extended by any notice period (for example, the Recipient’s active employment or period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under the employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any); the Company, in its sole discretion, shall determine when the Recipient is no longer actively employed or providing services for purposes of this Award (including whether the Recipient may still be considered to be actively employed or providing services while on an approved leave of absence);
(l)the Recipient is solely responsible for investigating and complying with any exchange control laws applicable to the Recipient in connection with his or her participation in the Plan;
(m)unless otherwise provided in the Plan or by the Company in its sole discretion, this Award and the benefits evidenced by this Agreement do not create any entitlement to have this Award or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Shares; and
(n)the Company shall not 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, any payment made pursuant to this Award or the subsequent sale of any Shares acquired under the Plan.
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If the Recipient has received this Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version differs from the English version, the English version shall control.
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Exhibit 10.09
II‑VI Incorporated
Performance Unit Award AGREEMENT
THIS PERFORMANCE UNIT AWARD AGREEMENT (this “Agreement”) is dated as of the Grant Date, as specified in the applicable Summary of Award (as defined below), by and between II‑VI Incorporated, a Pennsylvania corporation (“II‑VI”), and the Recipient, as specified in the applicable Summary of Award, who is a director, employee or consultant of II‑VI or one of its Subsidiaries (the “Recipient”). For purposes of this Agreement, the term “Company” shall mean II-VI and/or any Subsidiary of II-VI that the Recipient is employed by or may become employed by or provide services to during the Recipient’s employment by II-VI or any such Subsidiary.
Reference is made to the Summary of Award (the “Summary of Award”) issued to the Recipient with respect to the applicable Award, which may be found on Morgan Stanley StockPlan Connect system www.stockplanconnect.com (or any successor system selected by II-VI) (the “StockPlan Connect System”). Reference further is made to the Summary Plan Description relating to the Plan (as defined below) which also may be found on the StockPlan Connect System.
All capitalized terms used herein, to the extent not defined herein, shall have the meanings set forth in the II‑VI 2012 Omnibus Incentive Plan (as amended and/or restated from time to time, the “Plan”), a copy of which can be found on the StockPlan Connect System, and/or the applicable Summary of Award. Terms of the Plan and the Summary of Award are incorporated herein by reference. This Agreement shall constitute an Award Agreement as that term is defined in the Plan and is intended to be a Qualified Performance-Based Award within the meaning of the Plan.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Recipient and II-VI agree as follows:
1.Performance Unit Award. II-VI hereby grants to the Recipient an Award of Performance Units under the Plan, as specified in the Summary of Award, to be earned based upon achievement of the Performance Objectives in accordance with Section 2 (this “Award”). For the purposes of this Award: (1) “Performance Period” shall mean the period from July 1, 2016 through and including June 30, 2019; (2) “Target Award” shall mean the Target Award set forth in the Summary of Award; and (3) “Maximum Award” means the maximum number of Performance Units allowable under this Agreement as set forth in the Summary of Award representing 200% of the Target Award.
2.Determination of Units Earned/Valuation. Subject to Section 4 and Section 5, II-VI shall deliver to the Recipient, for each whole Performance Unit that is earned in accordance with the following schedule, an amount in cash equal to the closing price of the Shares on the day prior to the Compensation Committee’s approval of the number of Performance Units earned following completion of the Performance Period. This Award is payable solely in cash, less applicable withholdings, as set forth in Section 8.
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Performance Units Earned as a Percentage of Target Award |
If II-VI Consolidated Cash Flow from Operations |
0% |
If II-VI Consolidated Cash Flow from Operations |
50.0% to 99.99%(1) |
If II-VI Consolidated Cash Flow from Operations |
100.0% |
If II-VI Consolidated Cash Flow from Operations |
100.01% to 199.99%(2) |
If II-VI Consolidated Cash Flow from Operations |
200.0% (Maximum Award) |
(1) |
In the event that the II-VI Consolidated Cash Flow from Operations is greater than or equal to 75.0% and less than 100.0% of the Cash Flow Target, the Performance Units earned as a percentage of the Target Award will be a percentage determined on a linear basis between 50.0% and 99.99% by adding 50.0% to the product of (A) 50.0% and (B)(i) the II-VI Consolidated Cash Flow from Operations as a percentage of the Cash Flow Target less 75.0% divided by (ii) 25.0% (which product cannot exceed 49.99%). |
(2) |
In the event that the II-VI Consolidated Cash Flow from Operations is greater than 100.0% and less than 140.0% of the Cash Flow Target, the Performance Units earned as a percentage of the Target Award will be a percentage determined on a linear basis between 100.01% and 199.99% by adding 100.0% to the product of (A) 100.0% and (B)(i) the II-VI Consolidated Cash Flow from Operations as a percentage of the Cash Flow Target less 100.0% divided by (ii) 40.0% (which product cannot exceed 99.99%). |
For the purposes of this Award: (i) “II-VI Consolidated Cash Flow from Operations” shall mean the “Total Cash Flow” of II-VI for the Performance Period, determined in accordance with generally accepted accounting principles in the United States, consistently applied; (ii) all targets are expressed in US dollars and performance for II-VI businesses that do not use US dollars as their reporting currency will be translated into US dollars via II-VI’s financial consolidation system at the appropriate exchange rates; and (iii) “Cash Flow Target” shall mean $.
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3.Payment; Dividend Equivalents. The amount determined under Section 2 will be paid to the Recipient in cash no later than the seventy fifth (75th) calendar day following the end of the Performance Period. In addition, the Recipient shall be entitled to receive, following the completion of the Performance Period but in no event later than March 15th of the calendar year following the completion of the Performance Period, a cash payment equal to the cash dividends that would have been paid during the Performance Period on the applicable number of Shares underlying the Performance Units earned as provided in Section 2 if such Shares had been issued and outstanding during the Performance Period.
4.Separation from Service.
(a)Except as provided in Section 4(b) or Section 5 or as may be otherwise determined by the Committee, if the Recipient incurs a Separation from Service before the end of the Performance Period, this Award shall be forfeited on the date of such Separation from Service.
(b)Prorating in Certain Circumstances. Notwithstanding Section 4(a), if the Recipient’s Separation from Service occurs during the Performance Period due to the Recipient’s (i) normal retirement, as defined in II-VI’s Global Retirement Policy, (ii) death, (iii) permanent and total disability, as defined in Code Section 22(e)(3) (a “Disability”), (iv) termination by the Company other than for Cause (as defined below) other than within two years following a Change in Control or (v) termination by the Recipient for Good Reason (as defined below) other than within two years following a Change in Control, but only if the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company provides for severance upon Separation from Service for Good Reason (or a similar term), then in each case under clauses (i) - (v) of this paragraph the Recipient shall be entitled to a prorated portion of the Performance Units to the extent earned pursuant to Section 2, determined at the end of the Performance Period and based on the ratio of the number of complete months the Recipient was employed or served (as applicable) during the Performance Period to the total number of months in the Performance Period. In the event of the death of the Recipient, amounts due pursuant to Section 2 shall be paid to the Recipient’s estate as soon as administratively practicable after the end of the Performance Period.
5.Change in Control; Adjustments to Payments.
(a)Change in Control. Notwithstanding any provision to the contrary in this Agreement or in any offer letter, employment agreement or other applicable employment or service agreement between the Recipient and the Company that discusses the effect of a Change in Control on the Recipient’s Awards, in the event of a Change in Control during the Performance Period, the following provisions shall apply, unless provided otherwise by the Committee prior to the date of the Change in Control:
(i)To the extent this Award is assumed, converted or replaced by the resulting entity in the Change in Control, if within two (2) years after the Change in Control the Recipient has a Separation from Service either (A) by the Company other than for Cause (as defined below) or (B) by the Recipient for Good Reason (as defined below), then the target
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payout opportunities attainable under this Award shall be deemed to have been earned as of the applicable Separation from Service based upon the greater of: (1) an assumed achievement of all relevant performance goals at their “target” level, or (2) the actual level of achievement of all relevant performance goals against target as of the Company’s fiscal quarter end preceding the Change in Control. This Award, as adjusted for such deemed performance, shall become vested in full and shall be paid as soon as administratively practicable (not more than thirty (30) days) after the date of such Separation from Service.
(ii)To the extent this Award is not assumed, converted or replaced by the resulting entity in the Change in Control, then the target payout opportunities attainable under this Award shall be deemed to have been earned as of the Change in Control based upon the greater of: (1) an assumed achievement of all relevant performance goals at their “target” level, or (2) the actual level of achievement of all relevant performance goals against target as of the Company’s fiscal quarter end preceding the Change in Control. This Award, as adjusted for such deemed performance, shall become vested in full and shall be paid as soon as administratively practicable (not more than thirty (30) days) after the date of such Change in Control.
(b)“Cause” shall be defined as that term is defined in the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company; or, if there is no such definition, “Cause” shall mean a determination by the Company that any of the following has occurred:
(i)the willful failure by the Recipient to perform the Recipient’s duties and responsibilities to the Company (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 specifying in reasonable detail the duties or responsibilities that the Company believes are not being adequately performed;
(ii)the willful engaging by the Recipient in any act that is damaging to the Company;
(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.
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(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 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 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 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 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 to the Recipient or for the Recipient’s benefit (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (the “Payments”) would be subject to the excise tax imposed by Code Section 4999, or any interest or penalty is incurred by the Recipient with respect to such excise tax (such excise tax, together with any such interest and penalties, collectively referred to as the “Excise Tax”), then the Payments shall be reduced (but not below zero) if and to the extent that such reduction would result in the Recipient retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the imposition of the Excise Tax), than if the Recipient received all of the Payments. The Company shall reduce or eliminate the Payments by first reducing or eliminating the portion of the Payments that are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits that are to be paid the farthest in time from the determination.
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(ii)All determinations required to be made under this Section 5(d), including whether and when an adjustment to any Payments is required and, if applicable, which Payments are to be so adjusted, shall be made by an independent accounting firm selected by II-VI from among the four (4) largest accounting firms in the United States or any nationally-recognized financial planning and benefits consulting company (the “Accounting Firm”), which shall provide detailed supporting calculations both to II-VI and to the Recipient within fifteen (15) business days of the receipt of notice from the Recipient that there has been a Payment, or such earlier time as is requested by II-VI. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, II-VI shall appoint another nationally-recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by II-VI. If the Accounting Firm determines that no Excise Tax is payable by the Recipient, it shall furnish the Recipient with a written opinion that failure to report the Excise Tax on the Recipient’s applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Recipient.
6.Nontransferability. Except as otherwise provided in the Plan, the Performance Units shall not be sold, pledged, assigned, hypothecated, transferred or disposed of (a “Transfer”) in any manner, other than by will or the laws of descent and distribution. Any attempt to Transfer the Performance Units in violation of this Section or the Plan shall render this Award null and void.
7.Adjustments. Upon any event described in Section 12 of the Plan (entitled “Adjustments”) or any successor provision thereto, the terms of such Section 12 of the Plan or any successor provision thereto shall apply to this Award.
8.Responsibility for Taxes.
(a)Regardless of any action the Company takes with respect to any or all income tax, payroll tax or other tax-related withholding (“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.
(b)Prior to the time any Tax-Related Items become due in connection with this Award, the Recipient shall pay or make adequate arrangements satisfactory to the Company to satisfy all minimum withholding obligations of the Company. In this regard, the Recipient authorizes the Company to withhold all applicable minimum Tax-Related Items legally payable by the Recipient from the Recipient’s wages or other cash compensation paid to the Recipient by the Company or from proceeds of the sale of Shares. Alternatively, or in addition, to the extent permissible under applicable law, the Company may (i) sell or arrange for the sale of Shares that the Recipient acquires to meet the minimum withholding obligation for Tax-Related Items,
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and/or (ii) withhold in Shares, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum withholding amount. Finally, the Recipient shall pay to the Company any amount of Tax-Related Items that the Company may be required to withhold 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 and deliver Shares if the Recipient fails to comply with the Recipient’s obligations in connection with the Tax-Related Items as described in this Section 8.
9.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).
10.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 would otherwise have to terminate the Recipient’s employment or other service at any time, or the right of the Recipient to terminate his or her employment or other service at any time.
11.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.
12.Non-Competition; Non-Solicitation; Confidentiality.
(a)While the Recipient is employed by the Company 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, 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)
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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, 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; provided that this clause (B) shall not apply to any individual whose employment with II-VI or its Subsidiaries has been terminated for a period of one (1) year or longer.
(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 disclose or use for the Recipient’s own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise, other than the Company, any proprietary confidential information or trade secrets; provided that the foregoing shall not apply to information which is not unique to 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.
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 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
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during which the Recipient is in compliance with the restrictive covenants contained in Section 12 will not exceed the one (1)-year period set forth above.
13.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 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 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 12, the Performance Units and the right to receive a cash payment in exchange for such Performance Units shall be forfeited. II-VI shall also have the right, in its sole discretion, in addition to any other remedies or damages provided by law, in equity or otherwise, to demand and require the Recipient, to the extent that any cash payment was received with respect to such Performance Units, to return and transfer to II‑VI any such cash payment.
(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.
14.Recipient Acknowledgments. The Recipient acknowledges and agrees that (a) as a result of the Recipient’s previous, current and future employment with the Company, 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
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constitute a contract of employment, does not imply that the Company will continue the Recipient’s employment for any period of time and does not change the at-will nature of the Recipient’s employment, except as set forth in a separate written employment agreement between the Company and the Recipient, (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 13 are reasonable and necessary to protect the legitimate business interests of II-VI and its Subsidiaries, (f) acceptance of the Performance Units and agreement to be bound by the provisions hereof is not a condition of the Recipient’s employment and (g) the Recipient’s receipt of the benefits provided under this Agreement is adequate consideration for the enforcement of the provisions contained in Section 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.Notice. II‑VI may require any notice required or permitted under this Agreement to be transmitted, submitted or received, by II‑VI or the Recipient, via the StockPlan Connect System in accordance with the procedures established by II‑VI for such notice. Otherwise, any written notice required or permitted by this Agreement shall be mailed, certified mail (return receipt requested) or by overnight carrier, to II‑VI at the following address:
II‑VI Incorporated
Attention: Chief Financial Officer
375 Saxonburg Boulevard
Saxonburg, Pennsylvania 16056
or to the Recipient at his or her most recent home address on record with II‑VI. Notices are effective upon receipt.
17.Controlling Law. The validity, construction and effect of this Agreement will be determined in accordance with the internal laws of the Commonwealth of Pennsylvania without giving effect to the conflict of laws 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,
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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 Recipient resides or where the Recipient was employed by the Company. 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. The Company shall be a third-party beneficiary of this Agreement.
18.Entire Agreement. This Agreement (including the Plan and the Summary of Award) contains the entire understanding between the parties and supersedes any prior understanding and agreements between them regarding the subject matter hereof with respect to 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 and the Recipient.
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 Recipient with respect to any matter arising out of or relating to this Agreement must be filed no later than one (1) year after the date that a denial of any claim hereunder is made or any earlier date that the claim otherwise accrues.
21.Section 409A. This Agreement and this Award are intended to satisfy all applicable requirements of Section 409A or an exception thereto and shall be construed accordingly. II‑VI may, in its sole discretion and without the consent of the Recipient, take any action it deems necessary to comply with the requirements of Section 409A or an exception thereto, including amending the terms of this Award and this Agreement in any manner it deems necessary to cause this Award and this Agreement to be excepted from Section 409A (or to comply therewith to the extent that II-VI determines it is not excepted). Notwithstanding, the Recipient recognizes and acknowledges that Section 409A may affect the timing and recognition of payments due hereunder, and may impose upon the Recipient certain taxes or other charges for which the Recipient is and shall remain solely responsible.
22.Assignment. Except as provided in Section 6, the Recipient’s rights and obligations under this Agreement shall not be transferable by the Recipient, by assignment or otherwise, and any purported assignment, transfer or delegation thereof by the Recipient shall be void. II‑VI and the Company may assign/delegate all or any portion of this Agreement and its
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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.
23.Electronic Delivery. II‑VI may, in its sole discretion, deliver any documents or correspondence related to this Agreement, the Performance Units, the Plan, the Recipient’s participation in the Plan or future awards that may be granted to the Recipient under the Plan, by electronic means. The Recipient hereby consents to receive such documents by electronic delivery and to the Recipient’s participation in the Plan through an on-line or electronic system established and maintained by II‑VI or another third party designated by II‑VI, including the StockPlan Connect System. Likewise, II‑VI may require the Recipient to deliver or receive any documents or correspondence related to this Agreement by such electronic means.
24.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.
25.Compliance with Legal Requirements. The grant of this Award and the issuance of any Shares or other amounts under this Award, and all other obligations of the Company under this Agreement, shall be subject to all applicable laws, rules and regulations and to such approvals by any regulatory or governmental agency as may be required. 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.
26.Appendix A. The Recipient acknowledges and agrees that, if the Recipient is an employee outside the U.S., this Award is subject to the general terms applicable to Awards granted to employees outside the U.S. set forth in Appendix A hereto. Appendix A constitutes part of this Agreement. 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.
