-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WslyCG5cELQPzGtidj0cXxw7B00cQMJT1+KzLzWmPrlPRbce2dP/Ipn4M+mTHznW mh3wTu0ZMf94CuHIBKdgDg== 0000950132-97-000696.txt : 19970929 0000950132-97-000696.hdr.sgml : 19970929 ACCESSION NUMBER: 0000950132-97-000696 CONFORMED SUBMISSION TYPE: DEF 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971107 FILED AS OF DATE: 19970926 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: II-VI INC CENTRAL INDEX KEY: 0000820318 STANDARD INDUSTRIAL CLASSIFICATION: OPTICAL INSTRUMENTS & LENSES [3827] IRS NUMBER: 251214948 STATE OF INCORPORATION: PA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: DEF 14A SEC ACT: SEC FILE NUMBER: 000-16195 FILM NUMBER: 97686464 BUSINESS ADDRESS: STREET 1: 375 SAXONBURG BLVD CITY: SAXONBURG STATE: PA ZIP: 16056 BUSINESS PHONE: 4123524455 MAIL ADDRESS: STREET 1: 375 SAXONBURG BLVD CITY: SAXONBURG STATE: PA ZIP: 16056 DEF 14A 1 NOTICE AND PROXY SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [_] Check the appropriate box: [_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14A-6(E)(2)) [X] Definitive Proxy Statement [_] Definitive Additional Materials [_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 II-VI INCORPORATED - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required [_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: ------------------------------------------------------------------------- (2) Aggregate number of securities to which transaction applies: ------------------------------------------------------------------------- (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ------------------------------------------------------------------------- (4) Proposed maximum aggregate value of transaction: ------------------------------------------------------------------------- (5) Total fee paid: ------------------------------------------------------------------------- [_] Fee paid previously with preliminary materials. [_] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: ------------------------------------------------------------------------- (2) Form, Schedule or Registration Statement No.: ------------------------------------------------------------------------- (3) Filing Party: ------------------------------------------------------------------------- (4) Date Filed: ------------------------------------------------------------------------- Notes: II-VI INCORPORATED 375 SAXONBURG BOULEVARD SAXONBURG, PENNSYLVANIA 16056 ------------ NOTICE OF ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON NOVEMBER 7, 1997 ------------ To the Shareholders of II-VI Incorporated: The Annual Meeting of Shareholders of II-VI Incorporated will be held at the offices of the Company, 375 Saxonburg Boulevard, Saxonburg, Pennsylvania, on Friday, November 7, 1997, at 1:00 p.m., to consider and act upon the following matters: 1. The election of two (2) directors for terms to expire in 2000. 2. Approval of the II-VI Incorporated Stock Option Plan of 1997. 3. The ratification of the Board of Directors' selection of Deloitte & Touche LLP as auditors for the fiscal year ending June 30, 1998. 4. Such other matters as may properly come before the meeting. The Board of Directors has established the close of business on Monday, September 15, 1997, as the record date for determination of shareholders entitled to notice of and to vote at the Annual Meeting. IF YOU ARE UNABLE TO ATTEND THE MEETING, IT IS REQUESTED THAT YOU COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. BY ORDER OF THE BOARD OF DIRECTORS Robert D. German, Secretary September 22, 1997 II-VI INCORPORATED 375 SAXONBURG BOULEVARD SAXONBURG, PENNSYLVANIA 16056 ------------ PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS NOVEMBER 7, 1997 ------------ This proxy statement is being furnished to the shareholders of II-VI Incorporated, a Pennsylvania corporation (the "Company"), in connection with the solicitation by the Board of Directors of the Company of proxies to be voted at the annual meeting of shareholders (the "Annual Meeting") scheduled to be held on Friday, November 7, 1997, at 1:00 p.m. at the principal executive offices of the Company, 375 Saxonburg Boulevard, Saxonburg, Pennsylvania 16056. This proxy statement was first mailed to shareholders on or about September 29, 1997. A copy of the Company's Annual Report to Shareholders for the fiscal year ended June 30, 1997 is being furnished with this proxy statement. Only shareholders of record as of the close of business on Monday, September 15, 1997, are entitled to notice of and to vote at the Annual Meeting and any adjournment thereof. The outstanding capital stock of the Company on that date consisted of 6,899,261 shares of Common Stock, no par value ("Common Stock"), each entitled to one vote per share. All shares represented by valid proxies received by the Treasurer of the Company prior to the Annual Meeting will be voted as specified in the proxy. If no specification is made, the shares will be voted FOR the election of each of the Board's nominees to the Board of Directors and FOR each of the proposals described below. Unless otherwise indicated by the shareholder, the proxy card also confers discretionary authority on the Board-appointed proxies to vote the shares represented by the proxy on any matter that is properly presented for action at the Annual Meeting. A shareholder giving a proxy has the power to revoke it any time prior to its exercise by delivering to the Treasurer of the Company a written revocation or a duly executed proxy bearing a later date (though no revocation shall be effective until notice thereof has been given to the Secretary of the Company), or by attendance at the meeting and voting his or her shares in person. Under the Company's Articles of Incorporation and By-Laws, and applicable law, the affirmative vote of shareholders entitled to cast at least a majority of the votes which all shareholders present at the meeting are entitled to cast generally is required for shareholder approval, including the approval of the proposed II-VI Incorporated Stock Option Plan of 1997 ("1997 Stock Option Plan") and the ratification of the selection of Deloitte & Touche LLP as independent auditors of the Company for the fiscal year ending June 30, 1998. As such, abstentions generally have the effect of a negative vote. Any broker non-votes on a particular matter have no effect since, by definition, they are not entitled to be cast on the matter. With regard to the election of directors, votes may be cast in favor of a candidate or may be withheld. As directors are elected by a plurality, abstentions and broker non-votes have no effect on the election of directors. RECOMMENDATION OF THE BOARD OF DIRECTORS The Board of Directors of the Company recommends a vote FOR each of the nominees named below for election as director, FOR approval of the 1997 Stock Option Plan and FOR the ratification of the Board of Directors' selection of Deloitte & Touche LLP as independent auditors of the Company for the fiscal year ending June 30, 1998. ELECTION OF DIRECTORS The Company's By-Laws provide that the Board of Directors shall establish the number of directors which shall be not less than five nor more than nine members. The By-Laws also provide for a board of directors of three classes, each class consisting of as nearly an equal number as practicable, as determined by the Board. At present, the Board of Directors of the Company has determined that the number of directors shall be six consisting of two directors in each of three classes. Two directors of Class One are to be elected to hold office for a term of three years and until their respective successors are elected and qualified, subject to the right of the shareholders to remove any director as provided in the By-Laws. Any vacancy in the office of a director may be filled by the shareholders. In the absence of a shareholder vote, a vacancy in the office of a director may be filled by the remaining directors then in office, even if less than a quorum, or by the sole remaining director. Any director elected by the Board of Directors to fill a vacancy shall serve until his successor is elected and has qualified or until his or her earlier death, resignation or removal. If the Board of Directors increases the number of directors, any vacancy so created may be filled by the Board of Directors. The holders of Common Stock have cumulative voting rights in the election of directors. In voting for directors, a shareholder has the right to multiply the total number of shares which the shareholder is entitled to vote by the number of directors to be elected in each class, and to cast the whole number of votes so determined for one nominee in the class or to distribute them among the nominees if more than one nominee is named in such class. The two nominees receiving the greatest number of affirmative votes will be elected as Class One Directors whose terms expire in 2000. Unless otherwise indicated by the shareholder, a vote for the nominees of the Board of Directors will give the named proxies discretionary authority to cumulate all votes to which the shareholder is