Note 10.

Shared-Based Compensation Plans

The Board of Directors adopted the II-VI Incorporated 2009 Omnibus Incentive Plan (the “Plan”) which was approved by the shareholders of the Company. The Plan provides for the grant of 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, directors and consultants of the Company. The maximum number of shares of the Company’s Common Stock authorized for issuance under the Plan shall not in the aggregate exceed 3,200,000 shares of Common Stock authorized plus any shares under the predecessor plan which was outstanding on the date of the shareholder’s approval of the Plan, that expire or terminate without being exercised. All options to purchase shares of Common Stock granted under the Plan have been at market price at the date of grant. Generally, twenty percent of the options may be exercised one year from the date of grant with comparable annual increases on a cumulative basis each year thereafter. The Plan also has vesting provisions predicated upon the death, retirement or disability of the optionee. As of June 30, 2012, there were 1,726,749 shares available to be issued under the Plan.

The Compensation Committee of the Board of Directors of the Company has granted certain named executive officers and employees restricted share awards under the Plan. The restricted share awards have a three year cliff-vesting provision.

The Compensation Committee of the Board of Directors of the Company granted certain named executive officers and U.S. employees performance share awards under the Plan. During the fiscal year ended June 30, 2012, the Company had two outstanding performance share grants covering the periods July 2010 to June 2012 and July 2011 to June 2013. The awards are intended to provide continuing emphasis on specified financial performance goals that the Company considers important contributors to long-term shareholder value. The awards are payable only if the Company achieves specified levels of revenue and cash flows from operations for the performance periods.

In conjunction with the Company’s acquisition of Photop, the Compensation Committee established both a short-term and long-term performance and retention program under the Plan for certain Photop employees. As of June 30, 2012, a portion of this long-term performance and retention program was still outstanding, covering a performance period from January 1, 2012 to December 31, 2012. The remaining long-term retention and performance awards are only payable if Photop achieves the levels of revenue and earnings specified for each calendar year performance period as well as certain other non-financial performance targets pre-established for such performance period.

Stock Options:

Stock option activity relating to the plans during the year ended June 30, 2012 was as follows:


Stock Options	Number of Shares Subject to Option			Weighted Average Exercise Price
Outstanding – July 1, 2011		4,259,836		$	13.70
Granted		690,380		$	18.22
Exercised		(339,366	)	$	7.82
Forfeited and Expired		(78,432	)	$	16.67
Outstanding – June 30, 2012		4,532,418		$	14.77
Exercisable – June 30, 2012		2,819,294		$	13.44

Included in the $11.6 million, $10.0 million, and $10.1 million of share-based compensation expense for the fiscal years ended June 30, 2012, 2011 and 2010, was $6.0 million, $5.6 million, and $7.1 million, respectively, related to stock options. The weighted-average fair value of stock options granted under the stock option plan during the years ended June 30, 2012, 2011, and 2010, was $9.32, $8.45, and $6.64 per share, respectively. As of June 30, 2012, 2011 and 2010, the aggregate intrinsic value of stock options outstanding and exercisable was $14.6 million, $7.4 million and $6.7 million, respectively. Aggregate intrinsic value represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the year ended June 30, 2012, and the options exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2012. This amount varies based on the fair market value of the Company’s stock. The total intrinsic value of stock options exercised during the years ended June 30, 2012, 2011, and 2010 was $4.5 million, $6.1 million, and $2.6 million, respectively. As of June 30, 2012, total unrecognized compensation cost related to non-vested stock option awards was $10.6 million. This cost is expected to be recognized over a weighted average period of approximately three years. Outstanding and exercisable stock options at June 30, 2012 were as follows:


	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number of Shares		Weighted Average Remaining Contractual Term (Years)		Weighted Average Exercise Price		Number of Shares		Weighted Average Remaining Contractual Term (Years)		Weighted Average Exercise Price
$3.23-$5.60		91,400		0.79	$	4.24		91,400		0.79	$	4.24
$5.75-$8.80		444,770		2.33	$	8.38		444,770		2.33	$	8.38
$8.92-$13.89		1,850,710		5.05	$	11.54		1,336,750		4.35	$	11.29
$14.01-$21.62		1,422,324		7.86	$	17.13		529,552		6.61	$	16.78
$22.52-$27.18		723,214		6.22	$	23.69		416,822		5.73	$	23.52
		4,532,418		5.77	$	14.77		2,819,294		4.55	$	13.44

Restricted Share Awards:

Restricted share award activity relating to the plans during the year ended June 30, 2012, was as follows:


Restricted Share Awards	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested at June 30, 2011		253,102		$	16.92
Granted		302,997		$	18.31
Vested		(10,500	)	$	17.18
Forfeited		(20,240	)	$	17.68
Nonvested – June 30, 2012		525,359		$	17.69

Included in the $11.6 million, $10.0 million and $10.1 million of share-based compensation expense for the fiscal years ended June 30, 2012, 2011 and 2010 was $3.0 million, $1.3 million and $0.1 million, respectively, related to restricted share awards. As of June 30, 2012, total unrecognized compensation cost related to non-vested restricted share awards was $5.5 million. This cost is expected to be recognized over a weighted average period of approximately two years. The restricted share compensation expense was calculated based on the number of shares expected to be earned multiplied by the stock price at the date of grant and is being recognized over the vesting period. The total fair value of the restricted stock granted during the years ended June 30, 2012, 2011 and 2010, was $5.5 million, $4.2 million and $0.4 million, respectively. The total fair value of restricted stock vested during the year ended June 30, 2012 was immaterial.

Performance Share Awards:

Performance share award activity relating to the plans during the year ended June 30, 2012, was as follows:


Performance Share Awards	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested at June 30, 2011		251,566		$	16.75
Granted		178,132		$	18.74
Vested		(102,175	)	$	15.95
Forfeited		(4,854	)	$	16.38
Nonvested – June 30, 2012		322,669		$	17.66

Included in the $11.6 million, $10.0 million, and $10.1 million of share-based compensation expense for the fiscal years ended June 30, 2012, 2011 and 2010, was $2.6 million, $3.1 million, and $2.9 million, respectively, related to performance share awards. As of June 30, 2012, total unrecognized compensation cost related to non-vested performance share awards was $3.7 million. This cost is expected to be recognized over a weighted average period of approximately one year. The performance share compensation expense was calculated based on the estimated number of shares expected to be earned multiplied by the stock price at the date of grant and is being recognized over the vesting period. The total fair value of performance shares granted during the years ended June 30, 2012 and 2011 was $3.3 million and $1.3 million, respectively. The total fair value of performance stock vested during the year ended June 30, 2012 was $1.6 million.