<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 5, 1995
REGISTRATION NO. 33-62737
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
II-VI INCORPORATED
(Exact name of registrant as specified in its charter)
---------------
PENNSYLVANIA 25-1214948
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
CARL J. JOHNSON
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER II-VI INCORPORATED
375 SAXONBURG BOULEVARD 375 SAXONBURG BOULEVARD
SAXONBURG, PENNSYLVANIA 16056 SAXONBURG, PENNSYLVANIA 16056
412-352-4455 412-352-4455
(Address, including ZIP code, and (Name, address, including ZIP code,
telephone number, including and telephone number, including area
area code, of Registrant's code, of agent for service)
principal executive offices)
COPIES TO:
Robert D. German, Esq. Ronald Basso, Esq. Michael C. McLean, Esq.
Sherrard, Buchanan Ingersoll Kirkpatrick & Lockhart LLP
German & Kelly, P.C. Professional Corporation 1500 Oliver Building
35th Floor, One Oxford Centre, Pittsburgh, Pennsylvania 15222
One Oliver Plaza 301 Grant Street, 412-355-6458
Pittsburgh, 20th Floor FAX 412-355-6501
Pennsylvania 15222 Pittsburgh, Pennsylvania
412-355-0200 15219-1410
FAX 412-261-6221 412-562-3943
FAX 412-562-1041
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
===============================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 5, 1995
PROSPECTUS
1,000,000 Shares
[II-VI LOGO]
Common Stock
----------
All of the shares of Common Stock offered hereby are being sold by II-VI
Incorporated. The Common Stock of the Company is traded on the Nasdaq National
Market under the symbol "IIVI." On September 15, 1995, the last reported sale
price of the Common Stock was $19.75 per share. See "Price Range of Common
Stock."
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
RELEVANT TO AN INVESTMENT IN THE SHARES OF COMMON STOCK.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- ----------------------------------------------------------------------------------------
Per Share........................ $ $ $
- ----------------------------------------------------------------------------------------
Total(3)......................... $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting offering expenses payable by the Company, estimated at
$300,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 150,000 shares of Common Stock solely to cover over-
allotments, if any. If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to Company will
be $ , $ and $ , respectively. See "Underwriting."
----------
The shares of Common Stock offered by this Prospectus are offered by the
several Underwriters, subject to prior sale, when, as and if delivered to and
accepted by them, and subject to the right of the Underwriters to reject any
order in whole or in part. It is expected that delivery of the shares will be
made in New York, New York, on or about , 1995.
----------
ADVEST, INC. CRUTTENDEN ROTH
INCORPORATED
The date of this Prospectus is , 1995
<PAGE>
LASER PROCESSING IS INCREASING IN MANY INDUSTRIES
[PHOTO] [PHOTO]
[GRAPHIC: Insulated window [GRAPHIC: Full shot of automobile
construction diagram with inset with insets showing laser cutting
showing laser welded multi-pane and welding of body parts]
spacer]
Building Components. Manufacturers Automotive. Car manufacturers worldwide
of building products use lasers in increasingly use CO\\2\\ and YAG
high speed, automated production of lasers in cutting, welding, drilling,
insulated window parts and electrical balancing, cladding, ablating and
components. The inset shows the heat treating operations. Lasers
CO\\2\\ laser welded spacer used in enable high quality, low cost, fast
multi-pane window construction. and accurate production. Lasers also
facilitate rapid change-overs, methods
simplification, efficient process
sequencing and computer control on high
throughput production lines.
[PHOTO] [PHOTO]
[GRAPHIC: Photo of precision cut, [GRAPHIC: Picture of modular office
complex shape foldup boxes with inset arrangement with inset showing cutting
showing a laser cut die-board that of sheet metal parts]
holds the steel rules used to cut,
crease and/or emboss cardboard
cutouts.]
Packaging. CO\\2\\ lasers are employed Office Furniture. Laser cutting and
to cut complex grooves in die-boards welding provide commercial equipment
used as templates by manufacturers of producers with flexible, easily
cardboard packaging. The die-board configurable, low cost prototyping
grooves hold steel rules which cut, and production methods that minimize
crease or emboss simple or intricate post-processing steps such as deburring
foldup boxes. Lasers have and grinding which are often required
substantially increased quality and after traditional cutting and welding
reduced tooling costs in the die-board operations.
packaging industry, enabling efficient
production of numerous custom
packaging designs.
<PAGE>
[PHOTO]
[GRAPHIC: Picture of razor and
package with inset showing details
of laser micro-welded blade assembly]
Consumer Products. Many household
items such as appliances, electronics
and personal care products are
manufactured using lasers. The inset
depicts a YAG laser micro-welded multi-
blade razor assembly, an example
of the precise, repeatable, non-contact
and high throughput features of
laser processing.
[PHOTO] [PHOTO]
[GRAPHIC: Collection of cereal boxes [GRAPHIC: Picture of motorcycle
with inset showing closeup of a with inset showing the cutting of
"date code"] sheet metal parts]
Product Identification. Food, Recreation. Manufacturers of
beverage and pharmaceutical packagers recreational vehicles utilize
use CO\\2\\ lasers to reliably and lasers for quick change, easily
indelibly identify and date consumer configurable cutting, trimming
products. Permanent, deep marking of and welding of metal parts to
metal parts with YAG lasers is also achieve flexible manufacturing
becoming more common in equipment, and a degree of customization to
machinery and automotive meet customer-specified design
manufacturing. features. Similar laser processing
is used in the manufacture of home
maintenance vehicles such as lawn
mowers and garden tractors.
<PAGE>
II-VI INCORPORATED...
LASER OPTICS AND
GAMMA RAY PRODUCTS
[PHOTO]
[GRAPHIC: Photo of a collection of infrared optics and components]
Infrared Optics and Components
[PHOTO]
[GRAPHIC: Photo of a collection of YAG laser gain rods.]
YAG Components
[PHOTO]
[GRAPHIC: Photo of infrared camera lens assembly]
Infrared Camera Lens Assembly
[PHOTO]
[GRAPHIC: Photo of CdZnTe substrates for infrared focal plane arrays]
Substrates for Focal Plane Arrays
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN
THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information (including the consolidated
financial statements and the notes thereto) appearing elsewhere or incorporated
by reference in this Prospectus.
THE COMPANY
II-VI Incorporated ("II-VI" or the "Company"), designs, manufactures and
markets optical and electro-optical components, devices and materials for
precision use in infrared, near infrared, visible light and x-ray instruments
and applications. The Company believes that it supplies more than half of the
infrared optics used in high-power CO\\2\\ (carbon dioxide) lasers for
industrial processing worldwide. The Company's infrared products also are used
for commercial and military sensing systems. The Company's near infrared and
visible light products are used in industrial, scientific and medical
instruments and solid-state YAG (Yttrium Aluminum Garnet) lasers. Frequency
doubling and single crystal substrate materials produced by the Company are
utilized as building blocks in the emerging blue light laser market segment.
II-VI also is developing and marketing solid state x-ray and gamma-ray products
for the nuclear radiation detection industry. The Company's products are
produced utilizing proprietary processes and specialized equipment that are
complex and difficult to duplicate. The majority of the Company's revenues are
attributable to the sale of optical devices and components for the laser
processing industry.
Applications for laser processing are increasing worldwide as manufacturers
seek solutions to increasing demands for quality, precision, speed, throughput,
flexibility, automation and cost control. High-power CO\\2\\ and YAG lasers
provide these benefits in a wide variety of cutting, welding, drilling,
ablation, balancing, cladding, heat treating and marking applications for end
users in such diverse fields as automotive, consumer electronics, office
furniture and consumer product marking.
Precision optics are critical to the operation of lasers and laser systems,
with many CO\\2\\ and YAG laser systems containing up to 15 optical elements.
Optics wear or become contaminated during operation. The Company supplies
replacement optics to the aftermarket demand generated by an estimated current
worldwide installed base of 40,000 to 45,000 industrial YAG and CO\\2\\ lasers.
The overall strategy of II-VI is to be the quality, cost and service leader
in every market it serves. The Company believes this will be accomplished by:
(i) continuing to deliver high quality products and services with warranty
return rates consistent with the 1% of net sales attained in fiscal 1995; (ii)
attaining a low cost producer position for infrared and visible optics and
materials through investment in process design, automation and employee
training; and (iii) providing rapid technically complete responses to customer
inquiries, quick turnaround product quotations, short manufacturing lead-time
and on-time deliveries. The Company believes that it is the market leader in
the supply of infrared optics to industrial material processors using high-
power CO\\2\\ lasers and is focused on developing a similar position in the
emerging high-power YAG laser industry. The Company strives to maintain
technological leadership through a balanced combination of internal and
contract research and development. The Company's growth strategy involves
internal investment in emerging new products as well as the search for
complementary technologies and companies for potential acquisition.
The Company's products are sold to over 2,400 customers in 35 countries. The
Company sells its products in the United States, Japan and certain Southeast
Asian markets through its direct sales force. European sales are effected
through a distributor and sales throughout the rest of the world are made
through manufacturers' representatives. Sales to customers in countries other
than the United States accounted for approximately 47% of revenues in fiscal
1995. The Company's principal international markets are Germany and Japan.
The Company's executive offices are located at 375 Saxonburg Boulevard,
Saxonburg, Pennsylvania 16056. Its telephone number is 412-352-4455. The
Company's name is pronounced "Two-Six Incorporated."
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by
the Company............. 1,000,000 shares
Common Stock to be
outstanding after the
offering (1)............ 6,099,844 shares
Use of proceeds......... For general corporate purposes, including working
capital, capital expenditures and possible acquisitions.