entitled and to allocate them after the total vote counts are available in favor of any one or more such nominees as the named proxies determine, with a view to maximizing the number of nominees of the Board of Directors who are elected. The effect of cumulation and voting in accordance with that discretionary authority may be to offset the effect of a shareholder's having withheld authority to vote for an individual nominee or nominees because the proxies will be able to allocate votes of shareholders who have not withheld authority to vote in any manner they determine among such nominees. If a shareholder desires specifically to allocate votes among one or more nominees, the shareholder should so specify on the proxy card. The persons named as proxies on the enclosed proxy card were selected by the Board of Directors and have advised the Board of Directors that, unless authority is withheld, they intend to vote the shares represented by them at the Annual Meeting for the election of Richard W. Bohlen and Duncan A.J. Morrison, nominees of the Board of Directors, who have served as directors of the Company since 1984 and 1982, respectively. The Board of Directors knows of no reason why any nominee for director would be unable to serve as director. If at the time of the Annual Meeting any of the named nominees are unable or unwilling to serve as directors of the Company, the persons named as proxies intend to vote for such substitutes as may be nominated by the Board of Directors. The following sets forth certain information concerning each nominee for election as a director of the Company and each director whose term of office will continue after the meeting. NOMINEES FOR CLASS ONE DIRECTORS WHOSE TERMS EXPIRE 2000 RICHARD W. BOHLEN, 61, has served as a Company Director since 1984. Mr. Bohlen was Senior Vice President, Operations, Rockwell International Corporation from 1989 to 1991. Previously, he was President of the Measurement and Flow Control Division of Rockwell International Corporation from 1986 to 1988. From 1977 until 1986, he was President of the Municipal and Utility Division at Rockwell. In 1972 he became Director of Technology for Rockwell's Industrial Products Group and served as Corporate Director of Business Strategy from 1973 to 1976. Mr. Bohlen spent the first fifteen years of his career in the aerospace industry with Grumman Corporation and Rockwell International Corporation. He formerly served as director of GF Corporation and as chairman and director of the Pacific Coast Gas Association. Mr. Bohlen holds the B.S., M.S. and M.B.A. degrees from Massachusetts Institute of Technology (MIT), Polytechnic Institute of NY and California State University (Fullerton, California) respectively. DUNCAN A. J. MORRISON, 60, has served as a Director of the Company since 1982. Mr. Morrison is President at ARRI Canada Limited; previously, he was a Vice President of Corporate Financial Consulting with Seapoint 2 Financial Corporation in Toronto, Canada. From 1987 until 1990, Mr. Morrison was the Chief Financial Officer of the CTV Television Network Ltd. in Toronto, Canada. From 1976 until 1986, Mr. Morrison was the Vice President/Controller of Copperweld Corporation in Pittsburgh, Pennsylvania. He was Vice President, Treasurer and the Comptroller of Kysor Industrial Corporation in Cadillac, Michigan from 1966 to 1976. Mr. Morrison is a director of Minder Research Corporation (electronics manufacturer). Mr. Morrison was born in Canada and graduated from Westerveld Business College in London, Ontario, with a B.A. in Accounting. CLASS TWO DIRECTORS WHOSE TERMS EXPIRE 1998 PETER W. SOGNEFEST, 56, has served as a Director of the Company since 1979. Mr. Sognefest is President and Chief Executive Officer of Xymox Technology, Inc. Until April 1996, he was President and Chief Executive Officer of LH Research, Inc. Until February 1994, he was President and Chief Executive Officer of IRT Corporation. Until 1992, Mr. Sognefest was Chairman of Digital Appliance Controls, Inc. (a wholly-owned subsidiary of Emerson Electric Company). He founded the company in 1984 to design, manufacture and market digital appliance controls and sold the company to Emerson Electric Company in July 1991. Mr. Sognefest was previously Vice President and General Manager of the Industrial Electronics Division of Motorola, Inc. from 1982 to 1984, having joined Motorola in 1977. From 1967 to 1977, he was with Essex Group, Inc., a wholly-owned subsidiary of United Technologies Corporation, where he held the position of General Manager of Semiconductor Operations. Mr. Sognefest holds the B.S. and M.S. degrees in Electrical Engineering from the University of Illinois. He is a former Senior Fellow at Mellon Institute in Pittsburgh, Pennsylvania, where he worked on the Essex Group Research Fellowship. FRANCIS J. KRAMER, 48, was elected to the Board of Directors in August 1989. Mr. Kramer has been employed by the Company since 1983 and has been its President and Chief Operating Officer since 1985. Mr. Kramer joined the Company as Vice President and General Manager of Manufacturing and was named Executive Vice President and General Manager of Manufacturing in 1984. Prior to his employment by the Company, Mr. Kramer was the Director of Operations for the Utility Communications Systems Group of Rockwell International Corporation. Mr. Kramer graduated from the University of Pittsburgh in 1971 with a B.S. degree in Industrial Engineering and from Purdue University in 1975 with an M.S. degree in Industrial Administration. CLASS THREE DIRECTORS WHOSE TERMS EXPIRE 1999 CARL J. JOHNSON, 55, a co-founder of the Company in 1971, serves as Chairman, Chief Executive Officer, and Director of the Company. He served as President of the Company from 1971 until 1985 and has been a Director since its founding and Chairman since 1985. From 1966 to 1971, Dr. Johnson was Director of Research & Development for Essex International, Inc., an automotive electrical and power distribution products manufacturer. From 1964 to 1966, Dr. Johnson worked at Bell Telephone Laboratories as a member of the technical staff. In August 1996, he was selected as a director of Xymox Technology, Inc. Dr. Johnson completed his Ph.D. in Electrical Engineering at the University of Illinois in 1969. He holds the B.S. and M.S. degrees in Electrical Engineering from Purdue University and Massachusetts Institute of Technology (MIT), respectively. THOMAS E. MISTLER, 55, has served as a Director of the Company since 1977. Mr. Mistler is currently Senior Vice President of Energy Systems Business for Westinghouse Electric Corporation in Pittsburgh, Pennsylvania. Since 1984, Mr. Mistler has served in various engineering, marketing and general management capacities with Westinghouse Electric Corporation in Morristown, New Jersey, and Pittsburgh, Pennsylvania. He was located in Riyadh from 1981 to 1984 where he served as President of Westinghouse Saudi Arabia Limited. Mr. Mistler joined Westinghouse Electric Corporation in 1965 after graduating from Kansas State University with B.S. and M.S. degrees in Engineering. Mr. Mistler is a Trustee of Brothers Brother Foundation, an international charitable organization. 3 BOARD OF DIRECTORS AND BOARD COMMITTEES The Company's Board of Directors held four (4) meetings during the fiscal year ended June 30, 1997. Each director attended at least 75% of the meetings of the Board of Directors and any committee of which he is a member. Directors who are not also employees of the Company receive a fee of $700 per day for attending meetings of the Board of Directors, plus reimbursement of expenses. In addition, eligible nonemployee directors receive a one-time grant of options to purchase 15,000 shares of the Company's Common Stock at the fair market value of such Common Stock on the date of grant. Such options vest at a rate of 20% per year. Some of the Board's meetings are held for a two-day period. Members of the Audit Committee of the Board of Directors are paid $350 per meeting (if held on a day other than a day on which a Board meeting is held), plus reimbursement of expenses. No additional compensation is paid to members of the Option Plan Committee, Purchase Plan Committee or Compensation Committee. AUDIT COMMITTEE The Board has an Audit Committee of nonmanagement directors currently consisting of Duncan A. J. Morrison, Chairman, and Richard W. Bohlen. The Committee's duties include monitoring performance of the Company's business plan, reviewing the Company's accounting methods and procedures and reviewing certain business strategies. The Audit Committee met twice in fiscal 1997. OPTION PLAN COMMITTEE AND PURCHASE PLAN COMMITTEE The Board has an Option Plan Committee and a Purchase Plan Committee to administer those plans. The duties of the Option Plan Committee include selecting from eligible employees those persons to whom options will be granted and determining the type of option, the number of shares to be included in each option, any restriction on exercise for some or all of the shares subject to the option, and the option price. The Option Plan Committee establishes the period in which each