Equity and Redeemable Preferred Stock

12 Months Ended

Jun. 30, 2021

Equity [Abstract]

Equity and Redeemable Preferred Stock

Equity and Redeemable Preferred Stock

Mandatory Convertible Preferred Stock

On July 2, 2020, II-VI announced the pricing of an underwritten public offering of 2,000,000 shares of 6.00% Series A Mandatory Convertible Preferred, no par value per share (“Mandatory Convertible Preferred Stock”), resulting in gross proceeds to II-VI from the offering of $400 million, before deducting the underwriting discounts and commissions and offering expenses payable by the Company (the “Preferred Stock Offering”). In addition, the underwriters had a 30-day option to purchase up to an additional 300,000 shares of Series A Mandatory Convertible Preferred Stock at the applicable public offering price, less underwriting discounts and commissions and solely to cover over-allotments with respect to the preferred stock offering. On July 2, 2020, the underwriters exercised the option in full, raising an additional approximately $60 million in gross proceeds. On July 7, 2020, the Company closed the Preferred Stock Offering, including the issuance and sale of 2 million shares of Mandatory Convertible Preferred Stock.

Upon conversion on the mandatory conversion date, July 1, 2023, as determined in accordance with the terms of the Mandatory Convertible Preferred Stock, each outstanding share of the Mandatory Convertible Preferred Stock, unless previously converted, will automatically convert into a number of shares of II-VI Common Stock equal to not more than 4.6512 shares of II-VI Common Stock and not less than 3.8760 shares of II-VI Common Stock (the “Minimum Conversion Rate”), depending on the applicable market value of the II-VI Common Stock, determined in accordance with the terms of the Mandatory Convertible Preferred Stock and subject to certain anti-dilution adjustments.

Other than in the event of one of certain fundamental changes, a holder of Mandatory Convertible Preferred Stock may, at any time prior to July 1, 2023, elect to convert such holder’s shares of Mandatory Convertible Preferred Stock, in whole or in part (but in no event less than one share of Mandatory Convertible Preferred Stock), at the Minimum Conversion Rate per share of Mandatory Convertible Preferred Stock, subject to certain anti-dilution adjustments.

If one of certain fundamental changes occurs on or prior to July 1, 2023, holders of the Mandatory Convertible Preferred Stock will have the right to convert their shares of Mandatory Convertible Preferred Stock, in whole or in part (but in no event less than one share of the Mandatory Convertible Preferred Stock), into shares of II-VI Common Stock at the conversion rate determined in accordance with the terms of the Mandatory Convertible Preferred Stock during the period beginning on, and including, the effective date of such change and ending on, and including, the date that is 20 calendar days after the effective date of such fundamental change (or, if later, the date that is 20 calendar days after holders receive notice of such fundamental change, but in no event later than July 1, 2023). Holders who convert their shares of the Mandatory Convertible Preferred Stock during that period will also receive a dividend make-whole amount and, to the extent there is any, the accumulated dividend amount, in each case as calculated in accordance with the terms of the Mandatory Convertible Preferred Stock.

Upon issuance of the Mandatory Convertible Preferred Stock, the Company used a Monte Carlo simulation model to estimate the future market value of the II-VI Common Stock on the mandatory conversion date, based on the following inputs:

Expected Volatility	50% - 55%
Cost of Equity	14% - 17%
Dividend Yield	none

Expected volatility is based on the historical volatility of II-VI Common Stock, taking into consideration the mean-reverting tendency of volatility and the expected term of the Mandatory Convertible Preferred Stock, as well as traded option contracts for II-VI Common Stock. The cost of equity was calculated over a three-year term, assuming a risk-free interest rate of 0.2% derived from the average U.S. Treasury Note rate during the period. The dividend yield of zero is based on the fact that the Company has never paid cash dividends on II-VI Common Stock and has no current intention to pay cash dividends on II-VI Common Stock in the future.

The Company declared $27 million of preferred stock dividends during fiscal year 2021 associated with the Mandatory Convertible Preferred Stock. Dividends from the quarter ended June 30, 2021 were $7 million and were presented as other accrued liabilities on the Consolidated Balance Sheet.

The following table presents dividends per share and dividends recognized for the year ended June 30, 2021:

	Year Ended June 30, 2021
Dividends per share	11.80
Series A Mandatory Convertible Preferred Stock dividends ($000)	27,140

Redeemable Convertible Preferred Stock

The Company issued 75,000 shares of II-VI Series B-1 Convertible Preferred Stock in the year ended June 30, 2021. Refer to Note 3. Pending Coherent Acquisition for additional information.

In connection with the execution of the Investment Agreement, on March 30, 2021, the Company filed a Statement with Respect to Shares (the “Statement”) with the Pennsylvania Department of State Corporation Bureau to establish the designation, rights and preferences of the II-VI Series B-1 Convertible Preferred Stock. The Statement became effective on March 30, 2021.