Nasdaq National Market
Symbol.................. IIVI
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE
DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------
1995
-------------------
PRO
1991 1992 1993 1994 ACTUAL FORMA(2)
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS
OF EARNINGS DATA:
II-VI (excluding Virgo
Optics) revenues..... $15,030 $16,600 $17,169 $18,681 $25,227 $25,227
Virgo Optics revenues. -- -- -- -- 2,533(3) 4,937
------- ------- ------- ------- ------- -------
Total revenues...... $15,030 $16,600 $17,169 $18,681 $27,760 $30,164
Operating income...... 576 1,258 207 918 3,301 3,644
Net earnings.......... 405 738 75 1,135(4) 2,518 2,856
Earnings per share.... $ 0.08 $ 0.14 $ 0.01 $ 0.22 $ 0.48 $ 0.54
Weighted average
shares outstanding... 5,274 5,293 5,255 5,061 5,289 5,289
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1995
----------------------
ACTUAL AS ADJUSTED(5)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital........................................ $ 8,872 $27,137
Total assets........................................... 24,367 42,632
Total long-term debt, less current portion............. 1,190 1,190
Retained earnings...................................... 13,660 13,660
Shareholders' equity................................... 16,998 35,263
</TABLE>
- --------
(1) Based on shares outstanding as of August 15, 1995. Does not include, as of
such date, 1,360,000 shares of Common Stock reserved for issuance under the
Company's stock option plans. As of such date, 502,040 shares were issuable
upon the exercise of all stock options outstanding under those plans,
including options covering 385,120 shares which are subject to future
vesting.
(2) The unaudited 1995 Pro Forma summary consolidated financial information is
based on the historical consolidated operating results of the Company,
adjusted to give effect on a pro forma basis to the acquisition of Virgo
Optics Division of Sandoz Chemicals Corporation ("Virgo Optics") using the
purchase method of accounting as if such transaction had occurred on July
1, 1994. Such information does not purport to represent what the Company's
actual results of operations would have been for such period, or to project
the Company's actual results of operations for any future period.
(3) Represents net revenues for the period subsequent to December 29, 1994, the
date the Company acquired Virgo Optics.
(4) Earnings for fiscal 1994 included an after tax gain on the sale of the
Company's investment in its former Japanese distributor of $461,000 or
$0.09 per share. See Note E of Notes to Consolidated Financial Statements
and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
(5) Adjusted to reflect the sale by the Company of 1,000,000 shares of Common
Stock offered hereby at an assumed public offering price of $19.75 per
share, based on the last reported sale price of the Common Stock on the
Nasdaq National Market on September 15, 1995, and after deducting estimated
underwriting discounts and commissions and estimated offering expenses.
----------------
Except as otherwise noted herein, all information contained in this
Prospectus (i) assumes no exercise of the Underwriters' over-allotment option
and (ii) reflects a two-for-one stock split in the form of a stock dividend
effected on September 7, 1995. See "Underwriting" and "Description of the
Capital Stock."
4
<PAGE>
RISK FACTORS
In addition to the other information contained or incorporated by reference
in this Prospectus, the following risk factors should be carefully considered
before purchasing shares of Common Stock offered hereby.
ENVIRONMENTAL CONCERNS
The Company is subject to a variety of federal, state and local governmental
regulations related to the storage, use and disposal of environmentally
hazardous materials. Both the governmental regulations and the costs
associated with complying with such regulations are subject to change in the
future. There can be no assurance that any such change will not have a
material adverse effect on the Company. The Company manufactures and utilizes
Hydrogen Selenide gas, an extremely hazardous material, in the production of
Zinc Selenide. In its processes, the Company also generates waste containing
Thorium Fluoride, a low-level radioactive material, and other hazardous by-
products such as suspended solids containing heavy metals and airborne
particulates. The Company has made and continues to make substantial
investments in protective equipment, process controls, manufacturing
procedures and training in order to minimize the risks to employees,
surrounding communities and the environment due to the presence and handling
of such extremely hazardous and hazardous materials. The failure to properly
handle such materials, however, could lead to harmful exposure to employees or
to discharge of certain hazardous waste materials, and, since the Company does
not carry environmental impairment insurance, to a material adverse effect on
the financial condition or results of operations of the Company. Although the
Company has not encountered material environmental problems in its properties
or processes to date, there can be no assurance that problems will not develop
in the future which would have a material adverse effect on the business,
results of operations or financial condition of the Company. See "Business--
Environmental, Health and Safety Matters."
MANUFACTURING AND SOURCES OF SUPPLY
The Company utilizes high quality, optical grade Zinc Selenide in the
production of a majority of its products. The Company is a leading producer of
Zinc Selenide for its internal use and for external sale. The production of
Zinc Selenide is a complex process requiring production in a highly controlled
environment. A number of factors, including defective or contaminated
materials, could adversely affect the Company's ability to achieve acceptable
manufacturing yields of high quality Zinc Selenide. Zinc Selenide is available
from only one outside source and quantity and qualities may be limited. The
unavailability of necessary amounts of high quality Zinc Selenide would have a
material adverse effect upon the Company. In addition, in fiscal 1992 and
1993, the Company experienced fluctuations in its manufacturing yields which
affected the Company's results of operations. There can be no assurance that
the Company will not experience manufacturing yield inefficiencies which could
have a material adverse effect on the business, results of operations or
financial condition of the Company.
The Company produces the Hydrogen Selenide gas used in its production of
Zinc Selenide. There are risks inherent in the production and handling of such
material. The inability of the Company to effectively handle Hydrogen Selenide
could result in the Company being required to curtail its production of
Hydrogen Selenide. Hydrogen Selenide can be obtained from one source, and the
Company has previously purchased and, to supplement its internal production,
currently purchases such material from this source. The cost of purchasing
such material is significantly greater than the cost of internal production.
As a result, if the Company purchased a substantial portion of such material
from its outside source, it would significantly increase the Company's
production costs of Zinc Selenide. Therefore, the Company's inability to
internally produce Hydrogen Selenide could have a material adverse effect on
the business, results of operations or financial condition of the Company.
In addition, the Company requires other high purity, relatively uncommon
materials and compounds to manufacture its products. Failure of the Company's
suppliers to deliver sufficient quantities of these necessary materials on a
timely basis could have a material adverse effect on the business, results of
operations or financial condition of the Company. See "Business--Marketing
Process--Sources of Supply" and "--Environmental, Health and Safety Matters."
5
<PAGE>
DEPENDENCE ON CYCLICAL INDUSTRIES
The Company's business is significantly dependent on the demand for products
produced by end users of industrial lasers. Many of these end users are in
industries that historically have experienced highly cyclical demand for their
products. Therefore, as a result, demand for the products produced by the
Company and its results of operations are subject to cyclical fluctuations.
POTENTIAL SEASONAL FLUCTUATIONS
Due to customer buying patterns, particularly in Europe, the Company's
revenues for its first fiscal quarter ending in September could be below those
in the preceding quarter. The Company's first fiscal quarter results often are
dependent upon the sales in the last month of the quarter.
COMPETITION
The Company has a number of present and potential competitors, many of which
have greater financial resources than the Company. The markets for many of the
Company's products can be subject to competitive pricing in order to gain or
retain market share. Such competitive pressures could affect the Company's
pricing and adversely affect the business, results of operations or financial
condition of the Company. See "Business--Competition."
INTERNATIONAL SALES AND OPERATIONS
Sales to customers in countries other than the United States accounted for
approximately 47% of revenues in each of the last three fiscal years. The
Company anticipates that international sales will continue to account for a
significant portion of revenues for the foreseeable future. In addition, the
Company manufactures products in Singapore and maintains a direct sales office
in Japan. Sales and operations outside of the United States are subject to
certain inherent risks, including fluctuations in the value of the U.S. dollar
relative to foreign currencies, tariffs, quotas, taxes and other market
barriers, political and economic instability, restrictions on the export or
import of technology, potentially limited intellectual property protection,
difficulties in staffing and managing international operations and potentially
adverse tax consequences. There can be no assurance that any of these factors
will not have a material adverse effect on the Company's business, financial
condition or results of operations. In particular, although the Company's
international sales, other than in Japan, are denominated in U.S. dollars,
currency exchange fluctuations in countries where the Company does business
could have a material adverse affect on the Company's business, financial
condition or results of operations, by rendering the Company less price-
competitive than foreign manufacturers. The Company's sales in Japan are
denominated in yen and, accordingly, are affected by fluctuations in the
dollar/yen currency exchange rates. The Company generally reduces its exposure
to such fluctuations through forward exchange agreements. The Company does not
engage in the speculative trading of financial derivatives. There can be no
assurance, however, that the Company's practices will eliminate the risk of
fluctuation in the dollar/yen currency exchange rate.
ACQUISITIONS
The Company's business strategy includes expanding its product lines and
markets through internal product development and acquisitions. See "Business--
Strategy." Any acquisition may result in potentially dilutive issuances of
equity securities, the incurrence of debt and contingent liabilities, and
amortization expense related to intangible assets acquired, any of which could
have a material adverse affect on the Company's business, financial condition
or results of operations. In addition, acquired businesses may be experiencing
operating losses. Any acquisition will involve numerous risks, including
difficulties in the assimilation of the acquired company's operations and
products, uncertainties associated with operating in new markets and working
with new customers, and the potential loss of the acquired company's key
employees. In December 1994, the Company acquired Virgo Optics. To date, the
Company has had little experience in integrating businesses other than Virgo
Optics. See "Business--Industry Background--Acquisition Strategy."
6
<PAGE>
SUSTAINING AND MANAGING GROWTH
The Company is currently undergoing a period of growth and there can be no
assurance that such growth can be sustained or managed successfully. This
expansion has resulted in a higher fixed cost structure which will require
increased revenue in order to maintain historical gross margin and operating
margins. There can be no assurance that the Company will obtain the increased
orders necessary to generate increased revenue sufficient to cover this higher
cost structure. Failure by the Company to manage growth successfully or have
the systems and capacities necessary to sustain its growth could have a
material adverse affect on the Company's business, results of operations or
financial condition. In addition, in connection with any future acquisitions,
the Company expects that it will hire additional senior management with
experience in the new markets acquired by the Company. There can be no
assurance that the Company will be able effectively to achieve growth,
including in such new markets, integrate such new personnel or manage any such
growth, and failure to do so could have a material adverse effect on the
business, results of operations or financial condition of the Company. See
"Business--Employees."