option may be exercised, either in whole or in part. The Option Plan Committee also administers the Directors Plan. The Purchase Plan Committee's duties include administering and interpreting the Company's Amended and Restated Employee Stock Purchase Plan (the "Purchase Plan"); proscribing, amending and rescinding rules and regulations relating to the Purchase Plan; suspending the operation of the Purchase Plan; and making all other determinations necessary to the administration of the Purchase Plan, including the appointment of individuals to facilitate the day-to-day operation thereof. The current members of each of these committees are Peter W. Sognefest, Chairman, and Richard W. Bohlen, Thomas E. Mistler and Duncan A. J. Morrison. The Option Plan Committee and the Purchase Plan Committee each met twice during fiscal 1997. COMPENSATION COMMITTEE The Board has a Compensation Committee, comprised of nonmanagement directors, which is responsible for determining the compensation of the Company's executive officers and management. The Compensation Committee is comprised of Peter W. Sognefest, Chairman, and Richard W. Bohlen, Thomas E. Mistler and Duncan A. J. Morrison. It met twice in fiscal 1997. NOMINATIONS The Company's By-Laws describe in full the procedures to be followed by a shareholder in recommending nominees for director. In general, such recommendations can only be made by a shareholder entitled to notice of and to vote at a meeting at which directors are to be elected, must be in writing and must be received by the Chairman of the Company no later than (i) with respect to the election of directors at an annual meeting, 90 days prior to the anniversary date of the prior year's annual meeting, or (ii) with respect to the election of directors at a special meeting, within 10 days after notice of such meeting is given to shareholders or publicly disseminated. Furthermore, the recommendation must include certain information regarding the nominating shareholder and the nominee (including their relationship and any understanding between such persons regarding such nomination, the shares owned by the nominating shareholder, the number of shares to be voted for such nominee 4 and information concerning such nominee that would be required in a proxy statement filed with the Securities and Exchange Commission). The Company does not have a standing nominating committee. EXECUTIVE COMPENSATION AND OTHER INFORMATION The following table sets forth all cash compensation paid by the Company, as well as other compensation paid or accrued, to each of its executive officers (the "Named Executive Officers") for services rendered in all capacities during the fiscal years ended June 30, 1997, 1996 and 1995: SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION SECURITIES ----------------- UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (1) OPTIONS COMPENSATION (2) - --------------------------- ---- ------- --------- ---------- ---------------- ($) ($) (#) ($) Carl J. Johnson -- 1997 153,000 356,000 4,000 7,000 Chairman and Chief Executive Officer 1996 144,000 339,000 -- 6,000 1995 137,000 338,000 18,000 3,000 Francis J. Kramer -- 1997 140,000 276,000 4,000 14,000 President and Chief Operating Officer 1996 132,000 250,000 -- 12,000 1995 126,000 265,000 16,000 8,000 Herman E. Reedy -- 1997 111,000 105,000 3,000 13,000 Vice President and General Manager 1996 105,000 104,000 -- 12,000 of Quality and Engineering 1995 100,000 65,000 10,000 7,000 James Martinelli -- 1997 90,000 99,000 3,000 12,000 Treasurer and Chief Financial Officer 1996 78,000 98,000 -- 9,000 1995 68,000 54,000 30,000 5,000
- -------- (1) The amounts shown include management bonuses determined at the discretion of the Board of Directors based on the Company's performance; amounts received under the Bonus Incentive Plan in the fiscal year, and amounts to be paid in fiscal 1998 under such plan; the Management-By-Objective Plan for services rendered in the fiscal year; and bonuses deferred under the Deferred Compensation Plan. Under the Bonus Incentive Plan, each participant receives a cash bonus based on a formula percentage of the Company's profits determined annually by the Board of Directors. Partial bonus amounts are paid quarterly based on estimated Company performance, and the remainder is paid after fiscal year end and final determination of the applicable percentage by the Board. Bonus payments are pro-rated according to each participant's annual base compensation. Under the Company's Management-By-Objective Plan, a formula percentage of operating profits is determined annually by the Board of Directors and awarded to selected employees. These awards are based on graded performance of recipients measured against pre-established goals. Under the Deferred Compensation Plan, eligible participants can elect to defer a percentage of bonus compensation. (2) Amounts shown are for premiums paid for life and disability insurance. The amounts shown also include payments made pursuant to the Company's Profit Sharing Plan, which is qualified under Section 401 of the Internal Revenue Code of 1986, as amended. OPTION PLAN The Company's Board of Directors and shareholders in 1982 adopted an Incentive Stock Option Plan which was amended and restated by the Board and approved by the shareholders in 1987 as the II-VI Incorporated Stock Option Plan of 1987 and in 1990 as the II-VI Incorporated Stock Option Plan of 1990 (the "Option Plan"). The Option Plan is subject to a shareholder vote for amendment and restatement as the 1997 Stock Option Plan as more fully described in this proxy. The Option Plan currently provides for the issuance of up to 1,240,000 shares of the Company's Common Stock. As of June 30, 1997, approximately 76 officers and employees of the Company were eligible for consideration to receive options under the Option Plan. 5 The following table sets forth information with respect to each of the Company's Named Executive Officers concerning the exercise of options during fiscal 1997 and unexercised options held as of June 30, 1997. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES VALUE UNDERLYING OF UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS OPTIONS AT FISCAL AT FISCAL YEAR END YEAR END ------------- ----------------- SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/ NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE (1) - ---- --------------- -------- ------------- ----------------- (#) ($) (#) ($) Carl J. Johnson......... 17,000 279,000 14,200/14,800 263,922/211,748 Francis J. Kramer....... -- -- 27,400/13,600 517,654/189,776 Herman E. Reedy......... 7,200 138,000 1,400/9,000 26,418/120,360 James Martinelli........ -- -- 15,500/21,000 294,645/352,500
- -------- (1) Calculated on the basis of the fair market value of the underlying securities at year end, minus the exercise price. The following table sets forth information with respect to each of the Company's Named Executive Officers regarding options granted in the last fiscal year. OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION INDIVIDUAL GRANTS FOR OPTION TERM ---------------------------------------------- -------------------- NUMBER OF % OF TOTAL SECURITIES OPTIONS UNDERLYING GRANTED TO EXERCISE OPTIONS EMPLOYEES IN OR EXPIRATION NAME GRANTED FISCAL YEAR BASE PRICE DATE 5% 10% - ---- ---------- ------------ ----------- ---------- --------- ---------- (#) ($/SH) ($) ($) Carl J. Johnson......... 4,000 5 17.50 8/16/06 44,000 112,000 Francis J. Kramer....... 4,000 5 17.50 8/16/06 44,000 112,000 Herman E. Reedy......... 3,000 3 17.50 8/16/06 33,000 84,000 James Martinelli........ 3,000 3 17.50 8/16/06 33,000 84,000
EMPLOYMENT AGREEMENTS Carl J. Johnson, Francis J. Kramer and Herman E. Reedy each have employment agreements with the Company, terminable by either party on thirty days prior written notice, which contain, among other matters, provisions for payment of compensation and benefits at the discretion of the Company, provisions for severance payments based on salary and years of service, and agreements regarding confidentiality, noncompetition and assignment of inventions. REPORT OF THE COMPENSATION COMMITTEE AND OPTION COMMITTEE The Compensation Committee has the responsibility of recommending to the Board of Directors appropriate salaries and bonuses for all executive officers and top management of the Company. The Option Committee has the responsibility of granting stock options to eligible employees, including the executive officers. Both committees are comprised of all of the nonmanagement directors of the Company. 