27.Amendments. This Agreement may be amended or modified at any time by an instrument in writing signed by the parties hereto, or as otherwise provided under the Plan or this Agreement.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the Grant Date set forth above. Electronic acceptance of this Agreement by the Recipient pursuant to II‑VI’s instructions to the Recipient (including through the StockPlan Connect 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 StockPlan Connect 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 |
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By: |
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Name: |
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David G. Wagner |
Title: |
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Vice President, Human Resources |
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PARTICIPANT |
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Electronic Acceptance via the |
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StockPlan Connect System |
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Appendix A
General Terms Applicable to Awards Granted to Employees Outside the U.S.
1.DATA PRIVACY
By accepting this Award, the Recipient hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Recipient’s personal data as described in this document and any other grant materials by the Company for the exclusive purpose of implementing, administering and managing this Award.
The Recipient understands that the Company holds certain personal information about the Recipient, including the Recipient’s name, home address, telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of any entitlement to Shares or equivalent benefits awarded, canceled, vested, unvested or outstanding in the Recipient’s favor (the “Data”), for the purpose of implementing, administering and managing the Recipient’s participation in the Plan. The Recipient understands that the Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these Data recipients may be located in the Recipient’s country or elsewhere (for example, the United States) and that the Data recipient’s country may have different data privacy laws and protections from the Recipient’s country. The Recipient understands that the Recipient may request a list with the names and addresses of any potential recipients of the Data by contacting the Recipient’s local human resources representative. The Recipient authorizes the Data recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the exclusive purposes of implementing, administering and managing the Recipient’s participation in the Plan. The Recipient understands that the Data will be held only as long as is necessary to implement, administer and manage the Recipient’s participation in the Plan. The Recipient understands that the Recipient may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Recipient’s local human resources representative. Further, the Recipient understands that the Recipient is providing the consents herein on a purely voluntary basis. If the Recipient does not consent, or if the Recipient later seeks to revoke the Recipient’s consent, the Recipient’s employment status or service and career with the Company will not be adversely affected; the only adverse consequence of refusing or withdrawing the Recipient’s consent is that the Company would not be able to grant to the Recipient this Award or other awards or administer or maintain this Award or such other awards. Therefore, the Recipient understands that refusing or withdrawing the Recipient’s consent may affect the Recipient’s ability to benefit from this Award. For more information on the consequences of the Recipient’s refusal to consent or withdrawal of consent, the Recipient understands that the Recipient may contact the Recipient’s local human resources representative.
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2.ADDITIONAL ACKNOWLEDGEMENTS
By entering into this Agreement and accepting this Award evidenced hereby, the Recipient acknowledges, understands and agrees that:
(a)the Plan is established voluntarily by the Company, and all awards under the Plan are discretionary in nature;
(b)the grant of this Award is voluntary and occasional and does not create any contractual or other right to receive future awards or benefits in lieu of awards, even if such awards have been awarded in the past;
(c)all decisions with respect to future awards, if any, will be at the sole discretion of the Company;
(d)the grant of this Award shall not create a right to employment with the Company and shall not interfere with the ability of the Company to terminate the Recipient’s employment or service relationship (if any);
(e)the Recipient is voluntarily participating in the Plan;
(f)this Award and any payment made pursuant to this Award, and the value and income of the same, are not part of normal or expected compensation or salary for any purposes, including calculating any severance, resignation, termination, redundancy, dismissal, end-of-service, bonus, long-service, pension, retirement or similar benefits, payments or awards;
(g)unless otherwise agreed with the Company, this Award and any Shares subject to this Award, and the value and income of the same, are not granted as consideration for, or in connection with, any service the Recipient may provide as a director of II-VI or any 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 Shares that may be delivered under this Award (pursuant to the terms of this Award) is unknown, indeterminable and cannot be predicted with certainty;
(j)no claim or entitlement to compensation or damages shall arise from forfeiture of this Award resulting from termination of the Recipient’s employment or service (for any reason whatsoever, whether or not such termination is later found to be invalid or in breach of the
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employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any) or recoupment of all or any portion of any payment made pursuant to this Award as provided by any applicable Company compensation recoupment, clawback or similar policy or any applicable law related to such actions, as may be in effect from time to time and, in consideration of the grant of this Award to which the Recipient is not otherwise entitled, the Recipient irrevocably agrees never to institute any claim against II-VI or any Subsidiary, waives the Recipient’s ability, if any, to bring any such claim, and releases II-VI and its Subsidiaries from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Recipient shall be deemed irrevocably to have agreed not to pursue such claim, and the Recipient agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim;
(k)for purposes of this Award, the Recipient’s employment will be considered terminated as of the date the Recipient is no longer actively employed and providing services to the Company (for any reason whatsoever, whether or not such termination is later found to be invalid or in breach of the employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any), and unless otherwise expressly provided in this Agreement or otherwise determined by the Company, the Recipient’s right to vest in any portion of this Award (and any related dividend equivalents or similar rights) under the Plan, if any, will terminate as of such date and will not be extended by any notice period (for example, the Recipient’s active employment or period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under the employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any); the Company, in its sole discretion, shall determine when the Recipient is no longer actively employed or providing services for purposes of this Award (including whether the Recipient may still be considered to be actively employed or providing services while on an approved leave of absence);
(l)the Recipient is solely responsible for investigating and complying with any exchange control laws applicable to the Recipient in connection with his or her participation in the Plan;
(m)unless otherwise provided in the Plan or by the Company in its sole discretion, this Award and the benefits evidenced by this Agreement do not create any entitlement to have this Award or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Shares; and
(n)the Company shall not 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, any payment made pursuant to this Award or the subsequent sale of any Shares acquired under the Plan.
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3.LANGUAGE
If the Recipient has received this Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version differs from the English version, the English version shall control.
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Exhibit 10.10
II‑VI Incorporated
Performance Share Award AGREEMENT (JUNE 30, 2019)
THIS PERFORMANCE SHARE AWARD AGREEMENT (this “Agreement”) is dated as of the Grant Date, as specified in the applicable Summary of Award (as defined below), by and between II‑VI Incorporated, a Pennsylvania corporation (“II-VI”), and the Recipient, as specified in the applicable Summary of Award, who is a director, employee or consultant of II-VI or one of its Subsidiaries (the “Recipient”). For purposes of this Agreement, the term “Company” shall include II-VI and/or any Subsidiary of II-VI that the Recipient is employed by or may become employed by or provide services to during the Recipient’s employment by II-VI or any such Subsidiary.
Reference is made to the Summary of Award (the “Summary of Award”) issued to the Recipient with respect to the applicable Award, which may be found on Morgan Stanley StockPlan Connect system www.stockplanconnect.com (or any successor system selected by II-VI) (the “StockPlan Connect System”). Reference further is made to the Summary Plan Description relating to the Plan (as defined below) which also may be found on the StockPlan Connect System.
All capitalized terms used herein, to the extent not defined herein, shall have the meanings set forth in the II-VI 2012 Omnibus Incentive Plan (as amended and/or restated from time to time, the “Plan”), a copy of which can be found on the StockPlan Connect System, and/or the applicable Summary of Award. Terms of the Plan and the Summary of Award are incorporated herein by reference. This Agreement shall constitute an Award Agreement as that term is defined in the Plan and is intended to be a Qualified Performance-Based Award within the meaning of the Plan.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Recipient and II-VI agree as follows:
1.Performance Share Award. II-VI hereby grants to the Recipient an Award of the number of Performance Shares specified in the Summary of Award, to be earned based upon achievement of the Performance Objectives in accordance with Section 2 (this “Award”). For the purposes of this Award: (1) “Performance Period” shall mean the period from July 1, 2018 through and including June 30, 2019; (2) “Target Award” shall mean the Target Award set forth in the Summary of Award; and (3) “Maximum Award” means the maximum number of Performance Shares that may be earned under this Agreement as set forth in the Summary of Award, which number represents 200% of the Target Award.
2.Determination of Shares Earned. Subject to Section 6 and Section 7, Performance Shares shall be earned in accordance with the following schedule:
Level |
FY19 Revenue |
% of Performance Shares Earned* |
Below Threshold |
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0% |
Threshold |
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50% |
Target |
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100% |
Maximum |
|
200% |
* Results between threshold and target or target and maximum will be interpolated on a straight line basis.
For the purposes of this Award: (i) “FY19 Revenue” shall mean the consolidated revenue of II-VI for the 2019 fiscal year (July 1, 2018 - June 30, 2019), determined in accordance with generally accepted accounting principles in the United States, consistently applied; and (ii) all targets are expressed in US dollars and performance for II-VI businesses that do not use US dollars as their reporting currency will be translated into US dollars via II-VI’s financial consolidation system at the appropriate exchange rates. Only whole Performance Shares shall be earned in accordance with this Section 2. By way of example and not limitation, earning 66.67% of a Target Award of 100 Performance Shares would result in delivery of 66 Performance Shares.
3.Delivery of Shares. Unless the Recipient has elected to defer receipt of the Performance Shares in accordance with Section 4, and except as otherwise provided in Section 2, II-VI shall cause a stock certificate (or equivalent electronic book entry) representing Shares equal to the number of Performance Shares earned as provided in Section 2 to be issued or credited, as applicable, to the Recipient no later than the seventy-fifth (75th) calendar day following the end of the Performance Period.
4.Deferral. A the Recipient that is subject to US Federal income tax may elect in writing on or before the date that is twelve (12) months prior to the end of the Performance Period, or such earlier date as may be designated in writing by II-VI (the “Latest Deferral Date”) in order to satisfy the deferral election requirements of Section 409A, to defer the issuance of all or part of the Performance Shares earned. Any such election shall: (1) specify the date of issuance for the earned Performance Shares, which shall not be earlier than the fifth (5th) anniversary of the original payment date or such other minimum deferral period as may be designated by II-VI in order to satisfy the deferral election requirements of Section 409A; and (2) comply with all other applicable deferral election requirements of Section 409A.
5.Limitation of Rights; Dividend Equivalents. The Recipient shall not have any rights of ownership of the Shares underlying the Performance Shares before the issuance of such Shares, including the right to vote such shares. The Recipient, however, shall be entitled to receive, following the completion of the Performance Period but in no event later than March 15th of the calendar year following the completion of the Performance Period, a cash payment
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equal to the cash dividends that would have been paid during the Performance Period on the applicable number of Shares underlying the Performance Shares earned as provided in Section 2 if such Shares had been issued and outstanding during the Performance Period.
6.Separation from Service.
(a)Except as provided in Section 6(b) and Section 7 or as may be otherwise determined by the Committee, if the Recipient incurs a Separation from Service before the end of the Performance Period, this Award shall be forfeited on the date of such Separation from Service.
(b)Prorating in Certain Circumstances. Notwithstanding Section 6(a), if the Recipient’s Separation from Service occurs during the Performance Period due to the Recipient’s (i) normal retirement, as defined in II-VI’s Global Retirement Policy, (ii) death, (iii) permanent and total disability, as defined in Code Section 22(e)(3) (a “Disability”), (iv) termination by the Company other than for Cause (as defined below) other than within two years following a Change in Control or (v) termination by the Recipient for Good Reason (as defined below) other than within two years following a Change in Control, but only if the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company provides for severance upon Separation from Service for Good Reason (or a similar term), then in each case under clauses (i) - (v) of this paragraph the Recipient shall be entitled to a prorated portion of the Performance Shares to the extent earned pursuant to Section 2, determined at the end of the Performance Period and based on the ratio of the number of complete months the Recipient was employed or served (as applicable) during the Performance Period to the total number of months in the Performance Period. In the event of the death of the Recipient, delivery of the applicable number of Shares shall be made to the Recipient’s estate as soon as administratively practicable after the end of the Performance Period.
7.Change in Control; Adjustments to Payments.
(a)Change in Control. Notwithstanding any provision to the contrary in this Agreement or in any offer letter, employment agreement or other applicable employment or service agreement between the Recipient and the Company that discusses the effect of a Change in Control on the Recipient’s Awards, in the event of a Change in Control during the Performance Period, the following provisions shall apply, unless provided otherwise by the Committee prior to the date of the Change in Control:
(i)To the extent this Award is assumed, converted or replaced by the resulting entity in the Change in Control, if within two (2) years after the Change in Control the Recipient has a Separation from Service either (A) by the Company other than for Cause (as defined below) or (B) by the Recipient for Good Reason (as defined below), then the target payout opportunities attainable under this Award shall be deemed to have been earned as of the applicable Separation from Service based upon the greater of: (1) an assumed achievement of all relevant performance goals at their “target” level, or (2) the actual level of achievement of all relevant performance goals against target as of the Company’s fiscal quarter end preceding the Change in Control. This Award, as adjusted for such deemed performance, shall become vested
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in full and shall be paid as soon as administratively practicable (not more than thirty (30) days) after the date of such Separation from Service.
(ii)To the extent this Award is not assumed, converted or replaced by the resulting entity in the Change in Control, then the target payout opportunities attainable under this Award shall be deemed to have been earned as of the Change in Control based upon the greater of: (1) an assumed achievement of all relevant performance goals at their “target” level, or (2) the actual level of achievement of all relevant performance goals against target as of the Company’s fiscal quarter end preceding the Change in Control. This Award, as adjusted for such deemed performance, shall become vested in full and shall be paid as soon as administratively practicable (not more than thirty (30) days) after the date of such Change in Control.
(b)“Cause” shall be defined as that term is defined in the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company; or, if there is no such definition, “Cause” shall mean a determination by the Company that any of the following has occurred:
(i)the willful failure by the Recipient to perform the Recipient’s duties and responsibilities to the Company (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 specifying in reasonable detail the duties or responsibilities that the Company believes are not being adequately performed;
(ii)the willful engaging by the Recipient in any act that is damaging to the Company;
(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.
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(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 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 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 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 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 to the Recipient or for the Recipient’s benefit (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (the “Payments”) would be subject to the excise tax imposed by Code Section 4999, or any interest or penalty is incurred by the Recipient with respect to such excise tax (such excise tax, together with any such interest and penalties, collectively referred to as the “Excise Tax”), then the Payments shall be reduced (but not below zero) if and to the extent that such reduction would result in the Recipient retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the imposition of the Excise Tax), than if the Recipient received all of the Payments. The Company shall reduce or eliminate the Payments by first reducing or eliminating the portion of the Payments that are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits that are to be paid the farthest in time from the determination.
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(ii)All determinations required to be made under this Section 7(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.
8.Nontransferability. Except as otherwise provided in the Plan, the Performance Shares shall not be sold, pledged, assigned, hypothecated, transferred or disposed of (a “Transfer”) in any manner, other than by will or the laws of descent and distribution. Any attempt to Transfer the Performance Shares in violation of this Section or the Plan shall render this Award null and void.
9. Adjustments. Upon any event described in Section 12 of the Plan (entitled “Adjustments”) or any successor provision thereto, the terms of such Section 12 of the Plan or any successor provision thereto shall apply to this Award.
10.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.
11. Responsibility for Taxes.
(a)Regardless of any action the Company takes with respect to any or all income tax, payroll tax or other tax-related withholding (“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.
(b)Prior to the time any Tax-Related Items become due in connection with this Award, the Recipient shall pay or make adequate arrangements satisfactory to the Company to satisfy all minimum withholding obligations of the Company. In this regard, the Recipient authorizes the Company to withhold all applicable minimum Tax-Related Items legally payable by the Recipient from the Recipient’s wages or other cash compensation paid to the Recipient by
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the Company or from proceeds of the sale of Shares. Alternatively, or in addition, to the extent permissible under applicable law, the Company may (i) sell or arrange for the sale of Shares that the Recipient acquires to meet the minimum withholding obligation for Tax-Related Items, and/or (ii) withhold in Shares, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum withholding amount. Finally, the Recipient shall pay to the Company any amount of Tax-Related Items that the Company may be required to withhold 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 and deliver Shares if the Recipient fails to comply with the Recipient’s obligations in connection with the Tax-Related Items as described in this Section 11.
12.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).
13.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 would otherwise have to terminate the Recipient’s employment or other service at any time, or the right of the Recipient to terminate his or her employment or other service at any time.
14.Rights Unsecured. II-VI shall remain the owner of all Performance Shares deferred by the Recipient pursuant to Section 4 and the Recipient shall have only II-VI’s unfunded, unsecured promise to pay pursuant to the terms of this Agreement and the II-VI Non-Qualified Executive Plan, as it may be amended and/or restated from time to time, and any predecessor or successor plan thereto. The rights of the Recipient hereunder and thereunder shall be those of a general unsecured creditor of II-VI and the Recipient shall not have any security interest in any assets of II-VI.
15.Non-Competition; Non-Solicitation; Confidentiality.
(a)While the Recipient is employed by the Company 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, 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.
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(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, 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; provided that this clause (B) shall not apply to any individual whose employment with II-VI or its Subsidiaries has been terminated for a period of one (1) year or longer.
(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 disclose or use for the Recipient’s own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise, other than the Company, any proprietary confidential information or trade secrets; provided that the foregoing shall not apply to information which is not unique to 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.
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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 15 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 15 will not exceed the one (1)-year period set forth above.
16.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 15 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 16(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 15, the Performance Shares and the right to receive Shares in exchange for such Performance Shares shall be forfeited. II-VI shall also have the right, in its sole discretion, in addition to any other remedies or damages provided by law, in equity or otherwise, to demand and require the Recipient, to the extent that any Shares were received with respect to such Performance Shares (i) return and transfer to II-VI any such shares directly or beneficially owned by the Recipient, and (ii) to the extent that the Recipient sold or transferred any such Shares, disgorge and/or repay to II-VI any profits or other economic value (as determined by II-VI) made or realized by the Recipient with respect to such Shares, including 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
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actions as may be necessary to effectuate any such policy or applicable law, without further consideration or action.