DEPENDENCE ON NEW PRODUCTS AND PROCESSES
In order to meet its strategic objectives, the Company must continue to
develop, manufacture and market new products, develop new processes and
improve existing processes. As a result, the Company expects to continue to
make significant investments in research and development and to continue to
consider from time to time the strategic acquisition of businesses, products,
or technologies complementary to the Company's business. The success of the
Company in developing, introducing and selling new and enhanced products
depends upon a variety of factors including product selection, timely and
efficient completion of product design and development, timely and efficient
implementation of manufacturing and assembly processes, effective sales and
marketing, and product performance in the field. There can be no assurance
that the Company will be able to develop and introduce new products or
enhancements to its existing products and processes in a manner which
satisfies customer needs or achieves market acceptance. The failure to do so
could have a material adverse affect on the Company's ability to grow its
business. See "Business--Industry Background," "--Strategy," and "--Research
and Development."
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent upon the experience and continuing services
of certain scientists, engineers and production and management personnel.
Competition for the services of these personnel is intense, and there can be
no assurance that the Company will be able to retain or attract the personnel
necessary for the Company's success. The loss of the services of the Company's
key personnel could have a material adverse affect on the business, results of
operations or financial condition of the Company. See "Business--Employees"
and "Management--Directors and Executive Officers."
PROPRIETARY TECHNOLOGY CLAIMS
The Company does not currently hold any material patents applicable to its
processes and relies on a combination of trade secret, copyright and trademark
laws and employee non-compete and nondisclosure agreements to protect its
intellectual property rights. There can be no assurance that the steps taken
by the Company to protect its rights will be adequate to prevent
misappropriation of the Company's technology. Furthermore, there can be no
assurance that, in the future, third parties will not assert infringement
claims against the Company. Asserting the Company's rights or defending
against third-party claims could involve substantial expense, thus materially
and adversely affecting the business, results of operations or financial
condition of the Company. In the event a third party were successful in a
claim that one of the Company's processes infringed its proprietary rights,
the Company may have to pay substantial damages or royalties, or expend
substantial amounts in order to obtain a license or modify the process so that
it no longer infringes such proprietary rights, any of which could have an
adverse effect on the business, results of operations or financial condition
of the Company. See "Business--Patents, Trade Secrets and Trademarks."
7
<PAGE>
RELIANCE ON EUROPEAN DISTRIBUTOR
Nearly all of the Company's European sales have been made through its
European distributor. This distributor also provides service and support to
the end users of the Company's products. Thus, a reduction in the sales
efforts of such distributor could adversely affect the Company's European
sales and its ability to support the end users of the Company's products.
There can be no assurance that this distributor will continue to distribute,
or to distribute successfully, the Company's products and, in such an event,
the Company's results of operations and earnings could be adversely affected.
See "Business--Customers and Marketing."
POSSIBLE VOLATILITY OF STOCK PRICE
The market price for the Common Stock may be highly volatile. Factors such
as the announcement of innovations or new products by the Company, seasonal or
other variations in anticipated or actual results of operations, market
conditions and general economic conditions may have a significant impact on
the market price of the Common Stock. See "Price Range of Common Stock."
ANTITAKEOVER PROVISIONS
The Company's Articles of Incorporation and By-Laws contain provisions which
could make it a less attractive target for a hostile takeover than it might
otherwise be or make more difficult or discourage a merger proposal, a tender
offer or a proxy contest. This could limit the price that certain investors
might be willing to pay in the future for shares of the Common Stock. The
provisions include: (i) classification of the Board of Directors into three
classes; (ii) a procedure which requires shareholders or the Board of
Directors to nominate directors in advance of a meeting to elect such
directors; (iii) the Board of Directors to issue additional shares of Common
Stock or Preferred Stock without shareholder approval; and (iv) certain
provisions supermajority approval (at least two-thirds of the votes cast by
all shareholders entitled to vote thereon, voting together as a single class).
In addition, the Pennsylvania Business Corporation Law contains provisions
which may have the effect of delaying or preventing a change in control of the
Company. See "Description of Capital Stock."
CONTROL BY MANAGEMENT
Upon completion of this offering, the Company's executive officers,
directors and their affiliates and members of their immediate families will
own approximately 27.4% of the outstanding shares of Common Stock, excluding
shares issuable upon exercise of options. As a result, these shareholders, if
acting together, will be able to exert substantial influence over actions
requiring shareholders' approval, including elections of the Company's
directors, amendments to the Articles of Incorporation, mergers, sales of
assets or other business acquisitions or dispositions. See "Principal
Shareholders."
8
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,000,000 shares of Common Stock offered hereby are estimated to be
approximately $18,265,000 (approximately $21,049,750 if the Underwriters'
over-allotment option is exercised in full), assuming a public offering price
of $19.75 per share based at the last reported sale price of Common Stock on
the Nasdaq National Market on September 15, 1995 and after deducting the
underwriting discounts and commissions and estimated offering expenses payable
by the Company.
The Company intends to use the net proceeds of this offering for general
corporate purposes, including working capital, capital expenditures and
possible acquisitions of complementary businesses, products or technologies.
The Company regularly reviews potential acquisition opportunities. However,
there are no current agreements or negotiations with respect to any potential
acquisitions. Pending the uses described above, the net proceeds of this
offering will be invested in short-term, income producing investments.
9
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the National Association of
Securities Dealers, Inc. Automated Quotations ("Nasdaq") National Market under
the symbol "IIVI." The following table sets forth the range of high and
closing low sale prices per share of the Company's Common Stock for the fiscal
periods indicated, as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL 1994
First Quarter............................................. $ 1 5/8 $ 7/8
Second Quarter............................................ $ 1 11/16 $ 1 3/8
Third Quarter............................................. $ 1 7/8 $ 1 9/16
Fourth Quarter............................................ $ 2 $ 1 1/2
FISCAL 1995
First Quarter............................................. $ 3 1/4 $ 1 13/16
Second Quarter............................................ $ 4 3/8 $ 3 7/16
Third Quarter............................................. $ 7 5/16 $ 3 9/16
Fourth Quarter............................................ $13 7/8 $ 6 5/16
FISCAL 1996
First Quarter (through September 15, 1995)................ $23 $12 7/8
</TABLE>
On September 15, 1995, the last reported sale price for the Common Stock on
the Nasdaq National Market was $19.75 per share. As of such date, there were
approximately 548 holders of record of the Common Stock.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company currently intends to retain all future earnings for use in the
operation of its business, and, therefore, does not anticipate paying any cash
dividends in the foreseeable future.
10
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
as of June 30, 1995, and (ii) the capitalization of the Company as adjusted to
reflect the Company's sale of 1,000,000 shares of Common Stock offered hereby
at an assumed public offering price of $19.75 per share, based on the last
reported sales price of the Common Stock on the Nasdaq National Market on
September 15, 1995, and after deducting estimated underwriting discounts and
commissions and estimated offering expenses.
<TABLE>
<CAPTION>
JUNE 30, 1995
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, less current portion...................... $ 1,190 $ 1,190
------- -------
Shareholders' equity:
Preferred stock, no par value; 5,000,000 shares;
unissued............................................... -- --
Common stock, no par value; 30,000,000 shares
authorized; 5,669,987 shares issued, and 6,669,987
shares, as adjusted (1)................................ 4,485 22,750
Cumulative translation adjustment....................... (17) (17)
Retained earnings....................................... 13,660 13,660
Less treasury stock, at cost............................ 1,130 1,130
------- -------
Total shareholders' equity............................ 16,998 35,263
------- -------
Total capitalization...................................... $18,188 $36,453
======= =======
</TABLE>
- --------
(1) Includes 570,623 shares of Common Stock held in treasury. Does not include
1,360,000 shares of Common Stock reserved for issuance under the Company's
stock option plans. As of June 30, 1995, 502,520 shares of Common Stock
were issuable upon the exercise of options granted under those plans,
including options covering 391,920 shares which are subject to future
vesting. See Note I of Notes to Consolidated Financial Statements.
11
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data are qualified by
reference to, and should be read in conjunction with, the consolidated
financial statements, related notes and other financial information included
elsewhere in this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The selected consolidated
financial data set forth for each of the three fiscal years ended June 30,
1995, are derived from the consolidated financial statements of the Company
included elsewhere and incorporated by reference in this Prospectus. The
selected consolidated financial data for each of the two fiscal years ended
June 30, 1995, are derived from financial statements of the Company which have
been audited by Alpern, Rosenthal & Company, independent auditors, and are
included herein.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------
1995
-----------------
PRO
1991 1992 1993 1994 ACTUAL FORMA(1)
------- ------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
DATA:
REVENUES:
Net sales.............. $14,942 $15,869 $16,067 $17,088 $26,598 $29,002
Contract research and
development........... 88 731 1,102 1,593 1,162 1,162
------- ------- ------- ------- ------- -------
15,030 16,600 17,169 18,681 27,760 30,164
COSTS, EXPENSES AND
OTHER INCOME:
Cost of goods sold..... 9,366 10,316 11,421 11,313 15,765 17,278
Contract research and
development........... 74 517 820 1,040 923 923
Internal research and
development........... 877 424 266 251 447 552
Selling, general and
administrative
expenses.............. 4,137 4,085 4,455 5,159 7,324 7,767
Gain on sale of
investment............ -- -- -- (699)(2) -- --
Other (income)/expense. 31 226 94 (87) (86) 73
------- ------- ------- ------- ------- -------
14,485 15,568 17,056 16,977 24,373 26,593
------- ------- ------- ------- ------- -------
EARNINGS BEFORE INCOME
TAXES.................. 545 1,032 113 1,704 3,387 3,571
INCOME TAXES............ 140 294 38 569 869 715
------- ------- ------- ------- ------- -------
NET EARNINGS............ $ 405 $ 738 $ 75 $ 1,135(2) $ 2,518 $ 2,856
======= ======= ======= ======= ======= =======
EARNINGS PER SHARE (3).. $ 0.08 $ 0.14 $ 0.01 $ 0.22(2) $ 0.48 $ 0.54
======= ======= ======= ======= ======= =======
WEIGHTED AVERAGE SHARES
OUTSTANDING (3)........ 5,274 5,293 5,255 5,061 5,289 5,289
<CAPTION>
JUNE 30,
-------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 5,987 $ 6,603 $ 6,009 $ 6,648 $ 8,872
Total assets............ 16,661 17,186 17,265 17,570 24,367
Total long-term debt,
less current portion... 1,508 765 257 0 1,190
Retained earnings....... 9,194 9,932 10,007 11,142 13,660
Shareholders' equity.... 12,554 13,359 13,217 14,237 16,998
</TABLE>
- --------
(1) The unaudited 1995 Pro Forma consolidated statement of earnings data are
based on the historical consolidated operating results of the Company,
adjusted to give effect on a pro forma basis to the acquisition of Virgo
Optics using the purchase method of accounting as if such transaction had
occurred on July 1, 1994. Such financial information reflects certain
assumptions described in the notes accompanying the information set forth
in the Unaudited Pro Forma Consolidated Financial Information included
elsewhere herein. Such information does not purport to represent what the
Company's actual results of operations would have been for such period, or
to project the Company's actual results of operations for any future
period.