6 Compensation Philosophy . To link the interests of executives and managers to the interests of shareholders and other potential investors. . To provide incentives for working toward increasing short-term and long- term shareholder value through growth-driven financial compensation. . To provide incentives for innovation, quality management, responsiveness to customer needs, and an action-oriented approach to opportunities in the marketplace. . To attract and retain individuals with the leadership and technical skills required to carry the Company into the future, and to grow the business. . To provide compensation in a manner that allows for shared risks by the executives and managers but also the potential for shared rewards. Executive Compensation The Company uses a three-pronged approach to its executive compensation program: 1) base salary; 2) potential for cash or stock bonuses which are eligible for deferral; and 3) incentive stock. The Company's compensation plans tie a significant portion of executive compensation to performance goals. In fact, executive officers have over 35-50% of their compensation package "at-risk," which means it is not guaranteed but rather is received through bonuses or incentive stock based on Company performance. In the aggregate, 63% and 62% of the executive officers' compensation for fiscal 1997 and 1996, respectively, on average, came from at-risk incentive directly related to Company performance. During the course of each year, the Committee meets with the CEO and COO of the Company to review recommendations on changes, if any, in the base salary of each executive officer. Based on the Committee's judgment and knowledge of salary practices, national surveys and an individual's performance and contribution to the Company, the Committee modifies or approves the CEO and COO recommendations. Base Salary: The Company sets base salary levels for executive management each year based on a number of factors, including the status of the competitive marketplace for such positions, the responsibilities of the position, the experience of the individual, the individual's performance during the past year, and equity in relationship to other executive positions within the Company. Cash and Stock Bonuses: The Company awards cash bonuses under a Bonus Incentive Plan which is based on a formula percentage of the Company's profits determined annually by the Board of Directors. The Company awards bonuses under a Management-By-Objective Plan which is based on a formula percentage of operating profits, determined annually by the Board, based on achievement of certain strategic objectives integral to the annual operating plan. In addition, at the Board of Directors' discretion, annual bonuses may be awarded to executive officers and top management based on the Company's performance. Incentive Stock: The Company has a variable compensation plan covering all employees, including executive officers based on achievement of certain objectives. On average, once every two fiscal years the Option Committee may consider granting executive officers of the Company options under the Option Plan. These options, which generally vest over time, are awarded to officers based on their continued contribution to the Company's achievement of financial and operating objectives. These options are designed to align the interests of the Company's stockholders and to motivate the Company's executive officers to remain focused on the overall long-term performance of the Company. Chief Executive Officer and Chief Operating Officer In setting compensation for the Chief Executive Officer and Chief Operating Officer, the Compensation Committee considers objective criteria including performance of the business, accomplishments of long-term strategic goals and the development of management. The Compensation Committee considers the Company's revenue growth and earnings to be the most important factors in determining the Chief Executive Officer's and 7 Chief Operating Officer's compensation packages. Along with these financial performance factors, the Compensation Committee also considers achievement of long-term strategic goals, including enhancing the Company's reputation among both its customer and investor bases during the year, and the market base salary of comparable positions. The base salary has normally been 70-75% of the market base salary due to the "at risk" portion of the compensation mentioned earlier. During fiscal 1997, Carl J. Johnson received a salary of $153,000. Dr. Johnson received a cash bonus in the amount of $356,000. Dr. Johnson also received 4,000 stock options. During fiscal 1997, Francis J. Kramer received a salary of $140,000. Mr. Kramer received a cash bonus in the amount of $276,000. Mr. Kramer also received 4,000 stock options. Compensation Committee and Option Committee Peter W. Sognefest, Chairman Richard W. Bohlen Thomas E. Mistler Duncan A.J. Morrison 8 PRINCIPAL SHAREHOLDERS The following table sets forth certain information available to the Company as of August 15, 1997, regarding the ownership of the Company's Common Stock by (i) each of the Company's directors and nominees; (ii) each of the Company's Named Executive Officers; (iii) all executive officers and directors of the Company as a group; and (iv) each person or group known by the Company to beneficially own more than five percent (5%) of the Common Stock.
BENEFICIAL OWNERSHIP OF COMMON STOCK(1) ----------------------- SHARES PERCENT ------ ---------- Carl J. Johnson (2)..................................... 1,273,535 18.7% c/o II-VI Incorporated Saxonburg Boulevard Saxonburg, Pennsylvania 16056 Richard W. Bohlen (3)................................... 53,000 * Thomas E. Mistler (3)(4)................................ 191,000 2.8% Duncan A. J. Morrison (3)............................... 17,060 * Peter W. Sognefest (3).................................. 11,066 * Francis J. Kramer (5)................................... 68,693 1.0% Herman E. Reedy (5)..................................... 50,541 * James Martinelli (5)(6)................................. 34,933 * All executive officers and directors as a group (eight persons) (2)-(7)....................................... 1,699,828 24.6%
- -------- * Less than 1% (1) Unless otherwise indicated, each of the shareholders named in the table has sole voting and investment power with respect to the shares beneficially owned, subject to the information contained in the footnotes to the table. (2) Includes 945,042 shares of Common Stock over which Dr. Johnson has sole voting and investment power, 18,600 shares subject to vested options under the Option Plan, 127,025 shares over which Dr. Johnson has sole voting power and shared investment power (with a voting trust and charitable remainder trust pursuant to rights of first refusal and option rights over shares held in these trusts), and 60,738 shares in a charitable trust over which Dr. Johnson has shared voting and investment power. Also includes 122,130 shares held by Dr. Johnson's spouse, as to which shares he disclaims beneficial ownership. (3) Includes 6,000 shares subject to stock options held by each of Messrs. Bohlen, Mistler and Morrison and 4,000 shares subject to stock options held by Mr. Sognefest and exercisable within 60 days of August 15, 1997. (4) All such shares are held in a trust. (5) Includes 31,400 shares, 4,000 shares and 22,100 shares subject to stock options held by Messrs. Kramer, Reedy and Martinelli, respectively, and exercisable within 60 days of August 15, 1997. (6) Includes 1,400 shares over which Mr. Martinelli has shared voting and investment power. (7) Includes 98,100 shares subject to stock options held by executive officers and directors as a group and exercisable within 60 days of August 15, 1997. 9 PERFORMANCE GRAPH The following graph compares cumulative total shareholder return on the Company's Common Stock with the cumulative total shareholder return of the companies listed in the NASDAQ Market Value Index and with a peer group of companies constructed by the Company (the "Peer Group"), for the period from July 1, 1992 to June 30, 1997. The Peer Group includes Aeroflex Inc., Apa Optics Inc., Optical Coating Lab Inc., Scan Optics Inc. and Tinsley Laboratories Inc. [GRAPH APPEARS HERE] COMPARISON OF FIVE YEAR CUMULATIVE RETURN AMONG II-VI INCORPORATED, PEER GROUP INDEX AND NASDAQ MARKET INDEX
Measurement period II-VI INCORPORATED Peer Group NASDAQ Market (Fiscal Year Covered) Index Index - --------------------- ------------------ ---------- ------------- Measurement PT - 7/1/92 $ 100 $100 $100 FYE 6/30/93 $ 78.26 $ 91.51 $122.76 FYE 6/30/94 $ 139.13 $111.15 $134.61 FYE 6/30/95 $ 965.22 $129.85 $157.88 FYE 6/30/96 $1121.74 $200.21 $198.73 FYE 6/30/97 $1460.87 $175 $239.40