17.Recipient Acknowledgments. The Recipient acknowledges and agrees that (a) as a result of the Recipient’s previous, current and future employment with the Company, 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 conduct such business worldwide, (c) this Agreement does not constitute a contract of employment, does not imply that the Company will continue the Recipient’s employment for any period of time and does not change the at-will nature of the Recipient’s employment, except as set forth in a separate written employment agreement between the Company and the Recipient, (d) the restrictive covenants set forth in Section 15 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 16 are reasonable and necessary to protect the legitimate business interests of II-VI and its Subsidiaries, (f) acceptance of these Performance Shares 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 15 and Section 16.
18.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.
19.Notice. II-VI may require any notice required or permitted under this Agreement to be transmitted, submitted or received, by II-VI or the Recipient, via the StockPlan Connect System in accordance with the procedures established by II-VI for such notice. Otherwise, any written notice required or permitted by this Agreement shall be mailed, certified mail (return receipt requested) or by overnight carrier, to II-VI at the following address:
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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.
20.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 15 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. 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. The Company shall be a third-party beneficiary of this Agreement.
21.Entire Agreement. This Agreement (including the Plan and the Summary of Award) contains the entire understanding between the parties and supersedes any prior understanding and agreements between them regarding the subject matter hereof with respect to 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 and the Recipient.
22.Captions. Section and other headings contained in this Agreement are for reference purposes only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof.
23.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.
24.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,
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including amending the terms of this Award and this Agreement, in any manner it deems necessary to cause this Award and this Agreement to be excepted from Section 409A (or to comply therewith to the extent that II-VI determines it is not excepted). Notwithstanding, the Recipient recognizes and acknowledges that Section 409A may affect the timing and recognition of payments due hereunder, and may impose upon the Recipient certain taxes or other charges for which the Recipient is and shall remain solely responsible.
25.Assignment. Except as provided in Section 8, the Recipient’s rights and obligations under this Agreement shall not be transferable by the Recipient, by assignment or otherwise, and any purported assignment, transfer or delegation thereof by the Recipient shall be void. II-VI and the Company may assign/delegate all or any portion of this Agreement and its rights hereunder without prior notice to the Recipient and without the Recipient providing any additional consent thereto, whereupon the Recipient shall continue to be bound hereby with respect to such assignee/delegatee.
26.Electronic Delivery. II-VI may, in its sole discretion, deliver any documents or correspondence related to this Agreement, the Plan, the Performance Shares, the Recipient’s participation in the Plan or future awards that may be granted to the Recipient under the Plan, by electronic means. The Recipient hereby consents to receive such documents by electronic delivery and to 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 StockPlan Connect System. Likewise, II-VI may require the Recipient to deliver or receive any documents or correspondence related to this Agreement by such electronic means.
27. 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.
28. Compliance with Legal Requirements. The grant of this Award and the issuance of any Shares or other amounts under this Award, and all other obligations of the Company under this Agreement, shall be subject to all applicable laws, rules and regulations and to such approvals by any regulatory or governmental agency as may be required. 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.
29. Appendix A. The Recipient acknowledges and agrees that, if the Recipient is an employee outside the U.S., this Award is subject to the general terms applicable to Awards granted to employees outside the U.S. set forth in Appendix A hereto. Appendix A constitutes part of this Agreement. 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
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to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.
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]
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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 StockPlan Connect 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 StockPlan Connect 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 |
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By: |
Name: David G. Wagner |
Title: Vice President, Human Resources |
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PARTICIPANT |
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Electronic Acceptance via the |
StockPlan Connect System |
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General Terms Applicable to Awards Granted to Employees Outside the U.S.
1.DATA PRIVACY
By accepting this Award, the Recipient hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Recipient’s personal data as described in this document and any other grant materials by the Company for the exclusive purpose of implementing, administering and managing this Award.
The Recipient understands that the Company holds certain personal information about the Recipient, including the Recipient’s name, home address, telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of any entitlement to Shares or equivalent benefits awarded, canceled, vested, unvested or outstanding in the Recipient’s favor (the “Data”), for the purpose of implementing, administering and managing the Recipient’s participation in the Plan. The Recipient understands that the Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these Data recipients may be located in the Recipient’s country or elsewhere (for example, the United States) and that the Data recipient’s country may have different data privacy laws and protections from the Recipient’s country. The Recipient understands that the Recipient may request a list with the names and addresses of any potential recipients of the Data by contacting the Recipient’s local human resources representative. The Recipient authorizes the Data recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the exclusive purposes of implementing, administering and managing the Recipient’s participation in the Plan. The Recipient understands that the Data will be held only as long as is necessary to implement, administer and manage the Recipient’s participation in the Plan. The Recipient understands that the Recipient may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Recipient’s local human resources representative. Further, the Recipient understands that the Recipient is providing the consents herein on a purely voluntary basis. If the Recipient does not consent, or if the Recipient later seeks to revoke the Recipient’s consent, the Recipient’s employment status or service and career with the Company will not be adversely affected; the only adverse consequence of refusing or withdrawing the Recipient’s consent is that the Company would not be able to grant to the Recipient this Award or other awards or administer or maintain this Award or such other awards. Therefore, the Recipient understands that refusing or withdrawing the Recipient’s consent may affect the Recipient’s ability to benefit from this Award. For more information on the consequences of the Recipient’s refusal to consent or withdrawal of consent, the Recipient understands that the Recipient may contact the Recipient’s local human resources representative.
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By entering into this Agreement and accepting this Award evidenced hereby, the Recipient acknowledges, understands and agrees that:
(a)the Plan is established voluntarily by the Company, and all awards under the Plan are discretionary in nature;
(b)the grant of this Award is voluntary and occasional and does not create any contractual or other right to receive future awards or benefits in lieu of awards, even if such awards have been awarded in the past;
(c)all decisions with respect to future awards, if any, will be at the sole discretion of the Company;
(d)the grant of this Award shall not create a right to employment with the Company and shall not interfere with the ability of the Company to terminate the Recipient’s employment or service relationship (if any);
(e)the Recipient is voluntarily participating in the Plan;
(f)this Award and any payment made pursuant to this Award, and the value and income of the same, are not part of normal or expected compensation or salary for any purposes, including calculating any severance, resignation, termination, redundancy, dismissal, end-of-service, bonus, long-service, pension, retirement or similar benefits, payments or awards;
(g)unless otherwise agreed with the Company, this Award and any Shares subject to this Award, and the value and income of the same, are not granted as consideration for, or in connection with, any service the Recipient may provide as a director of II-VI or any 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 Shares that may be delivered under this Award (pursuant to the terms of this Award) is unknown, indeterminable and cannot be predicted with certainty;
(j)no claim or entitlement to compensation or damages shall arise from forfeiture of this Award resulting from termination of the Recipient’s employment or service (for any reason whatsoever, whether or not such termination is later found to be invalid or in breach of the
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employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any) or recoupment of all or any portion of any payment made pursuant to this Award as provided by any applicable Company compensation recoupment, clawback or similar policy or any applicable law related to such actions, as may be in effect from time to time and, in consideration of the grant of this Award to which the Recipient is not otherwise entitled, the Recipient irrevocably agrees never to institute any claim against II-VI or any Subsidiary, waives the Recipient’s ability, if any, to bring any such claim, and releases II-VI and its Subsidiaries from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Recipient shall be deemed irrevocably to have agreed not to pursue such claim, and the Recipient agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim;
(k)for purposes of this Award, the Recipient’s employment will be considered terminated as of the date the Recipient is no longer actively employed and providing services to the Company (for any reason whatsoever, whether or not such termination is later found to be invalid or in breach of the employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any), and unless otherwise expressly provided in this Agreement or otherwise determined by the Company, the Recipient’s right to vest in any portion of this Award (and any related dividend equivalents or similar rights) under the Plan, if any, will terminate as of such date and will not be extended by any notice period (for example, the Recipient’s active employment or period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under the employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any); the Company, in its sole discretion, shall determine when the Recipient is no longer actively employed or providing services for purposes of this Award (including whether the Recipient may still be considered to be actively employed or providing services while on an approved leave of absence);
(l)the Recipient is solely responsible for investigating and complying with any exchange control laws applicable to the Recipient in connection with his or her participation in the Plan;
(m)unless otherwise provided in the Plan or by the Company in its sole discretion, this Award and the benefits evidenced by this Agreement do not create any entitlement to have this Award or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Shares; and
(n)the Company shall not 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, any payment made pursuant to this Award or the subsequent sale of any Shares acquired under the Plan.
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If the Recipient has received this Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version differs from the English version, the English version shall control.
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Exhibit 10.11
II‑VI Incorporated
Performance Share Award AGREEMENT
THIS PERFORMANCE SHARE AWARD AGREEMENT (this “Agreement”) is dated as of the Grant Date, as specified in the applicable Summary of Award (as defined below), by and between II‑VI Incorporated, a Pennsylvania corporation (“II-VI”), and the Recipient, as specified in the applicable Summary of Award, who is a director, employee or consultant of II-VI or one of its Subsidiaries (the “Recipient”). For purposes of this Agreement, the term “Company” shall include II-VI and/or any Subsidiary of II-VI that the Recipient is employed by or may become employed by or provide services to during the Recipient’s employment by II-VI or any such Subsidiary.
Reference is made to the Summary of Award (the “Summary of Award”) issued to the Recipient with respect to the applicable Award, which may be found on Morgan Stanley StockPlan Connect system www.stockplanconnect.com (or any successor system selected by II-VI) (the “StockPlan Connect System”). Reference further is made to the Summary Plan Description relating to the Plan (as defined below) which also may be found on the StockPlan Connect System.
All capitalized terms used herein, to the extent not defined herein, shall have the meanings set forth in the II-VI 2012 Omnibus Incentive Plan (as amended and/or restated from time to time, the “Plan”), a copy of which can be found on the StockPlan Connect System, and/or the applicable Summary of Award. Terms of the Plan and the Summary of Award are incorporated herein by reference. This Agreement shall constitute an Award Agreement as that term is defined in the Plan and is intended to be a Qualified Performance-Based Award within the meaning of the Plan.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Recipient and II-VI agree as follows:
1.Performance Share Award. II-VI hereby grants to the Recipient an Award of Performance Shares under the Plan, as specified in the Summary of Award, to be earned based upon achievement of the Performance Objectives in accordance with Section 2 (this “Award”). For the purposes of this Award: (1) “Performance Period” shall mean the period of July 1, 2016 through and including June 30, 2019; (2) “Target Award” shall mean the Target Award set forth in the Summary of Award; and (3) “Maximum Award” means the maximum number of Performance Shares that may be earned under this Agreement as set forth in the Summary of Award, which number represents 200% of the Target Award.
2.Determination of Shares Earned. Subject to Section 5 and Section 6, Performance Shares shall be earned in accordance with the following schedule:
|
Performance Shares Earned as a |
If Cumulative TSR is below Market 50th Percentile by more than 40 percentage points |
0.00% |
If Cumulative TSR is equal to 40 percentage points below Market 50th Percentile and there is an absolute positive Cumulative TSR |
50.00% (Threshold) |
If Cumulative TSR is below Market 50th Percentile by less than 40 percentage points and there is an absolute positive Cumulative TSR |
Subtract 1.25% from 100.00% for each 1% below Market 50th Percentile |
If Cumulative TSR equals Market 50th Percentile |
100.00% |
If Cumulative TSR is above Market 50th Percentile by less than 40 percentage points |
Add 2.50% to 100.00% for each 1% above Market 50th Percentile1 |
If Cumulative TSR is above Market 50th Percentile by more than 40 percentage points |
200.00%1 (Maximum Award) |
1 If there is an absolute negative Cumulative TSR for the Performance Period and Cumulative TSR is above Market 50th Percentile, the percentage of the Target Award earned shall be capped at 100.00%.
Definitions:
“Market” is the Russell 2000 as published on June 27, 2016. If a listing is removed from the Russell 2000 during the Performance Period, it will not be replaced, nor will any listing be added for any other reason. The Russell 2000 shall be a closed group for purposes of this Program.
“Cumulative TSR” shall be based on the 30-day average closing stock price of the Shares prior to July 1, 2016 ($19.74) (“Beginning Stock Price”) and the 30-day average closing stock price prior to July 1, 2019 (“Ending Stock Price”). Cumulative TSR shall be calculated as follows:
((Ending Stock Price minus Beginning Stock Price ($19.74) plus dividends) divided by Beginning Stock Price ($19.74))
Only whole Performance Shares shall be earned in accordance with this Section 2. By way of example and not limitation, earning 66.67% of a Target Award of 100 Performance Shares would result in delivery of 66 Performance Shares.
3.Delivery of Shares. Unless the Recipient has elected to defer receipt of the Performance Shares in accordance with Section 4, and except as otherwise provided in Section 2, II-VI shall cause a stock certificate (or equivalent electronic book entry) representing Shares equal to the number of Performance Shares earned as provided in Section 2 to be issued or credited, as
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applicable, to the Recipient no later than the seventy-fifth (75th) calendar day following the end of the Performance Period.
4.Deferral. A the Recipient that is subject to U.S. Federal income tax may elect in writing on or before the date that is twelve (12) months prior to the end of the Performance Period, or such earlier date as may be designated in writing by II-VI (the “Latest Deferral Date”) in order to satisfy the deferral election requirements of Section 409A, to defer the issuance of all or part of the Performance Shares earned. Any such election shall: (1) specify the date of issuance for the earned Performance Shares, which shall not be earlier than the fifth (5th) anniversary of the original payment date or such other minimum deferral period as may be designated by II-VI in order to satisfy the deferral election requirements of Section 409A; and (2) comply with all other applicable deferral election requirements of Section 409A.
5.Limitation of Rights; Dividend Equivalents. The Recipient shall not have any rights of ownership of the Shares underlying the Performance Shares before the issuance of such shares, including any right to vote such shares. The Recipient, however, shall be entitled to receive, following the completion of the Performance Period but no later than March 15th of the calendar year following the completion of the Performance Period, a cash payment equal to the cash dividends, if any, that would have been paid during the Performance Period on the applicable number of Shares underlying the Performance Shares earned as provided in Section 2 if such Shares had been issued and outstanding during the Performance Period.
6.Separation from Service.
(a)Except as provided in Section 6(b) and Section 7 or as may be otherwise determined by the Committee, if the Recipient’s Separation from Service occurs before the end of the Performance Period, this Award shall be forfeited on the date of such Separation from Service.
(b)Prorating in Certain Circumstances. Notwithstanding Section 6(a), if the Recipient’s Separation from Service occurs during the Performance Period due to the Recipient’s (i) normal retirement, as defined in II-VI’s Global Retirement Policy, (ii) death, (iii) permanent and total disability, as defined in Code Section 22(e)(3) (a “Disability”), (iv) termination by the Company other than for Cause (as defined below) other than within two years following a Change in Control or (v) termination by the Recipient for Good Reason (as defined below) other than within two years following a Change in Control, but only if the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company provides for severance upon Separation from Service for Good Reason (or similar term), then in each case under clauses (i) - (v) of this paragraph the Recipient shall be entitled to a prorated portion of the Performance Shares to the extent earned pursuant to Section 2, determined at the end of the Performance Period and based on the ratio of the number of complete months the Recipient was employed or served (as applicable) during the Performance Period to the total number of months in the Performance Period. In the event of the death of the Recipient, delivery of the applicable number of Shares shall be made to the Recipient’s estate as soon as administratively practicable after the end of the Performance Period.
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7.Change in Control; Adjustments to Payments.
(a)Change in Control. Notwithstanding any provision to the contrary in this Agreement or in any offer letter, employment agreement or other applicable employment or service agreement between the Recipient and the Company that discusses the effect of a Change in Control on the Recipient’s Awards, in the event of a Change in Control during the Performance Period, the following provisions shall apply, unless provided otherwise by the Committee prior to the date of the Change in Control:
(i)To the extent this Award is assumed, converted or replaced by the resulting entity in the Change in Control, if within two (2) years after the Change in Control the Recipient has a Separation from Service either (A) by the Company other than for Cause (as defined below) or (B) by the Recipient for Good Reason (as defined below), then the target payout opportunities attainable under this Award shall be deemed to have been earned as of the applicable Separation from Service based upon the greater of: (1) an assumed achievement of all relevant performance goals at their “target” level, or (2) the actual level of achievement of all relevant performance goals against target as of the Company’s fiscal quarter end preceding the Change in Control. This Award, as adjusted for such deemed performance, shall become vested in full and shall be paid as soon as administratively practicable (not more than thirty (30) days) after the date of such Separation from Service.
(ii)To the extent this Award is not assumed, converted or replaced by the resulting entity in the Change in Control, then the target payout opportunities attainable under this Award shall be deemed to have been earned as of the Change in Control based upon the greater of: (1) an assumed achievement of all relevant performance goals at their “target” level, or (2) the actual level of achievement of all relevant performance goals against target as of the Company’s fiscal quarter end preceding the Change in Control. This Award, as adjusted for such deemed performance, shall become vested in full and shall be paid as soon as administratively practicable (not more than thirty (30) days) after the date of such Change in Control.