(2) Earnings for fiscal 1994 included a $699,000 pre-tax gain on the sale of
the Company's investment in its former Japanese distributor resulting in
an after tax gain of $461,000 or $0.09 per share. See Note E of Notes to
Consolidated Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(3) Earnings per share are calculated using the weighted average number of
shares outstanding and assuming dilutive stock options outstanding were
exercised at the beginning of the year or at the date of issuance, if
later. See Note A of Notes to Consolidated Financial Statements. No cash
dividends on the Common Stock were declared by the Company during any of
the periods presented.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
The Company designs, manufactures and markets optical and electro-optical
components, devices and materials for precision use in infrared, near
infrared, visible light and x-ray/gamma-ray instruments and applications. The
Company's customers include leading industrial OEM and system manufacturers
worldwide in the CO\\2\\ and YAG laser machine tool industry. The Company also
generates revenues from the performance of research and development contracts
for third parties, primarily prime contractors for the Department of Defense.
Sales to customers in countries other than the United States accounted for
approximately 47% of revenues in each of the last three fiscal years. In all
fiscal years since 1972, the Company has been profitable and has consistently
increased revenues. In October 1987, the Company received $3.3 million of net
proceeds from its initial public offering of Common Stock. A portion of such
net proceeds was used to expand its worldwide manufacturing facilities. Since
1987, growth has been funded primarily by operating activities. The Company
acquired Virgo Optics on December 29, 1994. The Company's financial statements
include the results of Virgo Optics from such date.
The following table sets forth, for the periods indicated, the percentage
relationship to revenues of certain sales, expense and income items. The table
and the subsequent discussion should be read in conjunction with the
consolidated financial statements and the notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, (1)
---------------------------------
1991 1992 1993 1994 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues:
Net sales................................. 99.4% 95.6% 93.6% 91.5% 95.8%
Contract research and development......... 0.6 4.4 6.4 8.5 4.2
----- ----- ----- ----- -----
100.0 100.0 100.0 100.0 100.0
Costs and expenses:
Cost of goods sold (2).................... 62.7 65.0 71.1 66.2 59.3
Contract research and development (3)..... 84.1 70.7 74.4 65.3 79.4
Internal research and development......... 5.8 2.6 1.5 1.3 1.6
Selling, general and administrative....... 27.5 24.6 25.9 27.6 26.4
Operating costs and expenses................ 96.2 92.4 98.8 95.1 88.1
Income from operations...................... 3.8 7.6 1.2 4.9 11.9
Gain on sale of investment.................. -- -- -- 3.7 --
Other (income)/expense...................... 0.2 1.4 0.5 (0.5) (0.3)
Earnings before income taxes................ 3.6 6.2 0.7 9.1 12.2
Income taxes................................ 0.9 1.8 0.2 3.0 3.1
Net earnings................................ 2.7% 4.4% 0.4% 6.1% 9.1%
</TABLE>
- --------
(1) Due to method of calculation, percentages may not total 100%.
(2) Calculated as a percentage of net sales.
(3) Calculated as a percentage of contract research and development revenues.
Cost of goods sold as a percentage of net sales increased from fiscal 1991
through fiscal 1993 due to increased expenses relating to the start-up of the
eV PRODUCTS Division and costs associated with expanding production capacity
in order to position the Company for future growth. Also during this period
the Company successfully employed an aggressive pricing strategy to gain
market share. Cost of goods sold as a percentage of net sales decreased in
fiscal 1994 and fiscal 1995 due to lower per unit operating costs associated
with increased production volume. Volume increased as a result of market share
gains and improved worldwide economies.
Net earnings as a percentage of sales for fiscal year 1994 was favorably
affected by a gain on the sale of ownership in the Company's former Japanese
distributor, but was adversely affected, to a lesser extent, by costs
13
<PAGE>
associated with the establishment of the Company's direct sales office in
Japan. Exclusive of this gain, net earnings as a percentage of sales would
have been 3.6%. Net earnings as a percentage of sales for fiscal 1995 was
favorably affected by the establishment of the Japanese direct sales office.
RESULTS OF OPERATIONS
Fiscal 1995 Compared to Fiscal 1994
Overview. Net earnings increased 122% to $2.5 million in fiscal 1995 from
$1.1 million in fiscal 1994. Fiscal 1994 earnings included a $461,000 after-
tax gain on the sale of the Company's investment in its former Japanese
distributor. Revenues increased 49% to $27.8 million in fiscal 1995 from $18.7
million in fiscal 1994. This increase is attributable to increased sales in
all of the Company's markets and, to a lesser extent, the acquisition of Virgo
Optics in December 1994. Bookings increased 52% to $28.4 million in fiscal
1995 from $18.7 million in fiscal 1994. Order backlog increased 30% to $6.9
million at June 30, 1995, from $5.3 million at June 30, 1994. Manufacturing
orders comprised 96% of backlog at June 30, 1995, compared to 77% at June 30,
1994.
Net Earnings. Net earnings increased 122% to $2.5 million in fiscal 1995
from $1.1 million in fiscal 1994. The major contributors to the increase in
net earnings were higher manufacturing production volume, increased price
realization in Japan, and, to a lesser extent, the acquisition of Virgo
Optics. The increase in manufacturing order volume resulted in additional
profits from improved capacity utilization and efficiency in the Saxonburg and
Singapore manufacturing plants.
Sales and Markets. Bookings increased 52% to $28.4 million in fiscal 1995
from $18.7 million in fiscal 1994. The largest portion of the increase is
attributable to the domestic industrial market. Bookings also increased in the
Japanese and European industrial markets and, to a lesser extent, the
military/aerospace and medical markets. Orders for manufactured products
accounted for the entire increase in bookings in fiscal 1995. Contract
research and development bookings remained constant at $300,000 from fiscal
1994.
Revenues increased 49% to $27.8 million in fiscal 1995 from $18.7 million in
fiscal 1994. This increase is attributable to increased sales in the Japanese
and European industrial markets, the domestic industrial market and, to a
lesser extent, the military/aerospace and medical markets. Contract research
and development revenues decreased 27% to $1.2 million in fiscal 1995 from
$1.6 million in fiscal 1994. This decrease is attributable to customer-imposed
delays in the performance of a significant government contract. The Company
has submitted several subcontract proposals relating to federal government
contracts expected to be awarded in fiscal 1996.
Costs and Expenses. Manufacturing gross margin was $10.8 million or 41% of
net sales in fiscal 1995 compared to $5.8 million or 34% in fiscal 1994. This
increase is attributable to improved capacity utilization, efficiencies
resulting from additional production volume and, to a lesser extent, higher
price realization from the Japanese market.
Contract research and development gross margin was $239,000 or 21% of
contract research and development revenues in fiscal 1995, compared to
$553,000 or 35% in fiscal 1994. This decrease is attributable to a reduction
in reimbursable costs allocable to government contracts.
Company-funded internal research and development costs increased to $447,000
in fiscal 1995 from $251,000 in fiscal 1994. The majority of this increase is
attributable to nuclear radiation detector development.
Selling, general and administrative expenses were $7.3 million or 26% of
revenues in fiscal 1995 compared to $5.2 million or 28% in fiscal 1994. The
increase is attributable to higher compensation expense associated with the
Company's worldwide profit-driven bonus programs and increased sales and
marketing expenses.
The effective corporate income tax rate was 26% in fiscal 1995 compared to
33% in fiscal 1994. This is attributable to lower non-deductible expenses and
increased profit of the foreign subsidiaries. The Company's
14
<PAGE>
current and future effective tax rates will continue to be impacted by the
level of profit or loss generated by the foreign subsidiaries. The Company
expects that its effective corporate income tax rate for fiscal 1996 will
increase as a result of increased earnings attributable to domestic operations
as a percentage of total corporate earnings.
Fiscal 1994 Compared to Fiscal 1993
Overview. Net earnings were $1.1 million in fiscal 1994 compared to $75,000
in fiscal 1993. Fiscal 1994 earnings included a $461,000 after-tax gain on the
sale of the Company's investment in its former Japanese distributor. Revenues
increased 9% to $18.7 million in fiscal 1994 from $17.2 million in fiscal
1993. Such increase was attributable to increased price realization in Japan,
higher contract research and development revenues and increased U.S. sales.
Bookings decreased 1% to $18.7 million in fiscal 1994 from $18.9 million in
fiscal 1993. Backlog at the end of each period was $5.3 million, although the
mix of manufacturing and contract research and development orders in backlog
was significantly different as manufacturing backlog increased 41% to $4.1
million at June 30, 1994, from $2.9 million at June 30, 1993, and contract
research and development backlog decreased 50% to $1.2 million at June 30,
1994, from $2.4 million at June 30, 1993.
Net Earnings. Net earnings were $1.1 million in fiscal 1994 compared to
$75,000 in fiscal 1993. The increase in net earnings, exclusive of the gain on
the sale of the investment, was attributable to the improvement in the
domestic and European markets during the second half of fiscal 1994, increased
revenues from contract research and development, and higher demand for nuclear
detection products and services. The increase in manufacturing production
volume from the domestic and European markets enabled the Company to recognize
increased profits resulting from improved capacity utilization and
efficiencies in both the Singapore and Saxonburg optics manufacturing plants.