The above graph represents and compares the value, through June 30, 1997, of a hypothetical investment of $100 made on July 1, 1992, in each of (i) the Company's Common Stock, (ii) the Nasdaq Market Index, and (iii) the companies comprising the Peer Group, assuming, in each case, the reinvestment of dividends. The cumulative shareholder return through June 30, 1997 indicates that the Company has outperformed the Peer Group and the Nasdaq Market Value Index. APPROVAL OF THE 1997 STOCK OPTION PLAN On August 16, 1997, the Board of Directors unanimously adopted, subject to approval of the stockholders of the Company, the Company's 1997 Stock Option Plan (the "1997 Stock Option Plan"). The shareholders will be asked to vote on a proposal to approve the 1997 Stock Option Plan which increases the number of authorized shares available for issuance under the Option Plan by 320,000 from 1,240,000 to 1,560,000 and provides that options may be granted until August 16, 2007. As of August 16, 1997, there remained 171,450 shares of Common Stock available for future issuance under the Option Plan. The 1997 Stock Option Plan authorizes the issuance of options ("Stock Options") covering up to 1,560,000 shares of Common Stock (subject to appropriate adjustments in the event of stock splits, stock dividends and similar dilutive events). The Board of Directors has concluded that the 1997 Stock Option Plan is necessary in order to maintain the availability of options as a vehicle for: (1) securing the advantages of incentive and the sense of proprietorship inherent in stock ownership with respect to officers, key employees, consultants and 10 independent contractors who are responsible for the Company's continued growth, development and future success; (2) rewarding past performance; and (3) assisting the Company's efforts to recruit, retain and motivate high- quality employees. Accordingly, the Board of Directors believes that adoption of the 1997 Stock Option Plan is in the best interests of the Company and its stockholders. THE BOARD UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE ADOPTION OF THIS PROPOSAL. The affirmative vote of a majority of the votes entitled to be cast at the Annual Meeting is required to approve the 1997 Stock Option Plan. SUMMARY PLAN DESCRIPTION The following description is not a complete statement of the 1997 Stock Option Plan and is qualified in its entirety by reference to the complete text of the 1997 Stock Option Plan, a copy of which is attached hereto as Exhibit A. Administration. The 1997 Stock Option Plan is to be administered by the Board of Directors or, at its election, by a committee of the Board of Directors (the "Plan Administrator"). The Plan Administrator from time to time at its discretion makes determinations with respect to the persons who shall be granted Options, as well as the amount and timing of such Options, under the 1997 Stock Option Plan. Eligibility. Directors, officers and key employees of the Company and its subsidiaries may be granted options to purchase shares of the Company's Common Stock in the form of incentive stock options ("Incentive Stock Options") qualified as such under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and/or other options, NonStatutory Stock Options (as defined therein) under the 1997 Stock Option Plan. In addition, consultants and independent contractors shall be eligible for the grant of Nonstatutory Stock Options only. Terms of Options. The Plan Administrator, in its discretion, may grant Incentive Stock Options or Nonstatutory Stock Options, as designated in the optionee's stock option agreement, provided however, that consultants and independent contractors may only be granted Nonstatutory Stock Options. Options granted under the 1997 Stock Option Plan are not transferable other than by will or by the laws of descent and distribution. Stock Options may not have a term exceeding ten years from the date of grant. Additionally, Incentive Stock Options may not be granted to an employee who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company (a "Ten-Percent Stockholder") with a term exceeding five years. The Plan Administrator determines the exercise price for each option granted under the 1997 Stock Option Plan; provided, however, that the exercise price: (1) in the case of either an Incentive Stock Option or a NonStatutory Option granted to an eligible person, other than a Ten-Percent Stockholder, shall not be less than the fair market value of the shares to which the option relates on the date of grant; and (2) in the case of an Incentive Stock Option granted to an employee who is a Ten-Percent Stockholder, shall not be less than 110% of the fair market value of the shares to which the option relates on the date of grant. An Option may be exercised upon written notice to the Company specifying the number of Shares to be purchased. The exercise price of the Option must be paid at the time of exercise. Such payment may be made in cash, through the delivery to the Company of shares of Common Stock outstanding with an aggregate fair market value equal to the exercise price, or through a combination of cash and shares. In the event that an optionee shall cease to be employed by the Company, all options will terminate. However, in the event that such optionee's termination was due to early, normal or late retirement, as those terms are defined in the Company's profit sharing plan, the option may be exercised only within the earlier of three years after termination of employment or prior to the expiration of the option period. In the event that such optionee's termination was due to total and permanent disability, as that term is defined in Section 22(e)(3) of the Code, the option may be exercised only within the earlier of twelve months after the termination or prior to the expiration of the option period. In the event of the optionee's death, the option may be exercised only within the earlier of twelve months after the optionee's death or prior to the expiration of the option period. 11 The Option Plan, as amended, will continue to provide that (i) in the event that an optionee terminates his employment with the Company and commences employment with a competitor of the Company or a subsidiary within twelve (12) months of the exercise date of any option, and has sold the shares of Common Stock acquired pursuant to the exercise of any such option, such optionee shall be required to pay to the Company an amount equal to the proceeds received by such optionee on the sale of such shares less the amount paid for such shares upon exercise of such option. Adjustments, Amendment or Discontinuance. The 1997 Stock Option Plan provides for the adjustment of the number and price of Options and shares available for Options as a result of a subdivision or consolidation of shares, merger, stock split or the declaration of stock dividends. In addition, the Board of Directors may alter, amend, suspend or discontinue the Plan, provided that no such action shall, without such person's consent, deprive any person of any rights previously granted under the 1997 Stock Option Plan. Except as provided for adjustment of number and price of shares, no amendment to the Plan may become effective without approval of the amendment by the stockholders if stockholder approval is required by law or considered advisable or necessary by the Board of Directors. FEDERAL INCOME TAX CONSEQUENCES The following summary is based upon an interpretation of present federal tax laws and regulations and may be inapplicable if such laws and regulations are changed. The 1997 Stock Option Plan is not subject to the protective provisions of the Employee Retirement Income Security Act of 1974 and is not qualified under Section 401(a) of the Code. An optionee will not be required to recognize any income for federal income tax purposes at the time of grant of an Incentive Stock Option, nor is the Company entitled to any deduction. The exercise of an Incentive Stock Option also is not a taxable event, although the difference between the option price and the fair market value on the date of exercise is an item of tax preference for purposes of the alternative minimum tax. The taxation of gain or loss upon the sale of stock acquired upon exercise of an Incentive Stock Option depends in part on whether the stock is held for at least two years from the date the option was granted and at least one year from the date the stock was transferred to the optionee ("the ISO Holding Period"). If the ISO Holding Period is not met, then, upon disposition of such shares (a "disqualifying disposition"), the optionee will realize compensation taxable as ordinary income in an amount equal to the excess of the fair market value of the shares at the time of exercise over the option price, limited, however to the gain on sale. Any additional gain would be taxable as capital gain (see below). If the ISO Holding Period is met, the treatment of the gain upon the sale of the shares depends on the date the shares were sold and the period such shares were held by the optionee. With respect to sales on or before May 6, 1997, such gain is taxable as long-term capital gain at a maximum rate of 28%. With respect to sales after May 6, 1997 and on or before July 28, 1997, such gain is taxable as long-term capital gain but at a maximum rate of 20%. With respect to sales after July 28, 1997, if the shares were held at least 18 months as of the sale date, the gain is taxable as a long-term capital gain at a maximum rate of 20%. If, however, the sale occurs on or after July 28, 1997 and the shares were held at least one year (so as to satisfy the ISO Holding Period) but less than 18 months, the gain is taxable as a "mid-term gain" at a maximum rate of 28%. A maximum capital gains rate of 18% will apply to certain sales after December 31, 2000 of shares acquired upon the exercise of an Incentive Stock Option if such shares have been held for at least five years. If the Incentive Stock Option is exercised by delivery of previously owned shares of Common Stock in partial or full payment of the option price, no gain or loss will ordinarily be recognized by the optionee on the transfer of such previously owned shares. However, if the previously owned shares transferred were acquired through the exercise of an Incentive Stock Option, the optionee may realize ordinary income with respect to the shares used to exercise an Incentive Stock Option if such transferred shares have not been held for the ISO Holding Period. If the optionee recognizes ordinary income upon a disqualifying disposition, the Company generally will be entitled to a tax deduction in the same amount. 