(b)“Cause” shall be defined as that term is defined in the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company; or, if there is no such definition, “Cause” shall mean a determination by the Company that any of the following has occurred:
(i)the willful failure by the Recipient to perform the Recipient’s duties and responsibilities to the Company (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 specifying in reasonable detail the duties or responsibilities that the Company believes are not being adequately performed;
(ii)the willful engaging by the Recipient in any act that is damaging to the Company;
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(iii)the conviction of the Recipient of, or a plea of “guilty” or “no contest” to, (A) any felony or (B) a criminal offense involving fraud, dishonesty or other moral turpitude;
(iv)any breach by the Recipient of the terms of any written agreement between the Recipient and the Company relating to proprietary information, confidentiality, non-disclosure, ownership of inventions, non-competition, non-solicitation, non-interference or non-disparagement;
(v)the engaging by the Recipient in any willful act of dishonesty resulting or intended to result, directly or indirectly, in personal gain to the Recipient; or
(vi)the commission of any act by the Recipient that is in violation of the Company’s Code of Business Conduct and Ethics.
(c)“Good Reason” shall be defined as that term is defined in the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company; or, if there is no such definition, “Good Reason” shall mean that any of the following has occurred, without the Recipient’s express written consent:
(i)a material reduction of the Recipient’s employment responsibilities from those immediately prior to the Change in Control;
(ii)a material reduction by the Company 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 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 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 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.
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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 to the Recipient or for the Recipient’s benefit (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (the “Payments”) would be subject to the excise tax imposed by Code Section 4999, or any interest or penalty is incurred by the Recipient with respect to such excise tax (such excise tax, together with any such interest and penalties, collectively referred to as the “Excise Tax”), then the Payments shall be reduced (but not below zero) if and to the extent that such reduction would result in the Recipient retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the imposition of the Excise Tax), than if the Recipient received all of the Payments. The Company shall reduce or eliminate the Payments by first reducing or eliminating the portion of the Payments that are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits that are to be paid the farthest in time from the determination.
(ii)All determinations required to be made under this Section 7(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.
8.Nontransferability. Except as otherwise provided in the Plan, the Performance Shares shall not be sold, pledged, assigned, hypothecated, transferred or disposed of (a “Transfer”) in any manner, other than by will or the laws of descent and distribution. Any attempt to Transfer the Performance Shares in violation of this Section or the Plan shall render this Award null and void.
9.Adjustments. Upon any event described in Section 12 of the Plan (entitled “Adjustments”) or any successor provision thereto, the terms of such Section 12 of the Plan or any successor provision thereto shall apply to this Award.
10.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.
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11.Responsibility for Taxes.
(a)Regardless of any action the Company takes with respect to any or all income tax, payroll tax or other tax-related withholding (“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.
(b)Prior to the time any Tax-Related Items become due in connection with this Award, the Recipient shall pay or make adequate arrangements satisfactory to the Company to satisfy all minimum withholding obligations of the Company. In this regard, the Recipient authorizes the Company to withhold all applicable minimum Tax-Related Items legally payable by the Recipient from the Recipient’s wages or other cash compensation paid to the Recipient by the Company or from proceeds of the sale of Shares. Alternatively, or in addition, to the extent permissible under applicable law, the Company may (i) sell or arrange for the sale of Shares that the Recipient acquires to meet the minimum withholding obligation for Tax-Related Items, and/or (ii) withhold in Shares, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum withholding amount. Finally, the Recipient shall pay to the Company any amount of Tax-Related Items that the Company may be required to withhold 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 and deliver Shares if the Recipient fails to comply with the Recipient’s obligations in connection with the Tax-Related Items as described in this Section 11.
12.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).
13.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 would otherwise have to terminate the Recipient’s employment or other service at any time, or the right of the Recipient to terminate his or her employment or other service at any time.
14.Rights Unsecured. II-VI shall remain the owner of all Performance Shares deferred by the Recipient pursuant to Section 4 and the Recipient shall have only II-VI’s unfunded, unsecured promise to pay pursuant to the terms of this Agreement and the II-VI Non-Qualified Executive Plan, as it may be amended and/or restated from time to time, and any predecessor or successor plan thereto. The rights of the Recipient hereunder and thereunder shall be those of a general unsecured creditor of II-VI and the Recipient shall not have any security interest in any assets of II-VI.
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15.Non-Competition; Non-Solicitation; Confidentiality.
(a)While the Recipient is employed by the Company 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, 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, or (B) induce or attempt to induce any vendor, supplier, licensee or other business relation of II-VI or its Subsidiaries to cease or restrict doing business with II-VI or its Subsidiaries, or in any way interfere with the relationship between any such vendor, supplier, licensee or business relation and II-VI or its Subsidiaries; or
(iii)either alone or in association with others (A) solicit, or permit any organization directly or indirectly controlled by the Recipient to solicit, any employee of II-VI or its Subsidiaries to leave the employ of II-VI or its Subsidiaries, or (B) solicit for employment, hire or engage as an independent contractor, or permit any organization directly or indirectly controlled by the Recipient to solicit for employment, hire or engage as an independent contractor, any person who was employed by II-VI or its Subsidiaries at any time during the term of the Recipient’s employment with the Company; provided that this clause (B) shall not apply to any individual whose employment with II-VI or its Subsidiaries has been terminated for a period of one (1) year or longer.
(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 disclose or use for the
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Recipient’s own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise, other than the Company, any proprietary confidential information or trade secrets; provided that the foregoing shall not apply to information which is not unique to 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 Participant’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.
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 15 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 15 will not exceed the one (1)-year period set forth above.
16.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 15 would cause immediate, material and irreparable harm to the II-VI and its Subsidiaries which may not adequately be compensated by money damages and, therefore, II-VI and its Subsidiaries shall be entitled to injunctive relief (including one (1) or more preliminary injunctions and/or ex parte restraining orders) in addition to, and not in derogation of, any other remedies provided by law, in equity or otherwise for such a violation, including the right to have such covenants specifically enforced by any court of competent jurisdiction, the rights under Section 16(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 15, the Performance Shares and the right to receive Shares in exchange for such Performance Shares shall be forfeited. II-VI shall also have the right, in its sole discretion, in addition to any other remedies or damages provided by law, in equity or otherwise, to demand and require the Recipient, to the extent that any Shares were received with respect to such Performance Shares (i) return and transfer to II-VI any such shares directly or beneficially owned by the Recipient, and (ii) to the extent that the Recipient sold or transferred any such Shares, disgorge and/or repay to II-VI any profits or other economic value (as determined by II-VI) made or realized by the Recipient with respect to such shares, including the value of any gift thereof.
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(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.
17.Recipient Acknowledgments. The Recipient acknowledges and agrees that (a) as a result of the Recipient’s previous, current and future employment with the Company, 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 will continue the Recipient’s employment for any period of time and does not change the at-will nature of the Recipient’s employment, except as set forth in a separate written employment agreement between the Company and the Recipient, (d) the restrictive covenants set forth in Section 15 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 16 are reasonable and necessary to protect the legitimate business interests of II-VI and its Subsidiaries, (f) acceptance of these Performance Shares 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 15 and Section 16.
18.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
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effective only in that instance and will not be construed as a bar to or waiver of any right on any other occasion.
19.Notice. II-VI may require any notice required or permitted under this Agreement to be transmitted, submitted or received, by II-VI or the Recipient, via the StockPlan Connect System in accordance with the procedures established by II-VI for such notice. Otherwise, any written notice required or permitted by this Agreement shall be mailed, certified mail (return receipt requested) or by overnight carrier, to II-VI at the following address:
II-VI Incorporated
Attention: Chief Financial Officer
375 Saxonburg Boulevard
Saxonburg, Pennsylvania 16056
or to the Recipient at his or her most recent home address on record with II-VI. Notices are effective upon receipt.
20.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 15 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. 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. The Company shall be a third-party beneficiary of this Agreement.
21.Entire Agreement. This Agreement (including the Plan and the Summary of Award) contains the entire understanding between the parties and supersedes any prior understanding and agreements between them regarding the subject matter hereof with respect to 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 and the Recipient.
22.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
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expressly provided otherwise, any reference in this Agreement to any Section refers to the corresponding Section of this Agreement.
23.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.
24.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.
25.Assignment. Except as provided in Section 8, the Recipient’s rights and obligations under this Agreement shall not be transferable by the Recipient, by assignment or otherwise, and any purported assignment, transfer or delegation thereof by the Recipient shall be void. II-VI and the Company may assign/delegate all or any portion of this Agreement and its rights hereunder without prior notice to the Recipient and without the Recipient providing any additional consent thereto, whereupon the Recipient shall continue to be bound hereby with respect to such assignee/delegatee.
26.Electronic Delivery. II-VI may, in its sole discretion, deliver any documents or correspondence related to this Agreement, the Performance Shares, 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 StockPlan Connect System. Likewise, II-VI may require the Recipient to deliver or receive any documents or correspondence related to this Agreement by such electronic means.
27.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.
28.Compliance with Legal Requirements. The grant of this Award and the issuance of any Shares or other amounts under this Award, and all other obligations of the Company under this Agreement, shall be subject to all applicable laws, rules and regulations and to such approvals
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by any regulatory or governmental agency as may be required. 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.
29.Appendix A. The Recipient acknowledges and agrees that, if the Recipient is an employee outside the U.S., this Award is subject to the general terms applicable to Awards granted to employees outside the U.S. set forth in Appendix A hereto. Appendix A constitutes part of this Agreement. 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.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 StockPlan Connect System) shall constitute execution of this Agreement by the Recipient.
The Recipient agrees that his or her electronic acceptance of this Agreement via electronic means, including via the StockPlan Connect 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 |
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By: |
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Name: |
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David G. Wagner |
Title: |
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Vice President, Human Resources |
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PARTICIPANT |
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Electronic Acceptance via the |
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StockPlan Connect System |
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Appendix A
General Terms Applicable to Awards Granted to Employees Outside the U.S.
1. |
DATA PRIVACY |
By accepting this Award, the Recipient hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Recipient’s personal data as described in this document and any other grant materials by the Company for the exclusive purpose of implementing, administering and managing this Award.
The Recipient understands that the Company holds certain personal information about the Recipient, including the Recipient’s name, home address, telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of any entitlement to Shares or equivalent benefits awarded, canceled, vested, unvested or outstanding in the Recipient’s favor (the “Data”), for the purpose of implementing, administering and managing the Recipient’s participation in the Plan. The Recipient understands that the Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these Data recipients may be located in the Recipient’s country or elsewhere (for example, the United States) and that the Data recipient’s country may have different data privacy laws and protections from the Recipient’s country. The Recipient understands that the Recipient may request a list with the names and addresses of any potential recipients of the Data by contacting the Recipient’s local human resources representative. The Recipient authorizes the Data recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the exclusive purposes of implementing, administering and managing the Recipient’s participation in the Plan. The Recipient understands that the Data will be held only as long as is necessary to implement, administer and manage the Recipient’s participation in the Plan. The Recipient understands that the Recipient may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Recipient’s local human resources representative. Further, the Recipient understands that the Recipient is providing the consents herein on a purely voluntary basis. If the Recipient does not consent, or if the Recipient later seeks to revoke the Recipient’s consent, the Recipient’s employment status or service and career with the Company will not be adversely affected; the only adverse consequence of refusing or withdrawing the Recipient’s consent is that the Company would not be able to grant to the Recipient this Award or other awards or administer or maintain this Award or such other awards. Therefore, the Recipient understands that refusing or withdrawing the Recipient’s consent may affect the Recipient’s ability to benefit from this Award. For more information on the consequences of the Recipient’s refusal to consent or withdrawal of consent, the Recipient understands that the Recipient may contact the Recipient’s local human resources representative.
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2. |
ADDITIONAL ACKNOWLEDGEMENTS |
By entering into this Agreement and accepting this Award evidenced hereby, the Recipient acknowledges, understands and agrees that:
(a)the Plan is established voluntarily by the Company, and all awards under the Plan are discretionary in nature;
(b)the grant of this Award is voluntary and occasional and does not create any contractual or other right to receive future awards or benefits in lieu of awards, even if such awards have been awarded in the past;
(c)all decisions with respect to future awards, if any, will be at the sole discretion of the Company;
(d)the grant of this Award shall not create a right to employment with the Company and shall not interfere with the ability of the Company to terminate the Recipient’s employment or service relationship (if any);
(e)the Recipient is voluntarily participating in the Plan;
(f)this Award and any payment made pursuant to this Award, and the value and income of the same, are not part of normal or expected compensation or salary for any purposes, including calculating any severance, resignation, termination, redundancy, dismissal, end-of-service, bonus, long-service, pension, retirement or similar benefits, payments or awards;
(g)unless otherwise agreed with the Company, this Award and any Shares subject to this Award, and the value and income of the same, are not granted as consideration for, or in connection with, any service the Recipient may provide as a director of II-VI or any 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 Shares that may be delivered under this Award (pursuant to the terms of this Award) is unknown, indeterminable and cannot be predicted with certainty;
(j)no claim or entitlement to compensation or damages shall arise from forfeiture of this Award resulting from termination of the Recipient’s employment or service (for any reason whatsoever, whether or not such termination is later found to be invalid or in breach of the
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employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any) or recoupment of all or any portion of any payment made pursuant to this Award as provided by any applicable Company compensation recoupment, clawback or similar policy or any applicable law related to such actions, as may be in effect from time to time and, in consideration of the grant of this Award to which the Recipient is not otherwise entitled, the Recipient irrevocably agrees never to institute any claim against II-VI or any Subsidiary, waives the Recipient’s ability, if any, to bring any such claim, and releases II-VI and its Subsidiaries from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Recipient shall be deemed irrevocably to have agreed not to pursue such claim, and the Recipient agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim;
(k)for purposes of this Award, the Recipient’s employment will be considered terminated as of the date the Recipient is no longer actively employed and providing services to the Company (for any reason whatsoever, whether or not such termination is later found to be invalid or in breach of the employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any), and unless otherwise expressly provided in this Agreement or otherwise determined by the Company, the Recipient’s right to vest in any portion of this Award (and any related dividend equivalents or similar rights) under the Plan, if any, will terminate as of such date and will not be extended by any notice period (for example, the Recipient’s active employment or period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under the employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any); the Company, in its sole discretion, shall determine when the Recipient is no longer actively employed or providing services for purposes of this Award (including whether the Recipient may still be considered to be actively employed or providing services while on an approved leave of absence);
(l)the Recipient is solely responsible for investigating and complying with any exchange control laws applicable to the Recipient in connection with his or her participation in the Plan;
(m)unless otherwise provided in the Plan or by the Company in its sole discretion, this Award and the benefits evidenced by this Agreement do not create any entitlement to have this Award or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Shares; and
(n)the Company shall not 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, any payment made pursuant to this Award or the subsequent sale of any Shares acquired under the Plan.
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3. |
LANGUAGE |
If the Recipient has received this Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version differs from the English version, the English version shall control.
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Exhibit 10.12
II‑VI Incorporated
Performance Unit Award AGREEMENT
THIS PERFORMANCE UNIT AWARD AGREEMENT (this “Agreement”) is dated as of the Grant Date, as specified in the applicable Summary of Award (as defined below), by and between II‑VI Incorporated, a Pennsylvania corporation (“II‑VI”), and the Recipient, as specified in the applicable Summary of Award, who is a director, employee or consultant of II‑VI or one of its Subsidiaries (the “Recipient”). For purposes of this Agreement, the term “Company” shall include II-VI and/or any Subsidiary of II-VI that the Recipient is employed by or may become employed by or provide services to during the Recipient’s employment by II-VI or any such Subsidiary.
Reference is made to the Summary of Award (the “Summary of Award”) issued to the Recipient with respect to the applicable Award, which may be found on Morgan Stanley StockPlan Connect system www.stockplanconnect.com (or any successor system selected by II-VI) (the “StockPlan Connect System”). Reference further is made to the Summary Plan Description relating to the Plan (as defined below) which also may be found on the StockPlan Connect System.
All capitalized terms used herein, to the extent not defined herein, shall have the meanings set forth in the II‑VI 2012 Omnibus Incentive Plan (as amended and/or restated from time to time, the “Plan”), a copy of which can be found on the StockPlan Connect System, and/or the applicable Summary of Award. Terms of the Plan and the Summary of Award are incorporated herein by reference. This Agreement shall constitute an Award Agreement as that term is defined in the Plan and is intended to be a Qualified Performance-Based Award within the meaning of the Plan.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the Recipient and II-VI agree as follows:
1.Performance Unit Award. II-VI hereby grants to the Recipient an Award of Performance Units under the Plan, as specified in the Summary of Award, to be earned based upon achievement of the Performance Objectives in accordance with Section 2 (this “Award”). For the purposes of this Award: (1) “Performance Period” shall mean the period from July 1, 2016 through and including June 30, 2019; (2) “Target Award” shall mean the Target Award set forth in the Summary of Award; and (3) “Maximum Award” means the maximum number of Performance Units allowable under this Agreement as set forth in the Summary of Award representing 200% of the Target Award.