Additionally, revenues from contract research and development increased 45% to
$1.6 million in fiscal 1994 from $1.1 million in fiscal 1993 as the Company
continued work on a $2.0 million Advanced Research Projects Agency (ARPA)
contract extension awarded during fiscal 1993. Also, as compared to fiscal
1993, eV PRODUCTS division earnings improved as a result of higher revenue.
Sales and Markets. Although total bookings decreased 1% in fiscal 1994 from
fiscal 1993, the make-up of these bookings changed significantly. Contract
research and development bookings decreased 87% to $300,000 in fiscal 1994
from $2.3 million in fiscal 1993. This decline was expected as fiscal 1993
bookings were high due to the award of the $2.0 million, two year ARPA
contract extension. Manufacturing bookings were strong and increased 11% to
$18.4 million in fiscal 1994 from $16.6 million in fiscal 1993. Approximately
one-half of the increase in manufacturing bookings was attributable to
increased orders from the European market. The remaining increase was driven
by domestic orders in the industrial markets and, to a lesser extent, in the
eV PRODUCTS division.
Revenues increased 9% to $18.7 million in fiscal 1994 from $17.2 million in
fiscal 1993. The increase was attributable to increased price realization in
Japan, higher contract research and development revenues and increased
domestic sales.
Costs and Expenses. Manufacturing gross margin was $5.8 million or 34% of
net sales in fiscal 1994 compared to $4.6 million or 29% in fiscal 1993. This
increase was attributable to improved capacity utilization and efficiencies in
the Saxonburg and Singapore manufacturing plants, and higher gross margin
realization on sales to the Japanese market. Additional gross margin from
increased revenues was also realized in the eV PRODUCTS division.
Contract research and development gross margin was $553,000 or 35% of
contract research and development revenues in fiscal 1994 compared to $282,000
or 26% in fiscal 1993. A portion of contract revenue recognized in fiscal 1993
was associated with contracts awarded at lower profit margins. Several of the
lower profit margin contracts were completed in fiscal 1993.
Company-funded internal research and development costs for fiscal 1994 have
remained consistent with fiscal 1993 at approximately $250,000. The majority
of these expenses were directed toward the eV PRODUCTS division.
15
<PAGE>
Selling, general and administrative expenses increased 16% to $5.2 million
or 28% of net sales in fiscal 1994 from $4.5 million or 26% of net sales in
fiscal 1993. The increase was attributable to the additional cost associated
with the Company's direct sales effort in Japan and increased compensation
expense associated with the Company's worldwide profit-driven bonus programs
and retirement plans. Although additional selling expenses were incurred from
the Japanese operation, the Company has recognized increased gross margin from
this operation.
The effective corporate income tax rate remained consistent at 33% for
fiscal years 1994 and 1993. Effective July 1, 1993, the Company adopted
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes (SFAS 109). The cumulative effect of adopting SFAS 109 on the Company's
financial statements was not material.
16
<PAGE>
QUARTERLY RESULTS
The following table presents certain unaudited consolidated quarterly
financial information for fiscal 1994 and fiscal 1995. In the opinion of the
Company's management, this information has been prepared on the same basis as
the audited consolidated financial statements incorporated by reference or
appearing elsewhere in this Prospectus and includes all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the unaudited quarterly results set forth herein. Operating results for any
quarter are not necessarily indicative of results for any future period or for
a full fiscal year.
<TABLE>
<CAPTION>
QUARTER ENDED (UNAUDITED)
----------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1993 1993 1994 1994 1994 1994 1995 1995
--------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
Net sales.............. $3,840 $4,004 $4,507 $4,737 $5,161 $5,670 $7,655 $8,112
Contract research and
development.......... 344 365 455 429 285 234 373 270
------ ------ ------ ------ ------ ------ ------ ------
$4,184 $4,369 $4,962 $5,166 $5,446 $5,904 $8,028 $8,382
COST, EXPENSES AND OTHER
INCOME:
Cost of goods sold..... 2,532 2,738 3,067 2,976 3,064 3,295 4,663 4,743
Contract research and
development.......... 236 224 279 301 198 253 261 211
Internal research and
development.......... 82 75 64 30 132 120 85 110
Selling, general and
administrative
expenses............. 1,233 1,198 1,289 1,439 1,472 1,598 1,989 2,265
Gain on sale of
investment........... (699)(1) -- -- -- -- -- -- --
Other (income)/expense. (4) 40 (62) (61) 11 (15) (62) (20)
------ ------ ------ ------ ------ ------ ------ ------
3,380 4,275 4,637 4,685 4,877 5,251 6,936 7,309
------ ------ ------ ------ ------ ------ ------ ------
EARNINGS BEFORE INCOME
TAXES................... 804 94 325 481 569 653 1,092 1,073
INCOME TAXES............ 269 28 122 150 173 144 312 240
------ ------ ------ ------ ------ ------ ------ ------
NET EARNINGS............ $ 535 $ 66 $ 203 $ 331 $ 396 $ 509 $ 780 $ 833
====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
PERCENTAGE OF REVENUES (UNAUDITED) (2)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Net sales.............. 91.8% 91.7% 90.8% 91.7% 94.8% 96.0% 95.4% 96.8%
Contract research and
development.......... 8.2 8.3 9.2 8.3 5.2 4.0 4.6 3.2
------ ------ ------ ------ ------ ------ ------ ------
100 100 100 100 100 100 100 100
Costs and expenses:
Cost of goods sold (3). 65.9 68.4 68.1 62.8 59.4 58.1 60.9 58.4
Contract cost of goods
sold (4).............. 68.6 61.4 61.3 70.2 69.5 108.1 70.0 78.2
Internal research and
development........... 2.0 1.7 1.3 .6 2.4 2.0 1.1 1.3
Selling, general and
administrative ....... 29.5 27.4 26.0 27.9 27.0 27.1 24.8 27.0
Operating costs and
expenses............... 97.6 96.9 94.7 91.9 89.4 89.2 87.2 87.4
Income from operations.. 2.4 3.1 5.3 8.1 10.6 10.8 12.8 12.6
Gain on sale of
investment............. (16.7) -- -- -- -- -- -- --
Other (income)/expenses. -- .9 (1.3) (1.2) .2 (.2) (.8) .2
Earnings before income
taxes ................ 19.2 2.2 6.6 9.3 10.5 11.0 13.6 12.8
Income taxes............ 6.4 .7 2.5 2.9 3.2 2.4 3.9 2.9
Net earnings............ 12.8% 1.5% 4.1% 6.4% 6.7% 8.6% 9.1% 9.9%
</TABLE>
- --------
(1) See Note 2 of Selected Consolidated Financial Data.
(2) Due to method of calculation, percentages may not total 100%.
(3) Calculated as a percentage of net sales.
(4) Calculated as a percentage of contract research and development revenues.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has funded its working capital needs, capital
expenditures and growth from cash flow from operations and, to a lesser
extent, borrowings.
The two major components of the $5.4 million in cash generated from
operations in fiscal 1995 were net earnings before depreciation of $4.5
million and a decrease in other operating net assets of $1.9 million. The
decrease in other operating net assets is attributable to increases in accrued
compensation costs due to the Company's worldwide profit-driven bonus program
and higher income taxes payable. These cash sources were partially offset by
increases in receivables of $800,000 and inventory of $400,000 that were
generated as a result of increased revenue volume.
The Company purchased for $2.4 million in cash the net assets of Virgo
Optics in December 1994. The Company also invested $2.4 million in capital
improvements during the year. These expenditures focused on process automation
and manufacturing facility expansion. Planned, discretionary capital
expenditures for fiscal 1996 of approximately $6.0 million will continue to
focus on these areas. Approximately $600,000 of the Saxonburg facility
expansion will be financed by a low interest Pennsylvania Industrial
Development Authority loan. In August 1994, the Company's Japanese subsidiary
borrowed $1.5 million from a Japanese bank.
The Company believes internally generated funds along with existing cash
reserves will be sufficient to fund its working capital needs, capital
expenditures and scheduled debt payments in Japan and Singapore for fiscal
1996.
The impact of inflation on the Company's business has not been material.
In the normal course of business, the Company enters into foreign currency
forward exchange contracts with its banks. The purpose of these contracts is
as a hedge, to reduce the impact of foreign currency fluctuations on committed
or anticipated foreign currency positions. The Company monitors its positions
and the credit ratings of the parties to these contracts. While the Company
may be exposed to potential losses due to credit risk in the event of non-
performance by the counterparties to these financial instruments, it does not
anticipate such losses.
18
<PAGE>
BUSINESS
INTRODUCTION
II-VI Incorporated designs, manufactures and markets optical and electro-
optical components, devices and materials for precision use in infrared, near
infrared, visible light and x-ray/gamma-ray instruments and applications. The
Company's infrared products are used in high-power CO\\2\\ (carbon dioxide)
lasers for industrial processing and for commercial and military sensing
systems. The Company's near infrared and visible products are used in
industrial, scientific and medical instruments and solid-state YAG (yttrium
aluminum garnet) lasers. Frequency doubling and single crystal substrate
materials produced by the Company are utilized as building blocks in the
emerging blue light laser market segment. II-VI also is developing and
marketing solid state x-ray and gamma-ray products for the nuclear radiation
detection industry. The majority of the Company's revenues are attributable to
the sale of optical parts and components for the laser processing industry.
INDUSTRIAL PROCESSING BACKGROUND
Applications for laser processing are increasing worldwide as manufacturers
seek solutions to increasing demands for quality, precision, speed,
throughput, flexibility, automation and cost control. High-power CO\\2\\ and YAG
lasers provide these benefits in a wide variety of cutting, welding, drilling,
ablation, balancing, cladding, heat treating and marking applications. For
example, automobile manufacturers use lasers to facilitate rapid product
changeovers, process simplification, efficient sequencing and computer control
on high throughput production lines. Manufacturers of recreational vehicles,
lawn mowers and garden tractors cut, trim and weld metal parts with lasers to
achieve flexible, high consistency, reduced post processing, lower cost
operations. For office furniture producers, lasers provide easily
reconfigurable, low distortion, low cost prototyping and production capability
that facilitates semi-custom manufacturing of customer specified designs. On
high speed consumer product processing lines, laser marking provides automated
date coding for food packaging and computer driven container identification
for pharmaceuticals.