12 If the exercise price of a Nonstatutory Stock Option is paid in shares of Common Stock, the tax results to the optionee are (i) a tax-free exchange of previously owned shares for an equivalent number of new shares and (ii) the realization of ordinary income in an amount equal to the fair market value on the date of exercise of any additional shares received in excess of the number exchanged. If the exercise price of a Nonstatutory Stock Option is paid in part in shares of Common Stock and in part in cash, the tax results to the optionee are (i) a tax-free exchange of previously owned shares for an equivalent number of new shares, (ii) the realization of ordinary income in an amount equal to the fair market value on the date of exercise of any additional shares received in excess of the number exchanged and (iii) the realization of ordinary income in an amount equal to the fair market value on the date of exercise of any remaining shares received in excess of the cash paid. The foregoing rules regarding time of taxation of optionees upon the disposition of stock acquired upon the exercise of an Incentive Stock Option and upon the exercise of a Nonstatutory Stock Option may differ somewhat with respect to options that are exercised within six months of the date of grant by optionees who are subject to the short-swing profit restrictions of Section 16(b) of the Exchange Act. RATIFICATION OF SELECTION OF AUDITORS Unless otherwise directed by the shareholders, proxies will be voted for the ratification of the Board of Directors' selection of Deloitte & Touche LLP as the Company's independent auditors for the fiscal year ending June 30, 1998. The affirmative vote of the holders of at least a majority of the votes which all shareholders present at the Annual Meeting are entitled to cast is required to ratify such selection. A representative of Deloitte & Touche LLP is expected to be present at the Annual Meeting to respond to appropriate questions and will have the opportunity to make a statement if such person so desires. CHANGE IN CERTIFYING ACCOUNTANT On February 10, 1997, the Company terminated Alpern, Rosenthal & Company as independent accountants for the Company and its subsidiaries. The independent accountants' reports on the financial statements of the Company for the fiscal 1995 and 1996 did not contain an adverse opinion or a disclaimer of opinion and the reports were not qualified or modified as to uncertainty, audit scope or accounting principles. The decision to change accountants was approved by the Audit Committee and ratified by the Board of Directors of the Company. During the Company's fiscal years ended June 30, 1995 and 1996, and subsequent interim period ended February 10, 1997, there were no disagreements with Alpern, Rosenthal & Company on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to the satisfaction of Alpern, Rosenthal & Company, would have caused Alpern, Rosenthal & Company to make a reference to the subject matter of the disagreement in connection with its report. During the Company's fiscal years ended June 30, 1995 and 1996, and subsequent interim period ended February 10, 1997, there did not occur any kind of event listed in paragraphs (a)(1)(v)(A) through (D) of Regulation S-K, Item 304. Effective February 10, 1997, the Company engaged Deloitte & Touche LLP as independent auditors to review the Company's unaudited financial statements for its third fiscal quarter ended March 31, 1997, and to audit the Company's financial statements for the fiscal year ended June 30, 1997. During the Company's fiscal years ended June 30, 1995 and 1996, and subsequent interim period ended February 10, 1997, neither the Company nor any person acting on behalf of the Company consulted Deloitte & Touche LLP regarding (i) either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's financial statements; or (ii) any matter that was either the subject of a disagreement (as defined in paragraph (a)(1)(iv) of Regulation S- K, Item 304, and the related instructions) or a reportable event (as described in paragraph (a)(1)(v) of Regulation S-K, Item 304). FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION A copy of the Annual Report on Form 10-K of the Company for the fiscal year ended June 30, 1997, as filed with the Securities and Exchange Commission, will be available after September 30, 1997. A shareholder 13 may obtain a copy of the Form 10-K without charge and a copy of any exhibits thereto upon payment of a reasonable charge limited to the Company's costs of providing such exhibits by writing to Treasurer at II-VI Incorporated, 375 Saxonburg Boulevard, Saxonburg, Pennsylvania 16056. OTHER MATTERS The Company knows of no other matters to be presented for action at the meeting. However, if any other matters should properly come before the meeting, it is intended that votes will be cast pursuant to the proxy in respect thereto in accordance with the best judgment of the persons acting as proxies. The Company will pay the expense in connection with the printing, assembling and mailing to the holders of Common Stock of the Company the notice of meeting, this proxy statement and the accompanying form of proxy. In addition to the use of the mails, proxies may be solicited by directors, officers or regular employees of the Company personally or by telephone or telegraph. The Company may request the persons holding stock in their names, or in the names of their nominees, to send proxy material to and obtain proxies from their principals, and will reimburse such persons for their expense in so doing. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's directors, executive officers and persons who beneficially own more than ten percent of a class of the Company's registered equity securities to file with the Securities and Exchange Commission and deliver to the Company initial reports of ownership and reports of changes in ownership of such registered equity securities. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, the Company's directors, executive officers and more than ten percent shareholders filed all reports due under Section 16(a) for the period from July 1, 1996 through June 30, 1997. SHAREHOLDER PROPOSALS Shareholders who intend to submit a proposal at the Annual Meeting of the shareholders of the Company expected to be held in November 1998 must submit such proposal to the attention of the Treasurer of the Company at the address of its executive offices no later than May 29, 1998. 14 EXHIBIT A [Amended as of August 16, 1997] II-VI INCORPORATED STOCK OPTION PLAN OF 1997 Section 1. Amendment. Upon the effective date set forth in Section 13, the II-VI Incorporated Stock Option Plan of 1990 is hereby amended and restated as the II-VI Incorporated Stock Option Plan of 1997 (hereinafter called the "Plan"). Under the Plan, directors, officers, key employees and consultants/independent contractors of II-VI Incorporated (hereinafter called the "Company") and its subsidiaries, if any, who are responsible for its continued growth and development and future financial success of the Company may be granted options to purchase shares of common stock of the Company in order to secure to the Company the advantages of the incentive and sense of proprietorship inherent in stock ownership by such persons. Section 2. Duration. All options granted under this Plan must be granted within ten years of August 16, 1997. Any options outstanding after the expiration of such ten-year period may be exercised within the periods prescribed by Section 8. Section 3. Administration. The Plan shall be administered by the Board of Directors of the Company or, at the election of the Board of Directors, by a committee of the Board of Directors (the "Administrator") constituted so as to comply with Rule 16b-3 promulgated under Section 16 of the Securities Exchange Act of 1934, as amended, as such rule may be amended from time-to-time, or any successor rule. In the event that the Administrator is a committee of the Board of Directors, a majority of the committee shall constitute a quorum and the acts of a majority of the members present at any meeting at which a quorum is present or acts approved in writing by a majority of the committee shall be deemed the acts of the committee. Subject to the provisions of the Plan and to policies determined by the Board of Directors, the Administrator is authorized to adopt such rules and regulations and to take such action in the administration of the Plan as it shall deem proper. Section 4. Eligibility. Directors, officers and