2.Determination of Units Earned/Valuation. Subject to Section 4 and Section 5, II-VI shall deliver to the Recipient, for each whole Performance Unit that is earned in accordance with the following schedule, an amount in cash equal to the closing price of a Share on the day prior to the Compensation Committee’s approval of the number of Performance Units earned following completion of the Performance Period. This Award is payable solely in cash, less applicable withholdings as set forth in Section 8:
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Performance Units Earned as a |
If Cumulative TSR below Market 50th Percentile by more than 40 percentage points |
0.00% |
If Cumulative TSR is equal to 40 percentage points below Market 50th Percentile and there is an absolute positive Cumulative TSR |
50.00% (Threshold) |
If Cumulative TSR is below Market 50th Percentile by less than 40 percentage points and there is an absolute positive Cumulative TSR |
Subtract 1.25% from 100.00% for each 1% below Market 50th Percentile |
If Cumulative TSR equals Market 50th Percentile |
100.00% |
If Cumulative TSR is above Market 50th Percentile by less than 40 percentage points |
Add 2.50% to 100.00% for each 1% above Market 50th Percentile1 |
If Cumulative TSR is above Market 50th Percentile by more than 40 percentage points |
200.00%1 (Maximum Award) |
1 If there is an absolute negative Cumulative TSR for the Performance Period and Cumulative TSR is above Market 50th Percentile, the percentage of the Target Award earned shall be capped at 100.00%.
Definitions:
“Market” is the Russell 2000 as published on June 27, 2016. If a listing is removed from the Russell 2000 during the Performance Period, it will not be replaced, nor will any listing be added for any other reason. The Russell 2000 shall be a closed group for purposes of this Program.
“Cumulative TSR” shall be based on the 30-day average closing stock price of the Shares prior to July 1, 2016 ($19.74) (“Beginning Stock Price”) and the 30-day average closing stock price of the Shares prior to July 1, 2019 (“Ending Stock Price”). Cumulative TSR shall be calculated as follows:
((Ending Stock Price minus Beginning Stock Price ($19.74) plus dividends) divided by Beginning Stock Price ($19.74))
3.Payment; Dividend Equivalents. The amount determined under Section 2 will be paid to the Recipient in cash no later than the seventy fifth (75th) calendar day following the end of the Performance Period. In addition, the Recipient shall be entitled to receive, following the completion of the Performance Period but in no event later than March 15th of the calendar year
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following the completion of the Performance Period, a cash payment equal to the cash dividends that would have been paid during the Performance Period on the applicable number of Shares underlying the Performance Units earned as provided in Section 2 if such Shares had been issued and outstanding during the Performance Period.
4.Separation from Service.
(a)Except as provided in Section 4(b) or Section 5 or as may be otherwise determined by the Committee, if the Recipient’s Separation from Service occurs before the end of the Performance Period, this Award shall be forfeited on the date of such Separation from Service.
(b)Prorating in Certain Circumstances. Notwithstanding Section 4(a), if the Recipient’s Separation from Service occurs during the Performance Period due to the Recipient’s (i) normal retirement, as defined in II-VI’s Global Retirement Policy, (ii) death, (iii) permanent and total disability, as defined in Code Section 22(e)(3) (a “Disability”), (iv) termination by the Company other than for Cause (as defined below) other than within two years following a Change in Control or (v) termination by the Recipient for Good Reason (as defined below) other than within two years following a Change in Control, but only if the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company provides for severance upon Separation from Service for Good Reason (or a similar term), then in each case under clauses (i) - (v) of this paragraph the Recipient shall be entitled to a prorated portion of the Performance Units to the extent earned pursuant to Section 2, determined at the end of the Performance Period and based on the ratio of the number of complete months the Recipient was employed or served (as applicable) during the Performance Period to the total number of months in the Performance Period. In the event of the death of the Recipient, amounts due pursuant to Section 2 shall be paid to the Recipient’s estate as soon as administratively practicable after the end of the Performance Period.
5.Change in Control; Adjustments to Payments.
(a)Change in Control. Notwithstanding any provision to the contrary in this Agreement or in any offer letter, employment agreement or other applicable employment or service agreement between the Recipient and the Company that discusses the effect of a Change in Control on the Recipient’s Awards, in the event of a Change in Control during the Performance Period, the following provisions shall apply, unless provided otherwise by the Committee prior to the date of the Change in Control:
(i)To the extent this Award is assumed, converted or replaced by the resulting entity in the Change in Control, if within two (2) years after the Change in Control the Recipient has a Separation from Service either (A) by the Company other than for Cause (as defined below) or (B) by the Recipient for Good Reason (as defined below), then the target payout opportunities attainable under this Award shall be deemed to have been earned as of the applicable Separation from Service based upon the greater of: (1) an assumed achievement of all relevant performance goals at their “target” level, or (2) the actual level of achievement of all relevant performance goals against target as of the Company’s fiscal quarter end preceding the
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Change in Control. This Award, as adjusted for such deemed performance, shall become vested in full and shall be paid as soon as administratively practicable (not more than thirty (30) days) after the date of such Separation from Service.
(ii)To the extent this Award is not assumed, converted or replaced by the resulting entity in the Change in Control, then the target payout opportunities attainable under this Award shall be deemed to have been earned as of the Change in Control based upon the greater of: (1) an assumed achievement of all relevant performance goals at their “target” level, or (2) the actual level of achievement of all relevant performance goals against target as of the Company’s fiscal quarter end preceding the Change in Control. This Award, as adjusted for such deemed performance, shall become vested in full and shall be paid as soon as administratively practicable (not more than thirty (30) days) after the date of such Change in Control.
(b)“Cause” shall be defined as that term is defined in the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with the Company; or, if there is no such definition, “Cause” shall mean a determination by the Company that any of the following has occurred:
(i)the willful failure by the Recipient to perform the Recipient’s duties and responsibilities to the Company (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 specifying in reasonable detail the duties or responsibilities that the Company believes are not being adequately performed;
(ii)the willful engaging by the Recipient in any act that is damaging to the Company;
(iii)the conviction of the Recipient of, or a plea of “guilty” or “no contest” to, (A) any felony or (B) a criminal offense involving fraud, dishonesty or other moral turpitude;
(iv)any breach by the Recipient of the terms of any written agreement between the Recipient and the Company relating to proprietary information, confidentiality, non-disclosure, ownership of inventions, non-competition, non-solicitation, non-interference or non-disparagement;
(v)the engaging by the Recipient in any willful act of dishonesty resulting or intended to result, directly or indirectly, in personal gain to the Recipient; or
(vi)the commission of any act by the Recipient that is in violation of the Company’s Code of Business Conduct and Ethics.
(c)“Good Reason” shall be defined as that term is defined in the Recipient’s offer letter, employment agreement or other applicable employment or service agreement with
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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 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 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 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 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 to the Recipient or for the Recipient’s benefit (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (the “Payments”) would be subject to the excise tax imposed by Code Section 4999, or any interest or penalty is incurred by the Recipient with respect to such excise tax (such excise tax, together with any such interest and penalties, collectively referred to as the “Excise Tax”), then the Payments shall be reduced (but not below zero) if and to the extent that such reduction would result in the Recipient retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the imposition of the Excise Tax), than if the Recipient received all of the Payments. The Company shall reduce or eliminate the Payments by first reducing or eliminating the portion of the Payments that are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits that are to be paid the farthest in time from the determination.
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(ii)All determinations required to be made under this Section 5(d), including whether and when an adjustment to any Payments is required and, if applicable, which Payments are to be so adjusted, shall be made by an independent accounting firm selected by II-VI from among the four (4) largest accounting firms in the United States or any nationally-recognized financial planning and benefits consulting company (the “Accounting Firm”), which shall provide detailed supporting calculations both to II-VI and to the Recipient within fifteen (15) business days of the receipt of notice from the Recipient that there has been a Payment, or such earlier time as is requested by II-VI. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, II-VI shall appoint another nationally-recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by II-VI. If the Accounting Firm determines that no Excise Tax is payable by the Recipient, it shall furnish the Recipient with a written opinion that failure to report the Excise Tax on the Recipient’s applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Recipient.
6.Nontransferability. Except as otherwise provided in the Plan, the Performance Units shall not be sold, pledged, assigned, hypothecated, transferred or disposed of (a “Transfer”) in any manner, other than by will or the laws of descent and distribution. Any attempt to Transfer the Performance Units in violation of this Section or the Plan shall render this Award null and void.
7.Adjustments. Upon any event described in Section 12 of the Plan (entitled “Adjustments”) or any successor provision thereto, the terms of such Section 12 of the Plan or any successor provision thereto shall apply to this Award.
8.Responsibility for Taxes.
(a)Regardless of any action the Company takes with respect to any or all income tax, payroll tax or other tax-related withholding (“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.
(b)Prior to the time any Tax-Related Items become due in connection with this Award, the Recipient shall pay or make adequate arrangements satisfactory to the Company to satisfy all minimum withholding obligations of the Company. In this regard, the Recipient authorizes the Company to withhold all applicable minimum Tax-Related Items legally payable by the Recipient from the Recipient’s wages or other cash compensation paid to the Recipient by the Company or from proceeds of the sale of Shares. Alternatively, or in addition, to the extent permissible under applicable law, the Company may (i) sell or arrange for the sale of Shares that the Recipient acquires to meet the minimum withholding obligation for Tax-Related Items,
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and/or (ii) withhold in Shares, provided that the Company only withholds the amount of Shares necessary to satisfy the minimum withholding amount. Finally, the Recipient shall pay to the Company any amount of Tax-Related Items that the Company may be required to withhold 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 and deliver Shares if the Recipient fails to comply with the Recipient’s obligations in connection with the Tax-Related Items as described in this Section 8.
9.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).
10.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 would otherwise have to terminate the Recipient’s employment or other service at any time, or the right of the Recipient to terminate his or her employment or other services at any time.
11.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.
12.Non-Competition; Non-Solicitation; Confidentiality.
(a)While the Recipient is employed by the Company 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, 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
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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, 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; 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 disclose or use for the Recipient’s own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise, other than the Company, any proprietary confidential information or trade secrets; provided that the foregoing shall not apply to information which is not unique to 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.
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 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 Recipient is in compliance with the restrictive covenants contained in Section 12 will not exceed the one (1)-year period set forth above.
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13.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 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 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 12, the Performance Units and the right to receive a cash payment in exchange for such Performance Units shall be forfeited. II-VI shall also have the right, in its sole discretion, in addition to any other remedies or damages provided by law, in equity or otherwise, to demand and require the Recipient, to the extent that any cash payment was received with respect to such Performance Units, to return and transfer to II‑VI any such cash payment.
(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.
14.Recipient Acknowledgments. The Recipient acknowledges and agrees that (a) as a result of the Recipient’s previous, current and future employment with the Company, 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 will continue the Recipient’s employment for any period of time and does not change the at-will nature of the
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Recipient’s employment, except as set forth in a separate written employment agreement between the Company and the Recipient, (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 13 are reasonable and necessary to protect the legitimate business interests of II-VI and its Subsidiaries, (f) acceptance of the Performance Units and agreement to be bound by the provisions hereof is not a condition of the Recipient’s employment and (g) the Recipient’s receipt of the benefits provided under this Agreement is adequate consideration for the enforcement of the provisions contained in Section 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.Notice. II‑VI may require any notice required or permitted under this Agreement to be transmitted, submitted or received, by II‑VI or the Recipient, via the StockPlan Connect System in accordance with the procedures established by II‑VI for such notice. Otherwise, any written notice required or permitted by this Agreement shall be mailed, certified mail (return receipt requested) or by overnight carrier, to II‑VI at the following address:
II‑VI Incorporated
Attention: Chief Financial Officer
375 Saxonburg Boulevard
Saxonburg, Pennsylvania 16056
or to the Recipient at his or her most recent home address on record with II‑VI. Notices are effective upon receipt.
17.Controlling Law. The validity, construction and effect of this Agreement will be determined in accordance with the internal laws of the Commonwealth of Pennsylvania without giving effect to the conflict of laws 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 12 by seeking injunctive or other equitable relief in any appropriate court having jurisdiction, including where the Recipient resides or where the
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Recipient was employed by the Company. 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. The Company shall be a third-party beneficiary of this Agreement.
18.Entire Agreement. This Agreement (including the Plan and the Summary of Award) contains the entire understanding between the parties and supersedes any prior understanding and agreements between them regarding the subject matter hereof with respect to 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 and the Recipient.
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 Recipient with respect to any matter arising out of or relating to this Agreement must be filed no later than one (1) year after the date that a denial of any claim hereunder is made or any earlier date that the claim otherwise accrues.
21.Section 409A. This Agreement and this Award are intended to satisfy all applicable requirements of Section 409A of the Code or an exception thereto and shall be construed accordingly. II‑VI may, in its sole discretion and without the consent of the Recipient, take any action it deems necessary to comply with the requirements of Section 409A or an exception thereto, including amending the terms of this Award and this Agreement in any manner it deems necessary to cause this Award and this Agreement to be excepted from Section 409A (or to comply therewith to the extent that II-VI determines that it is not excepted). Notwithstanding, the Recipient recognizes and acknowledges that Section 409A may affect the timing and recognition of payments due hereunder, and may impose upon the Recipient certain taxes or other charges for which the Recipient is and shall remain solely responsible.
22.Assignment. Except as provided in Section 6, the Recipient’s rights and obligations under this Agreement shall not be transferable by the Recipient, by assignment or otherwise, and any purported assignment, transfer or delegation thereof by the Recipient shall be void. II‑VI and the Company may assign/delegate all or any portion of this Agreement and its rights hereunder without prior notice to the Recipient and without the Recipient providing any additional consent thereto, whereupon the Recipient shall continue to be bound hereby with respect to such assignee/delegatee.
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23.Electronic Delivery. II‑VI may, in its sole discretion, deliver any documents or correspondence related to this Agreement, the Performance Units, the Plan, the Recipient’s participation in the Plan or future awards that may be granted to the Recipient under the Plan, by electronic means. The Recipient hereby consents to receive such documents by electronic delivery and to the Recipient’s participation in the Plan through an on-line or electronic system established and maintained by II‑VI or another third party designated by II‑VI, including the StockPlan Connect System. Likewise, II‑VI may require the Recipient to deliver or receive any documents or correspondence related to this Agreement by such electronic means.
24.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.
25.Compliance with Legal Requirements. The grant of this Award and the issuance of any Shares or other amounts under this Award, and all other obligations of the Company under this Agreement, shall be subject to all applicable laws, rules and regulations and to such approvals by any regulatory or governmental agency as may be required. 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.
26.Appendix A. The Recipient acknowledges and agrees that, if the Recipient is an employee outside the U.S., this Award is subject to the general terms applicable to Awards granted to employees outside the U.S. set forth in Appendix A hereto. Appendix A constitutes part of this Agreement. 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.
27.Amendments. This Agreement may be amended or modified at any time by an instrument in writing signed by the parties hereto, or as otherwise provided under the Plan or this Agreement.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the Grant Date set forth above. Electronic acceptance of this Agreement by the Recipient pursuant to II‑VI’s instructions to the Recipient (including through the StockPlan Connect 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 StockPlan Connect 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 |
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By: |
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Name: |
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David G. Wagner |
Title: |
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Vice President, Human Resources |
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PARTICIPANT |
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Electronic Acceptance via the |
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StockPlan Connect System |
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General Terms Applicable to Awards Granted to Employees Outside the U.S.
1.DATA PRIVACY
By accepting this Award, the Recipient hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Recipient’s personal data as described in this document and any other grant materials by the Company for the exclusive purpose of implementing, administering and managing this Award.
The Recipient understands that the Company holds certain personal information about the Recipient, including the Recipient’s name, home address, telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any shares of stock or directorships held in the Company, details of any entitlement to Shares or equivalent benefits awarded, canceled, vested, unvested or outstanding in the Recipient’s favor (the “Data”), for the purpose of implementing, administering and managing the Recipient’s participation in the Plan. The Recipient understands that the Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, that these Data recipients may be located in the Recipient’s country or elsewhere (for example, the United States) and that the Data recipient’s country may have different data privacy laws and protections from the Recipient’s country. The Recipient understands that the Recipient may request a list with the names and addresses of any potential recipients of the Data by contacting the Recipient’s local human resources representative. The Recipient authorizes the Data recipients to receive, possess, use, retain and transfer the Data, in electronic or other form, for the exclusive purposes of implementing, administering and managing the Recipient’s participation in the Plan. The Recipient understands that the Data will be held only as long as is necessary to implement, administer and manage the Recipient’s participation in the Plan. The Recipient understands that the Recipient may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Recipient’s local human resources representative. Further, the Recipient understands that the Recipient is providing the consents herein on a purely voluntary basis. If the Recipient does not consent, or if the Recipient later seeks to revoke the Recipient’s consent, the Recipient’s employment status or service and career with the Company will not be adversely affected; the only adverse consequence of refusing or withdrawing the Recipient’s consent is that the Company would not be able to grant to the Recipient this Award or other awards or administer or maintain this Award or such other awards. Therefore, the Recipient understands that refusing or withdrawing the Recipient’s consent may affect the Recipient’s ability to benefit from this Award. For more information on the consequences of the Recipient’s refusal to consent or withdrawal of consent, the Recipient understands that the Recipient may contact the Recipient’s local human resources representative.