Precision optics such as total reflectors, partial mirrors, beamsplitters
and lenses are critical to the operation of lasers and laser systems. Many
CO\\2\\ and YAG laser systems contain up to 15 optical elements either as part
of the laser resonator or associated with routing of the laser beam to the
work piece. To the extent that optics wear or become contaminated during
operation, optics are consumables in laser processing. Thus, an aftermarket
demand is generated by an estimated current worldwide installed base of 40,000
to 45,000 industrial YAG and CO\\2\\ lasers, based on a recent industry trade
report. Average lifetime for industrial laser optical elements is estimated to
be 1,000 to 4,000 hours.
COMPANY STRATEGY
The overall strategy of II-VI is to be the quality, cost and service leader
in every market it serves. The Company strives to involve every employee in
its efforts to achieve these goals.
High Power Laser Market Leadership
The Company believes that it supplies more than half of the infrared optics
to industrial materials processors using high power CO\\2\\ lasers worldwide.
Following on the Virgo Optics acquisition and based on the Company's
experience in the high power CO\\2\\ laser optics, II-VI now has an opportunity
to build a position of market leadership in the emerging high power YAG laser
industry. The Company intends to expand its production of YAG laser gain
components and high power mirrors, beamsplitters and related optics for use in
YAG lasers and laser systems. See "Business--Industry Background--YAG Laser
Components."
19
<PAGE>
Quality Leadership
The Company seeks to deliver the highest quality levels practicably
attainable in its products and customer services. The Company has decreased
its warranty return ratio in each of the past five years and will attempt in
forward fiscal years to improve on the fiscal year 1995 record of returns
being approximately 1% of net sales. The Company has made consistent quality
its highest customer priority by involving employees in continuous
improvement.
Low Cost Producer
The Company seeks to attain and maintain the low cost producer position for
infrared and visible optics and materials. The Company has invested
significantly in process design, process control, automated equipment,
employee training, yield improvement and manufacturing management systems in
order to enhance production efficiencies in each product area. Currently,
facilities are being substantially expanded and upgraded in infrared optics,
Zinc Selenide optical materials, YAG manufacturing and nuclear radiation
detector areas.
Sales and Service
Another component of the Company's strategy is to provide rapid, technically
complete responses to customer inquiries or field service problems, quick
turnaround product quotations, short manufacturing lead-times and on-time
deliveries. The Company offers the quick delivery INFRAREADY OPTICS(R) program
for customers so that they may avoid production line shutdowns or inventory
stockouts.
Technology Leadership
II-VI develops growth opportunities from a combination of internally funded
and contract research and development. For example, the Company's leadership
in infrared and visible thin film optical coatings has evolved from continuous
Company funded thin film product and process research. The Company's globally
competitive capabilities in the manufacture of Zinc Selenide and Zinc Sulfide
infrared optical materials grew from internally funded research and
development. II-VI's expertise in the production of Cadmium Zinc Telluride
substrates for the manufacture of infrared focal plane arrays is the result of
contract research sponsored by various Department of Defense agencies. The
Company's Cadmium Zinc Telluride experience has been critical in the
development of the eV PRODUCTS nuclear radiation detectors. The Company
intends to continue a balanced program of internal and contract research and
development.
Launch New Products
The Company invests in emerging new products including its nuclear radiation
detectors and its materials and components for blue light lasers. These two
new product lines share a number of characteristics: both address large
potential markets; both depend on success in crystal growth technology; and
both serve OEM customers that manufacture performance and productivity
enhancing tools, instruments and systems for industrial, information and
telecommunications, scientific and medical markets.
Acquisition Strategy
II-VI intends to continue to search for and acquire well matched
technologies, product lines and companies that can contribute to its growth in
broad segments of the global laser, optics and electro-optics industry. With
the acquisitions of Virgo Optics in 1994, eV PRODUCTS hybrid electronics
production capability in 1992 and high pressure Bridgman crystal growth
technology in 1991, the Company has experience in the integration of
additional products and capabilities with its ongoing operations.
20
<PAGE>
PRODUCTS
The Company's products include infrared, near infrared, visible and x-ray
materials, optics and electro- optic components used in high power industrial
lasers, scientific and military lasers, and sensors. The Company believes that
its leading edge quality, delivery and customer service enhance its reputation
as the supplier of choice for high power laser optics and components. The
majority of the Company's revenues are attributable to the sale of optical
devices and components for the laser processing industry.
Infrared Optics and Materials
Reliable operation of high power (1 to 20 kW) CO\\2\\ infrared lasers requires
high quality, low absorption optical elements. The CO\\2\\ laser emits infrared
energy at a wavelength of 10.6 micrometers, a wavelength which is optimal for
many industrial processes such as the cutting, welding, drilling and heat
treating of various materials such as steel and other metals or alloys,
plastics, wood, paper, cardboard, ceramics and numerous composites. This
wavelength is also desirable for certain types of medical surgery and for
various surveillance and sensing systems that must penetrate adverse
atmospheric conditions.
The Company is a broad line supplier of virtually all of the optics and
optical elements used in CO\\2\\ lasers and laser systems. The Company supplies
a family of standard and custom transmissive, reflective and diamond turned
optical elements to high power CO\\2\\ resonator manufacturers, CO\\2\\ laser
system manufacturers and to the aftermarket as replacement parts. Transmissive
optical elements manufactured by the Company are predominately made from Zinc
Selenide produced in-house. The Company is one of two manufacturers in the
world of this optical material. The Company's Zinc Selenide capability and its
low absorbing, thin film coating technology have earned II-VI a reputation as
the quality leader worldwide in this marketplace.
The Company provides replacement optics and refurbishing services to users
of industrial CO\\2\\ lasers. The Company sells its infrared replacement optics
with a 24-hour shipment guarantee under the trade name of INFRAREADY
OPTICS(R). Consumable items such as focusing lens and output couplers are cost
effectively refurbished for the Company's aftermarket customers. The
aftermarket portion of the Company's business is growing rapidly as industrial
laser applications proliferate worldwide.
The Company supplies Cadmium Zinc Telluride substrates primarily to U.S.
military and NATO defense suppliers under the trade name EPIREADY(R). These
substrates are subsequently processed by the Company's customers into infrared
detectors using epitaxial crystal growth and device fabrication techniques.
The Company supplies Zinc Sulfide in the form of domes and windows to military
suppliers for Forward Looking Infrared systems worldwide. A portion of the
Company's infrared imaging business involves development programs funded by
ARPA/DOD and other governmental agencies.
YAG Laser Components
The power levels available from YAG lasers are increasing (1 to 3 kW) while
the costs of such lasers are decreasing. These trends are making YAG laser
processing more attractive in such high-power YAG applications as the welding
of airbag sensors and inflators. Low-power YAG applications include the high
speed micro-welding of multi-blade shaving razor assemblies, the welding of
heart pacemakers and the precision trimming of component values in electronic
assemblies. The capability to deliver the 1.06 micrometer YAG laser wavelength
over a flexible, low loss fiber optic has enhanced YAG laser deployment in
many applications where complex shapes require versatile beam delivery
geometries. A YAG laser requires the same optical elements as the CO\\2\\ laser
except that they are made to operate at the YAG laser near infrared wavelength
of 1.06 micrometers.
The Company supplies a family of standard and custom laser gain materials
and optics for industrial, medical, scientific and research YAG lasers. The
YAG laser gain materials are produced to stringent industry specifications and
precisely fabricated into rods or slabs. Included in the Company's products
are refurbished YAG rods sold to the Company's aftermarket customers. The
Company offers waveplates, polarizers, lenses,
21
<PAGE>
prisms, and mirrors for visible and near infrared applications. These products
control and alter the polarization of visible and near infrared energy.
Nuclear Radiation Detectors
The nuclear detection market has important applications in the industrial
gauging, environmental monitoring, power generation, nuclear safeguards,
weapons research and disarmament, nuclear non-proliferation, health physics
and medical imaging fields. Solid-state Cadmium Zinc Telluride nuclear
radiation detectors are attractive because of their reduced size, longer life
and lower voltage requirements as compared to the historically used
scintillator/photomultiplier devices. The Company's eV PRODUCTS division
designs and manufactures Cadmium Zinc Telluride, room temperature, nuclear
radiation detectors combined with custom designed low noise front-end
electronics. The Company believes it has become the leader in room
temperature, direct conversion radiation detectors which are emerging in such
applications as industrial gauging and environmental monitoring.
Frequency Doubling and Blue Emitter Materials
For over a decade, researchers in university, government and industry
laboratories have been seeking routes to the fabrication of reliable, solid-
state blue light emitters and lasers. Blue light sources are expected to be
used in such applications as optical data storage, telecommunications, graphic
displays and high density printers. The Company supplies frequency doubling
materials which are being used in emerging laser based systems for blue light
generation. The Company produces Potassium Niobate based microlaser assemblies
which are used by customers to frequency double other light sources, thus
producing up to 30 mW of blue or 50 mW of green light. The Company also
produces single crystal Zinc Selenide, a high quality substrate which is being
used by customers in the development of blue light lasers.
CUSTOMERS AND MARKETS
Industrial
The Company's customers include leading industrial OEM's and system
manufacturers worldwide in the CO\\2\\ and YAG laser machine tool industry. The
Company has focused its marketing efforts on the growing high power segments
of the laser components marketplace.
The Company's high-power CO\\2\\ laser customers include Bystronic Laser AG,
Fanuc Ltd., Matsushita Industrial Equipment Co., Inc., Mazak Nissho Iwai,
Mitsubishi Electric Corp., Rofin Sinar Laser GmbH--a division of Siemens, and
Trumpf GmbH & Co. These companies' laser resonators are installed on systems
that are used for cutting, drilling and marking of materials and for welding
and heat treating of metals. The Company also sells optics and components to
over 1,400 laser end users which require replacement optics, such as focusing
lenses and beam steering mirrors. Users of industrial lasers include a broad
range of industries and applications, such as automotive, electrical
equipment, packaging, building products, office furniture, garment, airframe
or aerospace, consumer electronics, tooling and machinery.