key employees of the Company and its subsidiaries, if any (including officers and employees who are directors of the Company), who, in the opinion of the Administrator, are mainly responsible for the continued growth and development and future financial success of the business shall be eligible to participate in the Plan. In addition, consultants/independent contractors shall be eligible for the grant of Nonstatutory Stock Options only (as hereinafter defined). The Administrator shall, in its sole discretion, from time to time, select from such eligible persons whose to whom options shall be granted and determine the number of shares to be included in such option. No officer or employee shall have any right to receive an option, except as the Administrator in its discretion shall determine. The terms "subsidiaries" and "parent" where used in the Plan or in any stock option agreement entered into under the Plan means a "subsidiary corporation" or a "parent corporation" respectively as defined in Section 424 of the Internal Revenue Code of 1986, as it may be amended from time to time (the "Code"). Section 5. Shares Subject to Plan. Inclusive of options granted under this Plan prior to amendment hereby, options may be granted pursuant to the Plan to purchase up to 1,560,000 shares of no par value common stock of the Company (subject to adjustment as provided in Section 9), which may be either authorized and unissued shares or shares held in the treasury of the Company. To the extent that options granted under the Plan (including options granted under the Plan prior to amendment hereby) shall expire or terminate without being exercised shares covered thereby shall remain available for purposes of the Plan. Shares delivered to the Company to pay the option price or otherwise shall also remain available for purposes of the Plan. Section 6. Types of Options. Options granted pursuant to the Plan may be either options which are intended to be treated as incentive stock options under Section 422 of the Code (hereinafter called "Incentive A-1 Stock Options") of other options not intended to be treated as incentive stock options under Section 422 of the Code (hereinafter called "Nonstatutory Stock Options"). Incentive Stock Options and Nonstatutory Stock Options shall be granted separately hereunder. Subject to the foregoing, the Administrator shall determine, in its sole discretion, whether and to what extent options granted under the Plan shall be Incentive Stock Options or Nonstatutory Stock Options. Section 7. Authority of Administrator. The Administrator, in its sole discretion, may permit an optionee voluntarily to surrender for cancellation an option granted under the Plan, such surrender to be conditioned upon the granting to such optionee of a new option under the Plan for the same or a different number of shares as the option surrendered, or may require such voluntary surrender as condition precedent to the grant of a new option to such optionee. Any such new option shall be exercisable at the price, during the period, and in accordance with any other terms and conditions specified by the Administrator at the time the new option is granted, all determined in accordance with the provisions of the Plan without regard to the price, period of exercise, or any other terms or conditions of the option surrendered for cancellation. The grant of such new option shall not be deemed an amendment of the Plan or the option surrendered. For purposes of Section 5 hereof, options granted under this Plan and subsequently surrendered for cancellation shall be deemed to have terminated without being exercised. Section 8. Terms of Options. Each option granted under the Plan shall be evidenced by a stock option agreement between the Company and the person to whom such option is granted designating the option as either an Incentive Stock Option or a Nonstatutory Stock Option and shall be subject to the following terms and conditions: (a) Subject to adjustment as provided in Section 9 of this Plan, the price at which each share covered by an option may be purchased shall be determined in each case by the committee but shall not be less than the fair market value thereof at the time the option is granted. If an optionee owns (or is deemed to own under applicable provisions of the Code and rules and regulations promulgated thereunder) more than 10% of the combined voting power of all classes of the stock of the Company (or any parent or subsidiary of the Company) and an option granted to such optionee is designated as an Incentive Stock Option, the option price shall be no less than 110% of the fair market value of the shares covered by the option on the date the option is granted. (b) During the lifetime of the optionee the option may be exercised only by the optionee. The option shall not be transferable by the optionee otherwise than by will or by the laws of descent and distribution. (c) An option may be exercised in whole at any time, or in part from time to time, within such period or periods not to exceed ten years from the granting of the option as may be determined by the Administrator and set forth in the stock option agreement (such period or periods being hereinafter referred to as the "option period"), provided that all options will terminate if the optionee shall cease to be employed by the Company or any of its subsidiaries except as follows: (i) if the optionee shall cease to be employed by the Company or any of its subsidiaries because of early, normal or late retirement, as those terms are defined in the Company's profit sharing plan, the option may be exercised only within three years after the termination of employment and only within the option period; (ii) if the optionee shall cease to be employed by the Company or any of its subsidiaries because of a total and permanent disability as that term is defined in Section 22(e)(3) of the Code, the option may be exercised only within twelve months after the termination and only within the option period; and (iii) if the optionee shall die, the option may be exercised only within twelve months after the optionee's death and only within the option period (and only within the period set forth in subparagraph (i) hereof if such death follows a termination of employment other than for a total and permanent disability; or only within the period set forth in subparagraph (ii) hereof if such death follows a termination of employment due to a total and permanent disability as set forth in subparagraph (ii)) A-2 and only by the optionee's personal representatives or persons entitled thereto under the optionee's will or the laws of descent and distribution. (d) The option may not be exercised for more shares (subject to adjustment as provided in Section 9) after the termination of the optionee's employment or the optionee's death than the optionee was entitled to purchase thereunder at the time of the termination of the optionee's employment or the optionee's death. (e) If an optionee owns (or is deemed to own under applicable provisions of the Code and rules and regulations promulgated thereunder) more than 10% of the combined voting power of all classes of stock of the Company (or any parent or subsidiary of the Company) and an option granted to such optionee is designated as an Incentive Stock Option, the option by its terms may not be exercisable after the expiration of five years from the date such option is granted. (f) The option price of each share purchased pursuant to an option shall be paid in full at the time of each exercise of the option either (i) in cash, (ii) by delivering to the Company shares of the common stock of the Company having an aggregate fair market value equal to the option price of such shares being purchased; or, (iii) by delivering a combination of the foregoing having an aggregate fair market value equal to the option price of such shares being purchased. (g) Nothing contained in the Plan or in any stock option agreement shall confer upon any optionee any right with respect to the continuance of employment by the Company or any subsidiary or interfere in any way with the right of the Company or any subsidiary to terminate his employment or change his compensation at any time. (h) If the optionee terminates his employment with the Company or a subsidiary for any reason, and commences employment with a Competitor of the Company or a subsidiary within twelve months of the date the option is exercised, the optionee shall return to the Company the shares acquired pursuant to such exercise and the Company shall return the purchase price of such shares in cash or certified check within thirty days after the optionee commences such employment with a Competitor. If the optionee has sold such shares, then he agrees to pay to the company, in cash or certified funds, an amount equal to the proceeds received by the optionee on the sale of such shares less the amount which the optionee paid for such shares on the exercise of the option. Such amount shall be paid to the Company within thirty days after the optionee commences his employment with the Competitor. For the purpose of this Plan, a "Competitor" shall mean any corporation, partnership, sole proprietorship or other entity who sells, manufactures, produces or modifies a product or products similar to, the same as or a substitute for any product or products sold by the Company or any subsidiary. (i) A stock option agreement may contain such other terms and conditions not inconsistent with the foregoing as the Administrator shall approve for any or all options granted hereunder, including a vesting restriction on exercise for some or all of the shares subject to the option for certain periods of time not to exceed five years. Section 9. Adjustment of Number and Price of Shares. (a) In the event that a dividend shall be declared upon the common stock of the Company payable in shares of said stock, including any such dividend declared prior to the effective date of this amendment to the Plan, the number of shares of common stock covered by each outstanding option and the number of shares available for issuance pursuant to the Plan but not yet covered by an option shall be adjusted by adding thereto the number of shares which would have been distributable thereon if such shares had been outstanding on the date fixed for determining the shareholders entitled to receive such stock dividend. (b) In the event that the outstanding shares of common stock of the Company shall be changed into or exchanged for a different number or kind of shares of stock or other securities of the Company or of another corporation, whether through reorganization, recapitalization, stock split- up, combination of shares, merger or consolidation, then there shall be substituted for the shares of common stock covered by each outstanding option and for the shares available for issuance pursuant to the Plan but not yet covered by an A-3 option, the number and kind of shares of stock or other securities which would have been substituted therefor if such shares had been outstanding on the date fixed for determining the shareholders entitled to receive such changed or substituted stock or other securities. (c) In the event there shall be any change, other than specified above in this Section 9, in the number or kind of outstanding shares of common stock of the Company or of any stock or other securities into which such common stock shall be changed or for which it shall have been exchanged, then, if the Board of Directors shall determine, in its discretion, that such change equitably requires an adjustment in the number or kind of shares covered by an option, such adjustment shall be made by the Board of Directors and shall be effective and binding for all purposes of the Plan and on each outstanding stock option agreement. (d) In the event that, by reason of a corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, the Board of Directors shall authorize the issuance or assumption of a stock option or stock options in a transaction to which Section 424(a) of the Code applies, then, notwithstanding any other provision of the Plan, the Committee may grant an option or options upon such terms and conditions as it may deem appropriate for the purpose of assumption of the old option, or substitution of a new option for the old option, in conformity with the provisions of such Section 424(a) and the regulations thereunder, as they may be amended from time to time. (e) No adjustment or substitution provided for in this Section 9 shall require the Company to issue or to sell a fractional share under any stock option agreement and the total adjustment or substitution with respect to each stock option agreement shall be limited accordingly. (f) In the case of any adjustment or substitution provided for in this Section 9, the option price per share in each stock option agreement shall be equitably adjusted by the Board of Directors to reflect the greater or lesser number of shares of stock or other securities into which the stock covered by the option may have been changed or which may have been substituted therefor. Section 10. Fair Market Value. In any determination of fair market value under this Plan, fair market value shall be deemed to be (i) if there quoted, the closing price on the National Association of Securities Dealers Automated Quotation-National Market System, for the no par value common stock of the Company for the date in question, or if no sales were made on that date, on the next preceding date on which sales were made, or (ii) the mean between the bid and the asked price as quoted by the National Association of Securities Dealers Automated Quotation System. Section 11. Amendment and Discontinuance. The Board of Directors may alter, amend, suspend or discontinue the Plan, provided that no such action shall deprive any person without such person's consent of any rights theretofore granted pursuant hereto. Except as provided in Section 9, the Board of Directors shall submit any amendment to the Plan to the stockholders of the Company for approval only if (i) required by law, or (ii) considered advisable or necessary by the Board of Directors. Section 12. Compliance with Governmental Regulations. (a) Notwithstanding any provision of the Plan or the terms of any stock option agreement issued under the Plan, the Company shall not be required to issue any shares hereunder prior to registration of the shares subject to the Plan under the Securities Act of 1933 or the Securities Exchange Act of 1934, if such registration shall be necessary, or before compliance by the Company of any participant with any other provisions of either of those acts or of regulations or rulings of the Securities and Exchange Commission thereunder, or before compliance with all other federal and state laws and regulations and rulings thereunder. (b) The Company shall use its best efforts to effect such registrations (except as otherwise provided in paragraph (c) hereof) and to comply with such laws, regulations and rulings forthwith upon advice by its counsel that any such registration or compliance is necessary. A-4 (c) The Company may, based upon advice by counsel to the Company, require an optionee to make such representations and warranties at the time of exercise of a stock option granted under the Plan as shall be necessary or convenient to cause the issuance of the shares to such optionee to be in compliance with such laws, regulations and rulings without registration. Section 13. Effective Date of Amended Plan. The Plan, as amended, is effective as of August 16, 1997, subject to approval and adoption of the amendment to the Plan by the holders of a majority of the votes cast at the 1997 annual meeting of stockholders. A-5 II-VI INCORPORATED This Proxy Is Solicited On Behalf Of The Board Of Directors Of The Company The undersigned hereby appoints Francis J. Kramer and Peter W. Sognefest or either of them, with power of substitution to each, as proxies to represent and to vote as designated on the reverse all of the shares of Common Stock held of record at the close of business on September 15, 1997 by the undersigned at the annual meeting of shareholders of II-VI Incorporated to be held at the offices of the Company, 375 Saxonburg Boulevard, Saxonburg, Pennsylvania 16056, on November 7, 1997, and at any adjournment thereof. (Please sign on reverse side and return promptly) Please date, sign and mail your proxy card back as soon as possible! Annual Meeting of Stockholders II-VI INCORPORATED. November 7, 1997 x Please Detach and Mail in the Envelope Provided x - -------------------------------------------------------------------------------- Please mark A [X] votes as in this example. The Board of Directors recommends a vote "FOR" proposals numbered 1, 2 and 3 Vote FOR all nominees WITHHOLD listed at right AUTHORITY (except as indicated to to vote for all nomi- the contrary below) nees listed at right 1. ELECTION OF [_] [_] DIRECTORS Nominees: Richard W. Bohlen Duncan A.J. Morrison (Instruction: To withhold authority to vote for any individual nominee, strike a line through that nominee's name.) FOR AGAINST ABSTAIN 2. Approval of the II-VI Incorporated Stock Option [_] [_] [_] Plan of 1997. 3. Ratification of the Board of Directors' selection of Deloitte & Touche LLP as independent auditors for the Company and its subsidiaries for the 1998 fiscal year. [_] [_] [_] Unless otherwise specified in the squares provided, the proxies shall vote in the election of directors for the nominees listed at left hereof, for approval of the II-VI Incorporated Stock Option Plan of 1997 and for ratification of the selection of Deloitte & Touche LLP as independent auditors. Proxies also shall have discretionary power to vote upon such other matters as may properly come before the meeting or any adjournment thereof. A majority of such proxies who shall be present and shall act at the meeting (or if only one shall be present and act, then that one) may exercise all powers hereunder. PLEASE MARK, SIGN, DATE AND RETURN IMMEDIATELY. SIGNATURE DATE , 1997 DATE , 1997 ------------------- -------- ---------------- ----- SIGNATURE IF HELD JOINTLY Important: Shareholders sign here exactly as name appears hereon. -----END PRIVACY-ENHANCED MESSAGE-----