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By entering into this Agreement and accepting this Award evidenced hereby, the Recipient acknowledges, understands and agrees that:
(a)the Plan is established voluntarily by the Company, and all awards under the Plan are discretionary in nature;
(b)the grant of this Award is voluntary and occasional and does not create any contractual or other right to receive future awards or benefits in lieu of awards, even if such awards have been awarded in the past;
(c)all decisions with respect to future awards, if any, will be at the sole discretion of the Company;
(d)the grant of this Award shall not create a right to employment with the Company and shall not interfere with the ability of the Company to terminate the Recipient’s employment or service relationship (if any);
(e)the Recipient is voluntarily participating in the Plan;
(f)this Award and any payment made pursuant to this Award, and the value and income of the same, are not part of normal or expected compensation or salary for any purposes, including calculating any severance, resignation, termination, redundancy, dismissal, end-of-service, bonus, long-service, pension, retirement or similar benefits, payments or awards;
(g)unless otherwise agreed with the Company, this Award and any Shares subject to this Award, and the value and income of the same, are not granted as consideration for, or in connection with, any service the Recipient may provide as a director of II-VI or any 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 Shares that may be delivered under this Award (pursuant to the terms of this Award) is unknown, indeterminable and cannot be predicted with certainty;
(j)no claim or entitlement to compensation or damages shall arise from forfeiture of this Award resulting from termination of the Recipient’s employment or service (for any reason whatsoever, whether or not such termination is later found to be invalid or in breach of the
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employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any) or recoupment of all or any portion of any payment made pursuant to this Award as provided by any applicable Company compensation recoupment, clawback or similar policy or any applicable law related to such actions, as may be in effect from time to time and, in consideration of the grant of this Award to which the Recipient is not otherwise entitled, the Recipient irrevocably agrees never to institute any claim against II-VI or any Subsidiary, waives the Recipient’s ability, if any, to bring any such claim, and releases II-VI and its Subsidiaries from any such claim; if, notwithstanding the foregoing, any such claim is allowed by a court of competent jurisdiction, then, by participating in the Plan, the Recipient shall be deemed irrevocably to have agreed not to pursue such claim, and the Recipient agrees to execute any and all documents necessary to request dismissal or withdrawal of such claim;
(k)for purposes of this Award, the Recipient’s employment will be considered terminated as of the date the Recipient is no longer actively employed and providing services to the Company (for any reason whatsoever, whether or not such termination is later found to be invalid or in breach of the employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any), and unless otherwise expressly provided in this Agreement or otherwise determined by the Company, the Recipient’s right to vest in any portion of this Award (and any related dividend equivalents or similar rights) under the Plan, if any, will terminate as of such date and will not be extended by any notice period (for example, the Recipient’s active employment or period of service would not include any contractual notice period or any period of “garden leave” or similar period mandated under the employment laws in the jurisdiction where the Recipient is employed or providing services or the terms of the Recipient’s employment or service agreement, if any); the Company, in its sole discretion, shall determine when the Recipient is no longer actively employed or providing services for purposes of this Award (including whether the Recipient may still be considered to be actively employed or providing services while on an approved leave of absence);
(l)the Recipient is solely responsible for investigating and complying with any exchange control laws applicable to the Recipient in connection with his or her participation in the Plan;
(m)unless otherwise provided in the Plan or by the Company in its sole discretion, this Award and the benefits evidenced by this Agreement do not create any entitlement to have this Award or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the Shares; and
(n)the Company shall not 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, any payment made pursuant to this Award or the subsequent sale of any Shares acquired under the Plan.
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If the Recipient has received this Agreement or any other document related to the Plan translated into a language other than English and if the meaning of the translated version differs from the English version, the English version shall control.
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Exhibit 31.01
CERTIFICATIONS
I, Vincent D. Mattera, Jr., certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of II-VI Incorporated; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 8, 2016 |
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By: |
/s/ Vincent D. Mattera, Jr. |
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Vincent D. Mattera, Jr. |
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President and Chief Executive Officer |
Exhibit 31.02
CERTIFICATIONS
I, Mary Jane Raymond, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of II-VI Incorporated; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 8, 2016 |
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By: |
/s/ Mary Jane Raymond |
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Mary Jane Raymond |
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Chief Financial Officer and Treasurer |
Exhibit 32.01
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of II-VI Incorporated (the “Corporation”) on Form 10-Q for the period ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned officer of the Corporation certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. |
Date: November 8, 2016 |
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By: |
/s/ Vincent D. Mattera, Jr |
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Vincent D. Mattera, Jr. |
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President and Chief Executive Officer |
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This certification is made solely for purposes of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose. |
Exhibit 32.02
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of II-VI Incorporated (the “Corporation”) on Form 10-Q for the period ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned officer of the Corporation certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to her knowledge:
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(1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation. |
Date: November 8, 2016 |
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By: |
/s/ Mary Jane Raymond |
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Mary Jane Raymond |
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Chief Financial Officer and Treasurer |
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This certification is made solely for purposes of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose. |
Document and Entity Information - shares |
3 Months Ended | |
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Sep. 30, 2016 |
Nov. 04, 2016 |
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Document And Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2016 | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q1 | |
Trading Symbol | IIVI | |
Entity Registrant Name | II-VI INC | |
Entity Central Index Key | 0000820318 | |
Current Fiscal Year End Date | --06-30 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 62,279,166 |
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Thousands |
Sep. 30, 2016 |
Jun. 30, 2016 |
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Statement Of Financial Position [Abstract] | ||
Accounts receivable, allowance for doubtful accounts | $ 1,740 | $ 2,016 |
Preferred stock, par value | ||
Preferred stock, shares authorized | 5,000,000 | 5,000,000 |
Preferred stock, shares issued | 0 | 0 |
Common stock, par value | ||
Common stock, shares authorized | 300,000,000 | 300,000,000 |
Common stock, shares issued | 73,250,344 | 72,840,257 |
Treasury stock, shares | 11,053,874 | 10,965,925 |
Condensed Consolidated Statements of Earnings (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | |
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Sep. 30, 2016 |
Sep. 30, 2015 |
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Revenues | ||
Domestic | $ 69,318 | $ 70,751 |
International | 152,202 | 118,456 |
Total Revenues | 221,520 | 189,207 |
Costs, Expenses and Other Expense (Income) | ||
Cost of goods sold | 133,918 | 118,018 |
Internal research and development | 21,832 | 13,151 |
Selling, general and administrative | 42,079 | 36,310 |
Interest expense | 1,246 | 649 |
Other expense (income), net | (1,402) | (1,057) |
Total Costs, Expenses and Other Expense (Income) | 197,673 | 167,071 |
Earnings Before Income Taxes | 23,847 | 22,136 |
Income Taxes | 7,553 | 4,922 |
Net Earnings | $ 16,294 | $ 17,214 |
Basic Earnings Per Share | $ 0.26 | $ 0.28 |
Diluted Earnings Per Share | $ 0.26 | $ 0.27 |
Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | |
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Sep. 30, 2016 |
Sep. 30, 2015 |
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Statement Of Income And Comprehensive Income [Abstract] | ||
Net earnings | $ 16,294 | $ 17,214 |
Other comprehensive income (loss): | ||
Foreign currency translation adjustments | (582) | (8,151) |
Pension adjustment, net of taxes of ($52) and $10 for the three months ended, respectively | (112) | 36 |
Comprehensive income | $ 15,600 | $ 9,099 |
Condensed Consolidated Statements of Comprehensive Income (Unaudited) (Parenthetical) - USD ($) $ in Thousands |
3 Months Ended | |
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Sep. 30, 2016 |
Sep. 30, 2015 |
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Statement Of Income And Comprehensive Income [Abstract] | ||
Pension adjustment tax | $ (52) | $ 10 |
Condensed Consolidated Statement of Shareholders' Equity (Unaudited) (Parenthetical) - USD ($) $ in Thousands |
3 Months Ended | |
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Sep. 30, 2016 |
Sep. 30, 2015 |
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Statement Of Stockholders Equity [Abstract] | ||
Pension adjustment tax | $ (52) | $ 10 |
Basis of Presentation |
3 Months Ended | ||
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Sep. 30, 2016 | |||
Accounting Policies [Abstract] | |||
Basis of Presentation |
The condensed consolidated financial statements of II-VI Incorporated (“II-VI” or the “Company”) for the three months ended September 30, 2016 and 2015 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 Annual Report on Form 10-K for the fiscal year ended June 30, 2016. The consolidated results of operations for the three months ended September 30, 2016 are not necessarily indicative of the results to be expected for the full fiscal year. The June 30, 2016 Condensed Consolidated Balance Sheet information was derived from the Company’s audited financial statements. Certain amounts from prior periods have been reclassified on the Condensed Consolidated Statements of Cash Flows to conform to the current year presentation relating to Accrued compensation and benefits in Net cash provided by operating activities and Payments in satisfaction of employees’ minimum tax obligations in Net cash provided by (used in) financing activities.
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Recent Accounting Pronouncements |
3 Months Ended | ||
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Sep. 30, 2016 | |||
New Accounting Pronouncements And Changes In Accounting Principles [Abstract] | |||
Recent Accounting Pronouncements |
Adopted Pronouncements In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This ASU requires entities to present debt issuance costs in the balance sheet as a direct deduction from the carrying amount of the corresponding debt liability, consistent with debt discounts. The Company adopted ASU 2015-03, as clarified by ASU 2015-15, which did not have a material impact on the Company’s Consolidated Financial Statements other than corresponding reductions to total assets and total liabilities on the Condensed Consolidated Balance Sheets. Prior to adoption, the Company recorded deferred financing costs as Other assets on the Consolidated Balance Sheets. Upon adoption, the Company reclassified these costs as unamortized debt issuance costs that reduce long term debt on the consolidated balance sheet and retrospectively reclassified $0.6 million that were previously presented as deferred financing costs, an asset on the consolidated balance sheet as of June 30, 2016. There was no effect on the consolidated statements of operations as a result of the adoption. In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. This update requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The adoption of this standard did not have a material effect on the Company’s Consolidated Financial Statements. In April 2015, the FASB issued ASU 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. This update provides guidance about whether a cloud computing arrangement includes a software license. The adoption of this standard did not have a material effect on the Company’s Consolidated Financial Statements. In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which affects reporting organizations that are required to evaluate whether they should consolidate certain legal entities. The adoption of this standard did not have a material effect on the Company’s Consolidated Financial Statements. Pronouncements Currently Under Evaluation In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The amendments in the update provide guidance on eight specific cash flow issues. The update will be effective for the Company’s 2019 fiscal year. Early adoption is permitted. The Company is evaluating the impact of this guidance on the Company’s Consolidated Financial Statements. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The amendments in the update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this update affect only narrow aspects of Topic 606. The update will be effective for the Company’s 2019 fiscal year. The Company is evaluating the impact of this guidance on the Company’s Consolidated Financial Statements. In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This update simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, and classification in the statement of cash flows. The standard will be effective for the Company’s 2018 fiscal year. Early adoption is permitted. The Company is evaluating the impact of this guidance on the Company’s Consolidated Financial Statements. In March 2016, the FASB issued ASU 2016-07, Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. This update eliminates the requirement to retrospectively apply the equity method as a result of an increase in the level of ownership interest. The ASU also requires unrealized holding gains or losses in accumulated other comprehensive income related to an available for sale security that becomes eligible for the equity method to be recognized in earnings when it qualifies for the equity method. The standard will be effective for the Company’s 2018 fiscal year. Early adoption is permitted. The adoption of this ASU is not expected to have a material effect on the Company’s Consolidated Financial Statements. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This update requires that a lessee recognize leased assets with terms greater than 12 months on the balance sheet for the rights and obligations created by those leases. The standard will be effective for the Company’s 2020 fiscal year. Early adoption is permitted. The Company is evaluating the impact of this guidance on the Company’s Consolidated Financial Statements. In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Recognition and measurement of Financial Assets and Financial Liabilities (Topic 825). This update requires that public entities measure equity investments with readily determinable fair values, at fair value, with changes in their fair value recorded through net income. This ASU also clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entity’s other deferred tax assets. The standard will be effective for the Company’s 2018 fiscal year. The Company is evaluating the impact on the Company’s Consolidated Financial Statements. In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. This update simplifies the measurement of inventory valuation at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The new inventory measurement requirements will be effective for the Company’s 2018 fiscal year and will replace the current inventory valuation guidance that requires the use of a lower of cost or market framework. The adoption of this ASU is not expected to have a material effect on the Company’s Consolidated Financial Statements. In May 2014, the FASB issued ASU 2014-09: Revenue from Contracts with Customers (Topic 606) which supersedes virtually all existing revenue recognition guidance under U.S. GAAP. The update's core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The update allows for the use of either the retrospective or modified retrospective approach of adoption. On July 9, 2015 the FASB approved a one year deferral of the effective date of the update. The update will be effective for the Company’s 2019 fiscal year. The Company has not yet selected a transition method and is currently evaluating the impact of this guidance on the Company’s Consolidated Financial Statements. In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements-Going Concern”. This update provides U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued. The update is effective for the Company’s 2017 fiscal year. The adoption of this ASU is not expected to have a material effect on the Company’s Consolidated Financial Statements. |
Acquisitions |
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Acquisitions |
EpiWorks, Inc. In February 2016, the Company acquired all the outstanding shares of EpiWorks, Inc. (“EpiWorks”) a privately held company based in Illinois. Under the terms of the merger agreement, the consideration consisted of initial cash paid at the acquisition date of $43.0 million, net of cash acquired and a working capital adjustment of $0.2 million. In addition, the agreement provides up to a maximum of $6.0 million of additional cash earnout opportunities based upon EpiWorks achieving certain agreed upon financial and operational targets for capacity, wafer output and gross margin, which if earned would be payable in the amount of $2.0 million for the achievement of each specific annual target over the next three years. EpiWorks develops and manufactures compound semiconductor epitaxial wafers for applications in optical components, wireless devices and high-speed communication systems. EpiWorks is a business unit of the Company’s II-VI Laser Solutions operating segment for financial reporting purposes. The Company completed its valuation of the assets of EpiWorks during the quarter ended September 30, 2016. The following table presents the purchase price at the date of acquisition ($000):
The following table presents the final allocation of the purchase price of the assets acquired and liabilities assumed at the date of acquisition. ($000):
The goodwill of $27.6 million is included in the II-VI Laser Solutions segment and is attributed to the expected synergies and the assembled workforce of EpiWorks. None of the goodwill is deductible for income tax purposes. The fair value of accounts receivable acquired was $2.1 million with the gross contractual amount being $2.1 million. At the time of acquisition, the Company expected to collect all of the accounts receivable.
ANADIGICS, Inc. In March 2016, the Company acquired all the outstanding shares of ANADIGICS, Inc.,(“ANADIGICS”) a previously publicly traded company based in New Jersey. Under the terms of the merger agreement, the consideration consisted of both a working capital advance of $3.5 million and cash paid of $78.2 million at the acquisition date, net of cash acquired of $2.7 million. ANADIGICS has a 6-inch gallium arsenide wafer fabrication capability allowing for the production of high performance lasers and integrated circuits in high volume. In addition, at the time of the acquisition, ANADIGICS designed and manufactured innovative radiofrequency (RF) solutions for CATV infrastructure, small-cell, WIFI and cellular markets. The Company divested this portion of the business in June 2016. In conjunction with the sale of the RF business, the Company renamed ANADIGICS as II-VI OptoElectronic Devices Division (“OED”). OED is a business unit of the Company’s II-VI Laser Solutions operating segment for financial reporting purposes. The following table presents the final allocation of the purchase price of the assets acquired and liabilities assumed at the date of acquisition ($000):
The goodwill of $48.3 million is included in the II-VI Laser Solutions segment and is attributed to the expected synergies and the assembled workforce of ANADIGICS. None of the goodwill is deductible for income tax purposes. The fair value of accounts receivable acquired was $4.0 million with the gross contractual amount being $4.0 million. At the time of acquisition, the Company expected to collect all of the accounts receivable. Deferred Income Taxes In connection with above acquisitions, the Company adopted an accounting policy to apply acquired deferred tax liabilities to pre-existing deferred tax assets before evaluating the need for a valuation allowance for acquired deferred tax assets. During fiscal year 2016, the Company recorded a $36.2 million valuation allowance within purchase accounting as a result of the company incurring a cumulative U.S. three year loss. Divesture of the RF Business of ANADIGICS On June 3, 2016, the Company sold the RF business of ANADIGICS that it acquired on March 15, 2016. The consideration consisted of $45.0 million of cash received at closing, a working capital adjustment of $0.6 million to be received within 60 days after closing and $5.0 million contingent consideration to be earned based upon supplying minimum volumes of wafers to the purchaser over an 18-month period through December 2017. The $5.0 million contingent consideration will be recognized in net earnings when earned and received from the purchaser. During the quarter ended September 30, 2016, the Company recorded $1.25 million of this contingent consideration in Other income, net in the Condensed Consolidated Statement of Earnings. The Company believes the sale of this non-strategic business will allow the Company to focus its financial resources and devote greater attention to the 6-inch wafer fab business. The Company incurred approximately $0.4 million in transaction expenses and recorded an immaterial gain of less than $0.1 million on the sale of the RF business in fiscal year 2016.