Low power, sealed CO\\2\\ lasers are utilized for small parts manufacturing,
engraving and serialization of products. These small, lightweight, low-cost
systems are flexible and provide rapid response for a number of light
manufacturing applications. Manufacturers of these laser sources, such as
Domino Laser Inc., Synrad Inc. and Laser Machining Inc., are high volume
optics customers of the Company.
The Company's YAG component customers include Continuum Inc., Lumonics
Corp., Spectra-Physics Lasers Inc., Excel/Quantronix Corp., Electrox Ltd. and
Hughes Aircraft Company. These companies' systems are used for marking,
scribing, microwelding and precision trimming. A broad range of industries use
YAG systems, including medical devices, consumer products, automotive and
semiconductors. The Company offers YAG customers both the YAG rod supply
capability and the necessary optics for a complete laser system. The Company
is using its close working relationships with its industrial CO\\2\\ customers
worldwide to increase its YAG component supply market share, since both
products are needed by many of the same customers.
22
<PAGE>
Scientific and Military
The scientific, research and new product development areas of the electro-
optics device market are creating many opportunities for the visible, near-
infrared and infrared optics and materials produced by the Company. The
Company provides high end, high specification components to this group of
customers which include products such as aspheric optics, prisms, parabolic
reflectors and focusing element assemblies. The Company provides specialty
optics and components to instrument manufacturers such as Hewlett-Packard
Company, Eastman Kodak Company, Perkin-Elmer Corporation, Raytheon Company and
Cincinnati Electronics Corp. II-VI's products are integrated into
spectrophotometers, interferometers and distance measuring instruments;
scanning mirrors for high resolution color printing; and focusing assemblies
for infrared cameras. Quick response, short lead times and high quality
engineering support are cornerstones of the Company's pursuit of these
markets.
U.S. and NATO allies are pursuing defense strategies based upon stringent
budgets to improve the effectiveness of military systems through electronics
upgrades, including infrared imaging systems. The Company supplies materials
and optics to manufacturers of infrared sensing systems such as Texas
Instruments, Inc., Loral Electro-Optical Systems Corporation, GEC-Marconi
Avionics Inc., Lockheed-Martin Inc. and Hughes Aircraft Company.
SALES AND DISTRIBUTION
The Company markets its products in the United States through its direct
sales force; in Japan through its subsidiary, II-VI Japan Incorporated; and in
certain Southeast Asian markets through its subsidiary II-VI Singapore PTE
LTD. European sales are effected through a distributor and sales throughout
the rest of the world are made through 19 manufacturers' representatives. The
Company's products are sold to over 2,400 customers in 35 countries. The
Company's principal international markets are Germany and Japan.
MANUFACTURING PROCESSES
Infrared and Visible Optics
The manufacturing processes for optics include a number of low cost,
automated high precision processes that have been developed and documented at
the Company's manufacturing sites in Saxonburg, Pennsylvania, Port Richey,
Florida, and Singapore. Manufacturing steps for the majority of the Company's
optical products include:
Grinding and Polishing. The Company rigorously tests starting materials in
the optics fabrication process to assure conformity to specification for
absorption, clarity, stress and purity. The manufacturing sequence typically
involves grinding a part to the desired curvature and precision polishing the
optic to the desired high quality surface shape and finish. The Company has
developed specialized processes for fabricating visible, YAG, near infrared,
and infrared optics. The Company has state-of-the-art, numerically controlled
generating and grinding equipment and automated Synchrospeed optical polishing
apparatus.
Diamond Turning. The Company's diamond turning of metal mirrors involves
state-of-the-art equipment for flycutting of flat metal reflectors and turning
of contoured spherical or aspherical shapes. The ability to produce spherical
and aspherical diffraction-free surfaces, due to a proprietary real-time
feedback test system, provides the highest quality, high power handling copper
reflecting mirrors available in the industry. The Company is currently
investing in expansion of this manufacturing unit's capacity as the demand for
these products has grown rapidly during the last few years.
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<PAGE>
Thin Film Coating. Multilayer, thin film, visible and infrared coatings are
produced by evaporating precisely controlled thicknesses of various substances
from microprocessor controlled thermal or electron beam sources onto optical
surfaces in custom built vacuum chambers. The know-how to control such process
variables as time, pressure, gas flow and temperature are critical to
achieving low-absorption, high adhesion and properly transmitting thin films.
Production of zero defect coatings is a part of the proprietary knowledge of
II-VI.
Materials
II-VI is a materials-based company. Processes used to produce these
materials require long development periods, are capital intensive and involve
precision process control. Yields are raised from minimal to acceptable as
know-how and process consistency techniques are developed. The resulting
barriers to entry limit competition.
The Company's infrared components and materials primarily are made from
compounds composed of elements from Groups II and VI of the Periodic Table of
the Elements ("II-VI Compounds"). II-VI Compounds, a class of non-hygroscopic
(do not absorb water) materials, are leading infrared transmitting materials.
Their high infrared transmission efficiency, the key property needed for high-
power infrared laser optics, is a result of low infrared absorption. Infrared
absorption is low due to the type of bonding that exists within a II-VI
crystalline structure and due to the relatively high molecular weights of the
most useful II-VI Compounds. The Group II elements used by the Company are
Zinc, Cadmium and Mercury and the Group VI elements used are Sulfur, Selenium
and Tellurium.
Materials manufactured by the Company include:
Zinc Selenide. The Company manufactures fine grained polycrystalline Zinc
Selenide by a proprietary chemical vapor deposition process. II-VI is one of
two manufacturers of this material in the world and has earned the reputation
for producing the lowest absorbing laser grade Zinc Selenide. The process
involves high temperature disassociation of Hydrogen Selenide gas and a gas
phase reaction with zinc vapor. Solid Zinc Selenide is deposited on graphite
mandrels at high temperatures forming sheets of the material. Zinc Selenide is
the principal material used in the Company's CO\\2\\ laser optics. All material
is polished, inspected and laser tested for defects.
Zinc Sulfide. The chemical vapor deposition process is also utilized to
manufacture fine grained polycrystalline Zinc Sulfide. Some Zinc Sulfide is
further processed to form Multispectral Zinc Sulfide. The Multispectral Zinc
Sulfide is highly transmissive from the ultraviolet to the middle infrared
wave lengths making it the material of choice for tank windows, for example,
through which humans, laser range finders and guidance systems identify
targets.
Cadmium Zinc Telluride Substrates. II-VI utilizes vertical and horizontal
Bridgman processes to grow its Cadmium Zinc Telluride single crystal substrate
materials. The Bridgman processes involve direct solidification from a liquid
melt with closely controlled unidirectional freezing in either a vertical or
horizontal configuration. The substrates are mined from thoroughly tested
Cadmium Zinc Telluride ingots utilizing precision crystal orientation
techniques followed by a sequence of surface lapping and semiautomated diamond
sawing. Wafers are precision sized then surfaced through a series of critical
polishing and chemical etching steps.
Cadmium Zinc Telluride for Nuclear Radiation Detectors. The high pressure
vertical Bridgman process is used to grow Cadmium Zinc Telluride for nuclear
radiation detectors. This proprietary process produces critical materials
which when mated to hybrid front end electronics built by the Company are sold
to industrial gauging and other equipment manufacturers. The high pressure
Bridgman process yields products that are cost competitive with
scintillator/photomultiplier devices.
YAG Materials. Neodymium doped YAG, solid-state laser gain materials, are
manufactured at the Company's Virgo Optics Division. The Company's precision
process control and know-how result in consistent YAG rod products which are
in high demand. The Company expects to have additional capacity for this
material on-line within the next year. The Company competes in the YAG rod
business on quality, price and delivery.
24
<PAGE>
Potassium Niobate and Single Crystal Zinc Selenide. The Company's material
science expertise has developed frequency doubling Potassium Niobate in
conjunction with an international laboratory. This frequency doubling material
when coupled with a laser gain material and a laser pump can be used to
generate blue, green or red light. Using this material, the Company offers
monolithic laser assemblies to OEM's that are pursuing blue and green laser
markets. Through another proprietary process the Company is producing single
crystal Zinc Selenide which is used as a substrate in the production of blue
light emitters and lasers.
Sources of Supply
The major raw materials used by the Company are Zinc, Selenium, Hydrogen
Selenide, Hydrogen Sulfide, Cadmium, Tellurium, Yttrium Oxide, Aluminum Oxide
and Iridium. The Company produces all of its Zinc Selenide and Zinc Sulfide
requirements internally, although small quantities of Zinc Selenide and Zinc
Sulfide may be purchased from outside vendors from time to time. The Company
also purchases Gallium Arsenide, Copper, Silicon, Germanium, Quartz, optical
glass and small quantities of other materials for use as base materials for
laser optics. The Company purchases Thorium Fluoride and other materials for
use in optical fabrication and coating processes. There are more than two
suppliers for all of the above materials, except for Zinc Selenide and
Hydrogen Selenide (excluding the Company) and Thorium Fluoride, for each of
which there is only one proven source of merchant supply. For most materials,
the Company has entered into annual purchase arrangements whereby suppliers
provide discounts for annual volume purchases in excess of specified amounts.
The continued high quality of these raw materials is critical to the
stability of the Company's manufacturing yields. The Company conducts testing
of materials at the onset of the production process to meet evolving customer
requirements. Additional research may be needed to better define future
starting material specifications. The Company has not experienced significant
production delays due to a shortage of materials. However, the Company does
occasionally experience problems associated with vendor supplied materials not
meeting contract specifications for quality or purity. A significant failure
of the Company's suppliers to deliver sufficient quantities of necessary high-
quality materials on a timely basis could have a materially adverse effect on
the Company's results of operations.