The shares of II-VI Series B-1 Convertible Preferred Stock accrue dividends at 5.00% per annum, subject to increase if II-VI defaults on payment obligations with respect to the New II-VI Convertible Preferred Stock, not to exceed 14% per annum. Until the fourth anniversary of March 31, 2021 (the “Initial Issue Date”), dividends are payable solely in-kind. After the fourth anniversary of the Initial Issue Date, dividends are payable on the applicable series, at the Company’s option, in cash, in-kind, or as a combination of both.

The shares of II-VI Series B-1 Convertible Preferred Stock are convertible into shares of II-VI Common Stock as follows:

•at any time after their issuance, at the election of the holder, each share of II-VI Series B-1 Convertible Preferred Stock may be converted into shares of II-VI Common Stock at a conversion price of $85.00 per share (“Conversion Price”), except that the shares of II-VI Series B-1 Convertible Preferred Stock will be so convertible only after the earliest to occur of (i) the issuance of shares of II-VI Series B-2 Convertible Preferred Stock upon the Closing, (ii) the termination of the Merger Agreement or (iii) the delivery by II-VI to the Investor of an offer to repurchase the II-VI Series B-1 Convertible Preferred Stock upon the occurrence of a Fundamental Change (as defined in the Statement); and

•at any time following the third anniversary of Initial Issue Date, at the election of II-VI, each share of II-VI Series B-1 Convertible Preferred Stock may be converted into shares of II-VI Common Stock at the then-applicable Conversion Price if the volume-weighted average price of II-VI Common Stock exceeds 150% of the then- applicable Conversion Price for 20 trading days out of any 30 consecutive trading days.

The II-VI Series B-1 Convertible Preferred Stock have voting rights, voting as one class with the II-VI Common Stock, on an as-converted basis, subject to limited exceptions.

On or at any time after the tenth anniversary of the Initial Issue Date:

•each holder has the right to require the Company to redeem all of their II-VI Series B-1 Convertible Preferred Stock, for cash, at a redemption price per share equal to the sum of the Stated Value for such shares (as defined in the Statement) plus an amount equal to all accrued or declared and unpaid dividends on such shares that had not previously been added to the Stated Value (such price the “Redemption Price,” and such right the “Put Right”), and

•the Company has the right to redeem, in whole or in part, on a pro rata basis from all holders based on the aggregate number of shares of II-VI Series B-1 Convertible Preferred Stock outstanding, for cash, at the Redemption Price.

In connection with any Fundamental Change, and subject to the procedures set forth in the Statement, the Company must, or will cause the survivor of a Fundamental Change (such survivor of a Fundamental Change, the “Acquirer”) to, make an offer to repurchase, at the option and election of the holder thereof, each share of II-VI Series B-1 Convertible Preferred Stock then-outstanding (the “Fundamental Change Repurchase Offer”) at a purchase price per share in cash equal to (i) the Stated Value for such shares plus an amount equal to all accrued or declared and unpaid dividends on such shares that had not previously been added to the Stated Value as of the date of repurchase plus (ii) if prior to the fifth anniversary of the Initial Issue Date, the aggregate amount of all dividends that would have been paid (subject to certain exceptions), from the date of repurchase through the fifth anniversary of the Initial Issue Date.

The II-VI Series B-1 Convertible Preferred Stock is redeemable for cash outside of the control of the Company upon the exercise of the Put Rights, and upon a Fundamental Change, and is therefore classified as mezzanine equity.

The Company recognized $10 million of preferred stock dividends during the fiscal year ended 2021, which were presented as a reduction to retained earnings on the Consolidated Balance Sheet as of June 30, 2021. The Company incurred $27 million of transaction costs associated with the II-VI Series B-1 Convertible Preferred Stock, of which, $23 million were capitalized, and $4 million were expensed in the Selling, General, and Administrative expenses in the Consolidated Statements of Earnings (Loss) for the fiscal year ended June 30, 2021.

The following table presents dividends per share and dividends recognized for the year ended June 30, 2021:

	Year Ended June 30, 2021
Dividends per share	$	134.55
Dividends ($000)	9,583
Deemed dividends ($000)	508

The obligation to issue the shares of II-VI Series B-2 Convertible Preferred Stock is an embedded feature within the II-VI Series B-1 Convertible Preferred Stock that does not require bifurcation for separate accounting.

Common Stock Offering

On July 2, 2020, II-VI announced the pricing of an underwritten public offering of 9,302,235 shares of II-VI Common Stock at a public offering price of $43.00 per share, resulting in gross proceeds to II-VI from the offering of approximately $400 million, before deducting the underwriting discounts and commissions and offering expenses payable by II-VI (the “Common Stock Offering”). In addition, the underwriters had a 30-day option to purchase up to an additional 1,395,335 shares of II-VI Common Stock at the applicable public offering price, less underwriting discounts and commissions. On July 2, 2020, the underwriters exercised the option in full, raising an additional approximately $60 million in gross proceeds. On July 7, 2020, the Company closed the Common Stock Offering, including the issuance and sale of approximately 11 million shares II-VI Common Stock.