The following table presents the carrying value of the assets and liabilities included as part of the disposal of the RF business of ANADIGICS ($000):
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Inventories |
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Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories |
The components of inventories were as follows ($000):
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Property, Plant and Equipment |
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Property, Plant and Equipment |
Property, plant and equipment consists of the following ($000):
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Goodwill and Other Intangible Assets |
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Goodwill And Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Other Intangible Assets |
Changes in the carrying amount of goodwill were as follows ($000):
Note 1 of the Notes to Consolidated Financial Statements in the Company’s most recent Annual Report on Form 10-K describes the significant accounting policies and methods used in the preparation of the Company’s Consolidated Financial Statements. Management has evaluated goodwill for indicators of impairment and has concluded that there are no indicators of impairment as of September 30, 2016.
The gross carrying amount and accumulated amortization of the Company’s intangible assets other than goodwill as of September 30, 2016 and June 30, 2016 were as follows ($000):
Amortization expense recorded on the Company’s intangible assets was $3.2 million and $3.0 million for the three months ended September 30, 2016 and 2015, respectively. The technology and patents are being amortized over a range of 60 to 240 months, with a weighted average remaining life of approximately 98 months. The customer lists are being amortized over a range of approximately 60 to 240 months with a weighted average remaining life of approximately 142 months. The gross carrying amount of trade names includes $14.1 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 German and Chinese subsidiaries. At September 30, 2016, the estimated amortization expense for existing intangible assets for each of the five succeeding fiscal years is as follows ($000):
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Debt |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt |
The components of debt for the periods indicated were as follows ($000):
On July 28, 2016, the Company entered into a Third Amended and Restated Credit Agreement (the “Amended Credit Facility”) which amended the related prior credit facility. The Amended Credit Facility provides for a revolving credit facility of $325 million (increased from $225 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 commencing 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 0.075% and if the Euro-Rate Option is selected for a borrowing, the Applicable Margin is 0.75% to 1.75%. The Applicable Margin is based on the Company’s ratio of 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 part of entering into the Amended Credit Facility, the Company incurred $1.4 million of new debt issuance costs which are being amortized over the term of the facility. As of September 30, 2016, the Company was in compliance with all financial covenants under its Amended Credit Facility. The Company’s Yen denominated line of credit is a 500 million Yen (approximately $4.9 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 1.50%. At September 30, 2016 and June 30, 2016, 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 September 30, 2016, the Company was in compliance with all financial covenants under its Yen facility. The Company had aggregate availability of $178.7 million and $37.7 million under its lines of credit as of September 30, 2016 and June 30, 2016, respectively. The amounts available under the Company’s lines of credit are reduced by outstanding letters of credit. As of September 30, 2016 and June 30, 2016, total outstanding letters of credit supported by these credit facilities was $1.2 million for both periods. The weighted average interest rate of total borrowings was 2.0% and 1.5% for the three months ended September 30, 2016 and 2015, respectively. Remaining annual principal payments under the Company’s existing credit facilities as of September 30, 2016 were as follows:
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Income Taxes |
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Sep. 30, 2016 | |||
Income Tax Disclosure [Abstract] | |||
Income Taxes |
The Company’s year-to-date effective income tax rate at September 30, 2016 and 2015 was 31.7% and 22.2%, respectively. The variations between the Company’s effective tax rate and the U.S. statutory rate of 35.0% were primarily due to the consolidation of the Company’s foreign operations, which are subject to income taxes at lower statutory rates. U.S. GAAP clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. As of September 30, 2016 and June 30, 2016, the Company’s gross unrecognized income tax benefit was $7.3 million and $5.6 million, respectively. The Company has classified the majority of the uncertain tax positions as noncurrent income tax liabilities, as the amounts are not expected to be paid within one year. If recognized, substantially all of the gross unrecognized tax benefits at September 30, 2016 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 $0.9 million and $0.1 million at September 30, 2016 and June 30, 2016, respectively. Fiscal years 2013 to 2017 remain open to examination by the United States Internal Revenue Service, fiscal years 2011 to 2017 remain open to examination by certain state jurisdictions, and fiscal years 2006 to 2017 remain open to examination by certain foreign taxing jurisdictions. The Company’s fiscal years 2012 through 2015 New Jersey state income tax returns and fiscal years 2006 through 2014 Vietnam income tax returns are currently under examination. The Company believes its income tax reserves for these tax matters are adequate. |
Earnings Per Share |
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Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share |
The following table sets forth the computation of earnings per share for the periods indicated. Weighted average shares issuable upon the exercises of stock options and the release of performance and restricted shares not included in the calculation were approximately 368,000 and 232,000 for the three months ended September 30, 2016 and 2015, respectively, because they were anti-dilutive. ($000 except per share data):
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Segment Reporting |
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Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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, production requirements and facilities unique to each segment. The II-VI Laser Solutions segment is located in the U.S., Singapore, China, Germany, Switzerland, Japan, Belgium, the U.K., Italy, South Korea and the Philippines. II-VI Laser Solutions is directed by the President of II-VI Laser Solutions, while each geographic location is directed by a general manager, and is further divided into production and administrative units that are directed by managers. II-VI Laser Solutions designs, manufactures and markets optical and electro-optical components and materials sold under the II-VI Infrared brand name and used primarily in high-power CO2 lasers, fiber-delivered beam delivery systems and processing tools and direct diode lasers for industrial lasers sold under the II-VI HIGHYAG and II-VI Laser Enterprise brand names. II-VI Laser Solutions also manufactures compound semiconductor epitaxial wafers for applications in optical components, wireless devices, and high-speed communication systems and manufactures 6-inch gallium arsenide wafers allowing for the production of high performance lasers, vertical cavity surface emitting lasers (“VCSELs”) and integrated circuits in high volume sold under the II-VI EpiWorks and II-VI OptoElectronic Devices Division brand names. The II-VI Photonics segment is located in the U.S., China, Vietnam, Germany, Japan, the U.K., Italy, Hong Kong and the Philippines. II-VI Photonics is directed by the President of II-VI Photonics and is further divided into production and administrative units that are directed by managers. II-VI Photonics manufactures crystal materials, optics, microchip lasers and opto-electronic modules for use in optical communication networks and other diverse consumer and commercial applications. In addition, the segment also manufactures pump lasers, optical amplifiers and micro-optics for optical amplifiers for both terrestrial and submarine applications within the optical communications market. The II-VI Performance Products segment is located in the U.S., Vietnam, Japan, China, Germany and the Philippines. II-VI Performance Products is directed by the President of II-VI Performance Products, while each geographic location is directed by a general manager. II-VI Performance Products is further divided into production and administrative units that are directed by managers. II-VI Performance Products designs, manufactures and markets infrared optical components and high-precision optical assemblies for military, medical and commercial laser imaging applications. In addition, the segment designs, manufactures and markets unique engineered materials for thermo-electric and silicon carbide (“SiC”) applications servicing the semiconductor, military and medical markets. The accounting policies of the segments are the same as those of the Company. The Company’s corporate expenses are allocated to the segments. The Company evaluates segment performance based upon reported segment operating income, which is defined as earnings from continuing operations before income taxes, interest and other income or expense. Inter-segment sales and transfers are eliminated. The following tables summarize selected financial information of the Company’s operations by segment ($000):
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Share-Based Compensation |
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Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-Based Compensation |
The Board of Directors adopted the II-VI Incorporated Amended and Restated 2012 Omnibus Incentive Plan (the “Plan”), which was approved by the 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 4,900,000 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):
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Fair Value of Financial Instruments |
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Business Combinations [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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:
The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the measurement. At September 30, 2016, 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. Foreign currency gain related to these contracts was immaterial for the three months ended September 30, 2016. The Company also had a contingent earnout arrangement related to the acquisition of EpiWorks recorded at fair value. The EpiWorks earnout arrangement provides up to a maximum of $6.0 million of additional cash payments based upon EpiWorks achieving certain agreed upon financial and operational targets for capacity, wafer output and gross margin, which if earned would be payable for the achievement of each specific annual target over the next three years. The fair value of the contingent earnout arrangement was measured using valuations based upon other unobservable inputs that are significant to the fair value measurement (Level 3). The following table provides a summary by level of the fair value of financial instruments that are measured on a recurring basis for the periods presented ($000):
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 September 30, 2016. The following table presents a reconciliation of the beginning and ending fair value measurements of the Company’s level 3 contingent earnout arrangement related to the acquisition of EpiWorks ($000):
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 are considered Level 2 among the fair value hierarchy and are variable interest rates and accordingly their carrying amounts approximate fair value. |
Derivative Instruments |
3 Months Ended | ||
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Sep. 30, 2016 | |||
Derivative Instruments And Hedging Activities Disclosure [Abstract] | |||
Derivative Instruments |
The Company, from time to time, purchases foreign currency forward exchange contracts, primarily in Japanese Yen, that permit it to sell specified amounts of these foreign currencies expected to be received from its export sales for pre-established U.S. dollar amounts at specified dates. The Company enters into these contracts to limit transactional exposure to changes in currency exchange rates of export sales transactions in which settlement will occur in future periods and which otherwise would expose the Company, on the basis of its aggregate net cash flows in respective currencies, to foreign currency risk. The Company has recorded the fair market value of these contracts in the Company’s Condensed Consolidated Financial Statements. These contracts had a total notional amount of $12.2 million and $9.2 million at September 30, 2016 and June 30, 2016, respectively. As of September 30, 2016, these forward contracts had expiration dates ranging from October 2016 through January 2017, with Japanese Yen denominations individually ranging from 300 million Yen to 350 million Yen. The Company does not account for these contracts as hedges as defined by U.S. GAAP, and records the change in the fair value of these contracts in Other expense (income), net in the Condensed Consolidated Statements of Earnings as they occur. The fair value measurement takes into consideration foreign currency rates and the current creditworthiness of the counterparties to these contracts, as applicable, and is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instruments and thus represents a Level 2 measurement. These contracts are recorded in Other accrued liabilities in the Company’s Condensed Consolidated Balance Sheets as of September 30, 2016 and June 30, 2016. The change in the fair value of these contracts for each of the three months ended September 30, 2016 and 2015 was insignificant. |
Commitments and Contingencies |
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Sep. 30, 2016 | |||||||||||||||||||||||||||
Guarantees [Abstract] | |||||||||||||||||||||||||||
Commitments and Contingencies |
The Company records a warranty reserve as a charge against earnings based on a percentage of sales utilizing actual warranty claims over the last twelve months. The following table summarizes the change in the carrying value of the Company’s warranty reserve, which is a component of Other accrued liabilities in the Company’s Condensed Consolidated Balance Sheets ($000):
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Post-Retirement Benefits |
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Compensation And Retirement Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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):
The Company contributed $0.9 million and $0.5 million to the Swiss Plan during the three months ended September 30, 2016 and 2015, respectively. The Company currently anticipates contributing an additional estimated amount of approximately $2.7 million to the Swiss Plan during the remainder of fiscal year 2017.
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Share Repurchase Program |
3 Months Ended | ||
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Sep. 30, 2016 | |||
Equity [Abstract] | |||
Share Repurchase Program |
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 September 30, 2016, the Company has purchased 1,316,587 shares of its Common Stock pursuant to the Program for approximately $19.0 million. |
Accumulated Other Comprehensive Income (Loss) |
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Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Income (Loss) |
The changes in accumulated other comprehensive income (“AOCI") by component, net of tax, for the three months ended September 30, 2016 were as follows ($000):
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Subsequent Event |
3 Months Ended | ||
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Sep. 30, 2016 | |||
Subsequent Events [Abstract] | |||
Subsequent Event |
On October 17, 2016, the Company entered into a lease effective January 1, 2017 relating to their facility in Warren, New Jersey. The lease will be classified as a capital lease for financial statement purposes upon the effective date. |
Recent Accounting Pronouncements (Policies) |
3 Months Ended |
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Sep. 30, 2016 | |
New Accounting Pronouncements And Changes In Accounting Principles [Abstract] | |
Recent Accounting Pronouncements | Adopted Pronouncements In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-03, Interest – Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This ASU requires entities to present debt issuance costs in the balance sheet as a direct deduction from the carrying amount of the corresponding debt liability, consistent with debt discounts. The Company adopted ASU 2015-03, as clarified by ASU 2015-15, which did not have a material impact on the Company’s Consolidated Financial Statements other than corresponding reductions to total assets and total liabilities on the Condensed Consolidated Balance Sheets. Prior to adoption, the Company recorded deferred financing costs as Other assets on the Consolidated Balance Sheets. Upon adoption, the Company reclassified these costs as unamortized debt issuance costs that reduce long term debt on the consolidated balance sheet and retrospectively reclassified $0.6 million that were previously presented as deferred financing costs, an asset on the consolidated balance sheet as of June 30, 2016. There was no effect on the consolidated statements of operations as a result of the adoption. In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. This update requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The adoption of this standard did not have a material effect on the Company’s Consolidated Financial Statements. In April 2015, the FASB issued ASU 2015-05, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. This update provides guidance about whether a cloud computing arrangement includes a software license. The adoption of this standard did not have a material effect on the Company’s Consolidated Financial Statements. In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which affects reporting organizations that are required to evaluate whether they should consolidate certain legal entities. The adoption of this standard did not have a material effect on the Company’s Consolidated Financial Statements. Pronouncements Currently Under Evaluation In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The amendments in the update provide guidance on eight specific cash flow issues. The update will be effective for the Company’s 2019 fiscal year. Early adoption is permitted. The Company is evaluating the impact of this guidance on the Company’s Consolidated Financial Statements. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The amendments in the update do not change the core principle of the guidance in Topic 606. Rather, the amendments in this update affect only narrow aspects of Topic 606. The update will be effective for the Company’s 2019 fiscal year. The Company is evaluating the impact of this guidance on the Company’s Consolidated Financial Statements. In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This update simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, and classification in the statement of cash flows. The standard will be effective for the Company’s 2018 fiscal year. Early adoption is permitted. The Company is evaluating the impact of this guidance on the Company’s Consolidated Financial Statements. In March 2016, the FASB issued ASU 2016-07, Investments – Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting. This update eliminates the requirement to retrospectively apply the equity method as a result of an increase in the level of ownership interest. The ASU also requires unrealized holding gains or losses in accumulated other comprehensive income related to an available for sale security that becomes eligible for the equity method to be recognized in earnings when it qualifies for the equity method. The standard will be effective for the Company’s 2018 fiscal year. Early adoption is permitted. The adoption of this ASU is not expected to have a material effect on the Company’s Consolidated Financial Statements. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This update requires that a lessee recognize leased assets with terms greater than 12 months on the balance sheet for the rights and obligations created by those leases. The standard will be effective for the Company’s 2020 fiscal year. Early adoption is permitted. The Company is evaluating the impact of this guidance on the Company’s Consolidated Financial Statements. In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Recognition and measurement of Financial Assets and Financial Liabilities (Topic 825). This update requires that public entities measure equity investments with readily determinable fair values, at fair value, with changes in their fair value recorded through net income. This ASU also clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available for sale securities in combination with the entity’s other deferred tax assets. The standard will be effective for the Company’s 2018 fiscal year. The Company is evaluating the impact on the Company’s Consolidated Financial Statements. In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. This update simplifies the measurement of inventory valuation at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. The new inventory measurement requirements will be effective for the Company’s 2018 fiscal year and will replace the current inventory valuation guidance that requires the use of a lower of cost or market framework. The adoption of this ASU is not expected to have a material effect on the Company’s Consolidated Financial Statements. In May 2014, the FASB issued ASU 2014-09: Revenue from Contracts with Customers (Topic 606) which supersedes virtually all existing revenue recognition guidance under U.S. GAAP. The update's core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The update allows for the use of either the retrospective or modified retrospective approach of adoption. On July 9, 2015 the FASB approved a one year deferral of the effective date of the update. The update will be effective for the Company’s 2019 fiscal year. The Company has not yet selected a transition method and is currently evaluating the impact of this guidance on the Company’s Consolidated Financial Statements. In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements-Going Concern”. This update provides U.S. GAAP guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued. The update is effective for the Company’s 2017 fiscal year. The adoption of this ASU is not expected to have a material effect on the Company’s Consolidated Financial Statements. |
Acquisitions (Tables) |
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EpiWorks | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Purchase Price at the Date of Acquisition | The following table presents the purchase price at the date of acquisition ($000):
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Final Allocation of Purchase Price of Assets Acquired and Liabilities Assumed | The following table presents the final allocation of the purchase price of the assets acquired and liabilities assumed at the date of acquisition. ($000):
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ANADIGICS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Final Allocation of Purchase Price of Assets Acquired and Liabilities Assumed | The following table presents the final allocation of the purchase price of the assets acquired and liabilities assumed at the date of acquisition ($000):
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RF Business of ANADIGICS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Carrying Value of the Assets and Liabilities Included as Part of Disposal | The following table presents the carrying value of the assets and liabilities included as part of the disposal of the RF business of ANADIGICS ($000):
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Inventories (Tables) |
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Inventories | The components of inventories were as follows ($000):
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Property, Plant and Equipment (Tables) |
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Property Plant And Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment | Property, plant and equipment consists of the following ($000):
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Goodwill and Other Intangible Assets (Tables) |
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Goodwill And Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in Carrying Amount of Goodwill | Changes in the carrying amount of goodwill were as follows ($000):
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Gross Carrying Amount and Accumulated Amortization of Intangible Assets Other Than Goodwill | The gross carrying amount and accumulated amortization of the Company’s intangible assets other than goodwill as of September 30, 2016 and June 30, 2016 were as follows ($000):
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Estimated Amortization Expense for Existing Intangible Assets for Each of Five Succeeding Fiscal Years | At September 30, 2016, the estimated amortization expense for existing intangible assets for each of the five succeeding fiscal years is as follows ($000):
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Debt (Tables) |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Debt | The components of debt for the periods indicated were as follows ($000):
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Remaining Annual Amounts of Principal Payments | Remaining annual principal payments under the Company’s existing credit facilities as of September 30, 2016 were as follows:
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Earnings Per Share (Tables) |
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Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Computation of Earnings Per Share | The following table sets forth the computation of earnings per share for the periods indicated. Weighted average shares issuable upon the exercises of stock options and the release of performance and restricted shares not included in the calculation were approximately 368,000 and 232,000 for the three months ended September 30, 2016 and 2015, respectively, because they were anti-dilutive. ($000 except per share data):
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Segment Reporting (Tables) |
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Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Information of Company's Operation by Segment | The following tables summarize selected financial information of the Company’s operations by segment ($000):
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Share-Based Compensation (Tables) |
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Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-Based Compensation Expense by Award Type | 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):
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Fair Value of Financial Instruments (Tables) |
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Summary by Level of Fair Value of Financial Instruments Measured on Recurring Basis | The following table provides a summary by level of the fair value of financial instruments that are measured on a recurring basis for the periods presented ($000):
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EpiWorks | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Beginning and Ending Fair Value Measurements of Level Three Contingent Earnout Arrangement Related to Acquisition | The following table presents a reconciliation of the beginning and ending fair value measurements of the Company’s level 3 contingent earnout arrangement related to the acquisition of EpiWorks ($000):
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Commitments and Contingencies (Tables) |
3 Months Ended | ||||||||||||||||||||||||
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Sep. 30, 2016 | |||||||||||||||||||||||||
Guarantees [Abstract] | |||||||||||||||||||||||||
Change in Carrying Value of Company's Warranty Reserve | The following table summarizes the change in the carrying value of the Company’s warranty reserve, which is a component of Other accrued liabilities in the Company’s Condensed Consolidated Balance Sheets ($000):
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Post-Retirement Benefits (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Compensation And Retirement Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Net Periodic Pension Costs | Net periodic pension costs associated with the Swiss Plan included the following ($000):
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Accumulated Other Comprehensive Income (Loss) (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in Accumulated Other Comprehensive Income ("AOCI") by Component, Net of Tax | The changes in accumulated other comprehensive income (“AOCI") by component, net of tax, for the three months ended September 30, 2016 were as follows ($000):
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Recent Accounting Pronouncements - Additional Information (Detail) $ in Millions |
Jun. 30, 2016
USD ($)
|
---|---|
Adopted Pronouncements | |
New Accounting Pronouncements Or Change In Accounting Principle [Line Items] | |
Reclassification of unamortized debt issuance costs | $ 0.6 |
Purchase Price at the Date of Acquisition (Detail) - EpiWorks $ in Thousands |
1 Months Ended |
---|---|
Feb. 29, 2016
USD ($)
| |
Business Acquisition [Line Items] | |
Net cash paid at acquisition | $ 42,981 |
Cash paid for working capital adjustment | 163 |
Fair value of cash earnout arrangement | 4,352 |
Purchase price | $ 47,496 |
Final Allocation of Purchase Price of Assets Acquired and Liabilities Assumed (Detail)) - USD ($) $ in Thousands |
Sep. 30, 2016 |
Jun. 30, 2016 |
Mar. 31, 2016 |
Feb. 29, 2016 |
---|---|---|---|---|
Assets | ||||
Goodwill | $ 233,604 | $ 233,755 | ||
EpiWorks | ||||
Assets | ||||
Accounts receivable | $ 2,121 | |||
Inventories | 2,435 | |||
Prepaid and other assets | 68 | |||
Property, plant & equipment | 9,043 | |||
Intangible assets | 14,124 | |||
Goodwill | 27,588 | |||
Total assets acquired | 55,379 | |||
Liabilities | ||||
Accounts payable | 605 | |||
Other accrued liabilities | 859 | |||
Deferred tax liabilities | 6,419 | |||
Total liabilities assumed | 7,883 | |||
Net assets acquired | $ 47,496 | |||
ANADIGICS | ||||
Assets | ||||
Accounts receivable | $ 3,973 | |||
Inventories | 8,322 | |||
Prepaid and other assets | 2,347 | |||
Property, plant & equipment | 25,810 | |||
Intangible assets | 1,060 | |||
Goodwill | 48,312 | |||
Total assets acquired | 89,824 | |||
Liabilities | ||||
Accounts payable | 3,586 | |||
Other accrued liabilities | 7,226 | |||
Total liabilities assumed | 10,812 | |||
Net assets acquired | $ 79,012 |
Carrying Value of the Assets and Liabilities Included as Part of Disposal (Detail) - RF Business of ANADIGICS $ in Thousands |
Jun. 03, 2016
USD ($)
|
---|---|
Assets | |
Inventories | $ 5,378 |
Equipment | 5,813 |
Goodwill | 35,352 |
Total assets | 46,543 |
Liabilities | |
Accounts payable | 963 |
Total Consideration | $ 45,580 |
Components of Inventories (Detail) - USD ($) $ in Thousands |
Sep. 30, 2016 |
Jun. 30, 2016 |
---|---|---|
Inventory Disclosure [Abstract] | ||
Raw materials | $ 72,808 | $ 70,623 |
Work in progress | 60,806 | 57,566 |
Finished goods | 49,033 | 46,944 |
Inventories, Total | $ 182,647 | $ 175,133 |
Property Plant and Equipment (Detail) - USD ($) $ in Thousands |
Sep. 30, 2016 |
Jun. 30, 2016 |
---|---|---|
Property Plant And Equipment [Line Items] | ||
Property, Plant and Equipment, gross | $ 588,287 | $ 559,362 |
Less accumulated depreciation | (327,375) | (316,505) |
Property, Plant and Equipment, net | 260,912 | 242,857 |
Land and Land Improvements | ||
Property Plant And Equipment [Line Items] | ||
Property, Plant and Equipment, gross | 5,001 | 4,990 |
Buildings and Improvements | ||
Property Plant And Equipment [Line Items] | ||
Property, Plant and Equipment, gross | 110,703 | 110,219 |
Machinery and Equipment | ||
Property Plant And Equipment [Line Items] | ||
Property, Plant and Equipment, gross | 420,306 | 409,551 |
Construction in Progress | ||
Property Plant And Equipment [Line Items] | ||
Property, Plant and Equipment, gross | $ 52,277 | $ 34,602 |
Changes in Carrying Amount of Goodwill (Detail) $ in Thousands |
3 Months Ended |
---|---|
Sep. 30, 2016
USD ($)
| |
Goodwill [Line Items] | |
Balance-beginning of period | $ 233,755 |
Foreign currency translation | (151) |
Balance-end of period | 233,604 |
II-VI Laser Solutions | |
Goodwill [Line Items] | |
Balance-beginning of period | 84,105 |
Foreign currency translation | 8 |
Balance-end of period | 84,113 |
II-VI Photonics | |
Goodwill [Line Items] | |
Balance-beginning of period | 96,760 |
Foreign currency translation | (159) |
Balance-end of period | 96,601 |
II- VI Performance Products | |
Goodwill [Line Items] | |
Balance-beginning of period | 52,890 |
Balance-end of period | $ 52,890 |
Gross Carrying Amount and Accumulated Amortization of Intangible Assets Other Than Goodwill (Detail) - USD ($) $ in Thousands |
Sep. 30, 2016 |
Jun. 30, 2016 |
---|---|---|
Finite Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | $ 183,833 | $ 183,925 |
Accumulated Amortization | (62,389) | (59,335) |
Net Book Value | 121,444 | 124,590 |
Technology and Patents | ||
Finite Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 54,297 | 54,344 |
Accumulated Amortization | (23,780) | (22,724) |
Net Book Value | 30,517 | 31,620 |
Trade Names | ||
Finite Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 15,852 | 15,869 |
Accumulated Amortization | (1,241) | (1,209) |
Net Book Value | 14,611 | 14,660 |
Customer Lists | ||
Finite Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 112,113 | 112,141 |
Accumulated Amortization | (35,869) | (33,912) |
Net Book Value | 76,244 | 78,229 |
Other | ||
Finite Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 1,571 | 1,571 |
Accumulated Amortization | (1,499) | (1,490) |
Net Book Value | $ 72 | $ 81 |
Estimated Amortization Expense for Existing Intangible Assets for Each of Five Succeeding Fiscal Years (Detail) $ in Thousands |
Sep. 30, 2016
USD ($)
|
---|---|
Goodwill And Intangible Assets Disclosure [Abstract] | |
Remaining 2017 | $ 9,514 |
2018 | 12,108 |
2019 | 11,789 |
2020 | 11,048 |
2021 | $ 10,181 |
Components of Debt (Detail) - USD ($) $ in Thousands |
Sep. 30, 2016 |
Jun. 30, 2016 |
---|---|---|
Line Of Credit Facility [Line Items] | ||
Total debt | $ 249,966 | $ 235,917 |
Current portion of long-term debt | (20,000) | (20,000) |
Unamortized debt issuance costs | (1,760) | (610) |
Long-term debt, less current portion and debt issuance costs | 228,206 | 215,307 |
Line of credit | ||
Line Of Credit Facility [Line Items] | ||
Total debt | 147,000 | 188,000 |
Term Loans | ||
Line Of Credit Facility [Line Items] | ||
Total debt | 100,000 | 45,000 |
Yen denominated line of credit | ||
Line Of Credit Facility [Line Items] | ||
Total debt | $ 2,966 | $ 2,917 |
Components of Debt (Parenthetical) (Detail) - London Interbank Offered Rate (LIBOR) |
3 Months Ended |
---|---|
Sep. 30, 2016 | |
Line of credit | |
Line Of Credit Facility [Line Items] | |
Debt instrument, rate added on variable rate | 1.50% |
Term Loans | |
Line Of Credit Facility [Line Items] | |
Debt instrument, rate added on variable rate | 1.50% |
Yen denominated line of credit | |
Line Of Credit Facility [Line Items] | |
Debt instrument, rate added on variable rate | 0.625% |
Remaining Annual Amounts of Principal Payments of Credit Facility (Detail) - USD ($) $ in Thousands |
Sep. 30, 2016 |
Jun. 30, 2016 |
---|---|---|
Line Of Credit Facility [Line Items] | ||
Year 1 | $ 20,000 | |
Year 2 | 20,000 | |
Year 3 | 20,000 | |
Year 4 | 22,966 | |
Year 5 | 167,000 | |
Total debt | 249,966 | $ 235,917 |
Term Loans | ||
Line Of Credit Facility [Line Items] | ||
Year 1 | 20,000 | |
Year 2 | 20,000 | |
Year 3 | 20,000 | |
Year 4 | 20,000 | |
Year 5 | 20,000 | |
Total debt | 100,000 | 45,000 |
Yen Line of Credit | ||
Line Of Credit Facility [Line Items] | ||
Year 4 | 2,966 | |
Total debt | 2,966 | 2,917 |
U.S. Dollar Line of Credit | ||
Line Of Credit Facility [Line Items] | ||
Year 5 | 147,000 | |
Total debt | $ 147,000 | $ 188,000 |
Earnings Per Share - Additional Information (Detail) - shares |
3 Months Ended | |
---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Weighted Average | ||
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items] | ||
Weighted average Shares issuable upon the exercises of stock options excluded from the dilutive share calculation | 368,000 | 232,000 |
Computation of Earnings Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | |
---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Earnings Per Share [Abstract] | ||
Net earnings | $ 16,294 | $ 17,214 |
Weighted average shares | 62,020 | 61,223 |
Basic earnings per common share: | $ 0.26 | $ 0.28 |
Net earnings | $ 16,294 | $ 17,214 |
Weighted average shares | 62,020 | 61,223 |
Dilutive effect of common stock equivalents | 1,570 | 1,506 |
Diluted weighted average common shares | 63,590 | 62,729 |
Diluted earnings per common share: | $ 0.26 | $ 0.27 |
Segment Reporting - Additional Information (Detail) |
3 Months Ended |
---|---|
Sep. 30, 2016
Segment
| |
Segment Reporting [Abstract] | |
Number of reporting segments | 3 |
Share-Based Compensation - Additional Information (Detail) |
3 Months Ended |
---|---|
Sep. 30, 2016
shares
| |
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | |
Percentage of share based compensation expense allocated to cost of sales | 20.00% |
Percentage of share based compensation expense allocated to selling, general and administrative expense | 80.00% |
Omnibus Incentive Plan | |
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | |
Common stock authorized for issuance under the Plan | 4,900,000 |
Share-Based Compensation Expense by Award Type (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | ||
Share based compensation expense | $ 4,149 | $ 3,865 |
Stock Options and Cash-Based Stock Appreciation Rights | ||
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | ||
Share based compensation expense | 1,663 | 2,386 |
Restricted Share Awards and Cash-Based Restricted Share Unit Awards | ||
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | ||
Share based compensation expense | 1,878 | 1,231 |
Performance Share Awards and Cash-Based Performance Share Unit Awards | ||
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | ||
Share based compensation expense | $ 608 | $ 248 |
Fair Value of Financial Instruments - Additional Information (Detail) $ in Millions |
Feb. 29, 2016
USD ($)
|
---|---|
EpiWorks | Upon Achievement of Financial and Operational Targets For Capacity Wafer Output and Gross Margin [Member] | Maximum | |
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items] | |
Business acquisitions, contingent consideration | $ 6.0 |
Summary by Level of Fair Value of Financial Instruments Measured on Recurring Basis (Detail) - Fair Value, Measurements, Recurring - USD ($) $ in Thousands |
Sep. 30, 2016 |
Jun. 30, 2016 |
---|---|---|
Liabilities: | ||
Foreign currency forward contracts | $ 163 | $ 511 |
Contingent earnout arrangement | 4,410 | 4,352 |
Fair Value, Inputs, Level 2 | ||
Liabilities: | ||
Foreign currency forward contracts | 163 | 511 |
Fair Value, Inputs, Level 3 | ||
Liabilities: | ||
Contingent earnout arrangement | $ 4,410 | $ 4,352 |
Reconciliation of Beginning and Ending Fair Value Measurements of Level Three Contingent Earnout Arrangement Related to Acquisition (Detail) - Fair Value, Inputs, Level 3 - EpiWorks $ in Thousands |
3 Months Ended |
---|---|
Sep. 30, 2016
USD ($)
| |
Business Acquisition Contingent Consideration [Line Items] | |
Balance - beginning of period | $ 4,352 |
Changes in fair value | 58 |
Balance - end of period | $ 4,410 |
Derivative Instruments - Additional Information (Detail) |
3 Months Ended | ||
---|---|---|---|
Sep. 30, 2016
USD ($)
|
Sep. 30, 2016
JPY (¥)
|
Jun. 30, 2016
USD ($)
|
|
Minimum | |||
Derivative [Line Items] | |||
Foreign currency forward exchange contracts, expiration date | 2016-10 | ||
Maximum | |||
Derivative [Line Items] | |||
Foreign currency forward exchange contracts, expiration date | 2017-01 | ||
Foreign Currency Forward Exchange Contracts | |||
Derivative [Line Items] | |||
Foreign currency forward exchange contracts, notional amount | $ | $ 12,200,000 | $ 9,200,000 | |
Foreign Currency Forward Exchange Contracts | Minimum | |||
Derivative [Line Items] | |||
Foreign currency forward exchange contracts, notional amount | ¥ 300,000,000 | ||
Foreign Currency Forward Exchange Contracts | Maximum | |||
Derivative [Line Items] | |||
Foreign currency forward exchange contracts, notional amount | ¥ 350,000,000 |
Change in Carrying Value of Company's Warranty Reserve (Detail) $ in Thousands |
3 Months Ended |
---|---|
Sep. 30, 2016
USD ($)
| |
Guarantees [Abstract] | |
Balance-beginning of period | $ 3,908 |
Payments made during the period | (985) |
Additional warranty liability recorded | 795 |
Balance-end of period | $ 3,718 |
Schedule of Net Periodic Pension Costs (Detail) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Defined Benefit Plan Net Periodic Benefit Cost [Abstract] | ||
Service cost | $ 897 | $ 683 |
Interest cost | 40 | 111 |
Expected return on plan assets | (181) | (280) |
Net amortization | (164) | 46 |
Net periodic pension costs | $ 592 | $ 560 |
Post-Retirement Benefits - Additional Information (Detail) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
|
Compensation And Retirement Disclosure [Abstract] | ||
Contributions to the Compensation Plan by the employer | $ 0.9 | $ 0.5 |
Contributions to the Compensation Plan by the employer in remainder of fiscal year 2017 | $ 2.7 |
Share Repurchase Program (Detail) - USD ($) |
26 Months Ended | |
---|---|---|
Sep. 30, 2016 |
Aug. 31, 2014 |
|
Equity [Abstract] | ||
Stock repurchase program, authorized amount | $ 50,000,000 | |
Purchase of common stock, shares | 1,316,587 | |
Purchase of Treasury Stock | $ 19,000,000 |
Subsequent Event - Additional Information (Detail) - Subsequent Event |
Oct. 17, 2016 |
---|---|
Subsequent Event [Line Items] | |
Capital lease, agreement date | Oct. 17, 2016 |
Capital lease, effective date | Jan. 01, 2017 |
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