ENVIRONMENTAL, HEALTH AND SAFETY MATTERS
II-VI uses or generates certain hazardous substances in its research and
manufacturing facilities. The Company believes that its handling of such
substances is in material compliance with applicable local, state and federal
environmental, safety and health regulations at each operating location. The
Company invests substantially in proper protective equipment, process controls
and specialized training to minimize risks to employees, surrounding
communities and the environment due to the presence and handling of such
hazardous substances. The Company annually conducts employee physical
examinations and workplace air monitoring regarding such substances. When
exposure problems or potential have been indicated, corrective actions have
been implemented and re-occurrence has been minimal or non-existent. The
Company does not carry environmental impairment insurance.
Relative to its generation and use of the extremely hazardous substance
Hydrogen Selenide, the Company has in place a government approved emergency
response plan. Special attention has been paid to all procedures pertaining to
this gaseous material to minimize the chances of its accidental release to the
atmosphere.
With respect to the use, storage and disposal of the low-level radioactive
material Thorium Fluoride, the Company's facilities and procedures have been
recently inspected and approved by the Nuclear Regulatory Commission. This
material is utilized in the Company's thin film coatings. All Thorium Fluoride
bearing by-products are collected and shipped as solid waste to a government
approved low-level radioactive waste disposal site in Barnwell, South
Carolina.
The Company is a member of the Frontier Chemical Phase II PRP Group which
has agreed with the Environmental Protection Agency to remove the contents of
certain tanks at a site in Niagara Falls, New York. All site work has been
completed and substantial progress has been made by the Group in meeting its
financial
25
<PAGE>
obligations. Amounts currently reserved by the Company are immaterial and
believed to cover its share of any remaining liabilities.
The generation, use, collection, storage and disposal of all other hazardous
by-products such as suspended solids containing heavy metals or airborne
particulates are believed by the Company to be in material compliance with
regulations. Management believes that all of the permits and licenses required
for operation of the Company's business are in place. Although the Company is
not aware of any material environmental, safety and health problems in its
properties or processes, there can be no assurance that problems will not
develop in the future which would have a materially adverse effect on the
Company.
RESEARCH AND DEVELOPMENT
The Company's research and development policy calls for the pursuit of a
balanced program of internally funded and contract research and development
totaling between 5 and 8 percent of product sales. From time to time the ratio
of contract to internally funded activity varies significantly due to the
unevenness and uncertainty associated with most government research programs.
The Company is committed to accepting only funded research that ties closely
to its growth plans.
Company research and development activities focus on developing new
proprietary products or on understanding, improving and automating crystal
growth, low damage fabrication or optical thin film coating technologies. The
Company performs commercial prototype and engineering work for customers and,
in addition, participates in various government and university research and
development consortia. The Company maintains an engineering, research and
development staff of fifty. Thirty seven of the Company's employees are
engineers or scientists. In addition, manufacturing personnel support or
participate in research and development on an ongoing basis. Interaction
between the development and manufacturing functions enhances the direction of
projects, reduces costs and accelerates technology transfers.
The Company is primarily engaged in ongoing research and development in the
following areas: Zinc Selenide optical material production; vertical and
horizontal Bridgman Cadmium Zinc Telluride crystal growth and substrate
manufacturing; Zinc Selenide single crystal growth and substrate production;
high pressure Bridgman Cadmium Zinc Telluride crystal growth and radiation
detector manufacturing; YAG crystal production; Potassium Niobate crystal
growth; automated, deterministic optical fabrication methods; optical thin
film processes and products; and microlaser assemblies based on various
combinations of YAG or yttrium vanadate gain materials with frequency doubling
materials.
Company funded research and development and contract research expenditures
totaled approximately $1.1 million, $1.3 million and $1.4 million during
fiscal 1993, 1994 and 1995, respectively. Contract research revenues during
those respective years totaled approximately $1.1 million, $1.6 million and
$1.2 million. The Company has been active in the various research and
development programs including the Pennsylvania Ben Franklin Partnership
program, the Federal Small Business Innovation Research programs of primarily
the Department of Defense agencies and an ARPA sponsored industry team program
focused on infrared materials producibility.
COMPETITION
The Company believes that it is a leading producer of products and services
in its addressed markets. In the area of high power CO\\2\\ laser optics and
materials, II-VI believes it supplies over half of the world market. The
Company is a leading supplier of Cadmium Zinc Telluride substrates used for
infrared imaging arrays, and believes that it is the only supplier of Cadmium
Telluride electro-optic modulators to U.S. and NATO defense contractors. The
Company is a significant supplier of YAG rods and YAG laser optics to the
worldwide markets of scientific, research, medical and industrial laser
manufacturers.
The Company competes on the basis of product quality, quick delivery, strong
technical support and pricing. Management believes that the Company competes
favorably with respect to these factors and that its vertical integration,
manufacturing facilities and equipment, experienced technical and
manufacturing employees, and worldwide marketing and distribution provide
competitive advantages.
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II-VI has a number of present and potential competitors, many of which have
greater financial, selling, marketing or technical resources. The lone
competitor of the Company in the production of Zinc Selenide is Morton
International's Advanced Materials Division. The competitors producing
infrared and CO\\2\\ laser optics include Laser Power Optics and Coherent in the
United States, and Sumitomo in Japan. Competing producers of YAG materials and
optics include the Litton Airtron Division of Litton Industries and the
Crystal Products Group of Union Carbide. The Company is not aware of any
currently significant competitors for its Cadmium Zinc Telluride radiation
detector product line.
In addition to competitors who manufacture products similar to those of the
Company, there are other technologies or materials that may compete with the
Company's products. The markets for the nuclear radiation detector and the
frequency doubling and blue emitter materials are in their infancy and could
be affected by competing technologies.
EMPLOYEES
As of June 30, 1995 the Company employed 323 persons worldwide. Of these
employees, 50 are engaged in research, development and engineering, 206 in
direct production, and the balance in sales and marketing, administration,
finance and support services. The Company's production staff includes highly
skilled optical craftsmen. None of the Company's employees is covered by a
collective bargaining agreement, and the Company has never experienced any
work stoppages. The Company has a long-standing policy of encouraging active
employee participation in selected areas of operations management. The Company
believes its relations with its employees to be good. The Company rewards its
employees with incentive compensation based on achievement of performance
goals.
FACILITIES
The Company's headquarters are located in Saxonburg, Pennsylvania, 25 miles
north of Pittsburgh, in a 55,000 square foot facility, on 41 acres of land,
which was purchased in 1976. In addition the company has leases for its
manufacturing and office space in Florida, Singapore, and Japan totaling
50,000 square feet.
II-VI recently commenced construction of a new 20,000 square foot addition
to its Saxonburg, Pennsylvania plant. This new facility will allow expansion
of the Company's manufacturing operations.
PATENTS, TRADE SECRETS AND TRADEMARKS
II-VI relies on its trade secrets and proprietary know-how to develop and
maintain its competitive position. The Company has not pursued process patents
due to the disclosures required in the patent process and the relative
difficulties in successfully litigating process type patents. The Company has
confidentiality and non-compete agreements with the executive officers and
certain other personnel.
The processes and specialized equipment utilized in crystal growth, infrared
materials fabrication and infrared optical coatings as developed at the
Company are complex and difficult to duplicate. However, there can be no
assurance that others will not develop or patent similar technology or that
all aspects of the Company's proprietary technology will be protected. Others
have obtained patents covering a variety of infrared optical configurations
and processes, and others could obtain patents covering technology similar to
the Company's. The Company may be required to obtain licenses under such
patents and there can be no assurance that the Company would be able to obtain
such licenses, if required, on commercially reasonable terms, or that claims
regarding rights to technology will not be asserted which may adversely affect
the Company. In addition, Company research and development contracts with
agencies of the United States Government present a risk that project-specific
technology could be disclosed to competitors as contract reporting
requirements are fulfilled.
The Company holds four registered trademarks: the II-VI INCORPORATED(R)
name; INFRAREADY OPTICS(R) for replacement optics for industrial CO\\2\\ lasers;
EPIREADY(R) for low surface damage substrates for Mercury Cadmium Telluride
epitaxy; and EV PRODUCTS(R) for products manufactured by the Company's eV
Products division. The trademarks are registered with the United States Patent
and Trademark Office, but not with any states. The Company is not aware of any
interference or opposition to these trademarks in any jurisdiction.
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MANAGEMENT
The executive officers and directors of the Company and their respective
ages and positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
<C> <C> <S>
Carl J. Johnson 53 Chairman, Chief Executive Officer and Director
Francis J. Kramer 46 President, Chief Operating Officer and Director
Vice President and General Manager of Quality and
Herman E. Reedy 52 Engineering
James Martinelli 37 Treasurer and Director of Finance and Accounting
Richard W. Bohlen 59 Director
Thomas E. Mistler 53 Director
Duncan A. J. Morrison 58 Director
Peter W. Sognefest 54 Director
</TABLE>
CARL J. JOHNSON, a co-founder of the Company in 1971, serves as Chairman,
Chief Executive Officer and a 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, now a subsidiary of United
Technologies Corporation. From 1964 to 1966, Dr. Johnson worked at Bell
Telephone Laboratories as a member of the technical staff. 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.
FRANCIS J. KRAMER has been employed by the Company since 1983, has been its
President and Chief Operating Officer since 1985 and was elected to the Board
of Directors on August 26, 1989. 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. in
Industrial Engineering and from Purdue University in 1975 with an M.S. in
Industrial Administration.
HERMAN E. REEDY has been employed by the Company since 1977 and is Vice
President and General Manager of Quality and Engineering. Previously, Mr.
Reedy held positions at II-VI as General Manager of Quality and Engineering,
Manager of Quality and Manager of Components. From 1973 until joining the
Company, Mr. Reedy was employed by Essex International, Inc., now a subsidiary
of United Technologies Corporation, serving last as Manager, MOS Wafer Process
Engineering. Prior to 1973, he was employed by Carnegie-Mellon University and
previously held positions with Semi-Elements, Inc., and Westinghouse Electric
Corporation. Mr. Reedy is a 1975 graduate of the University of Pittsburgh with
a B.S. degree in Electrical Engineering.
JAMES MARTINELLI has been employed by the Company since 1986 and has served
as Treasurer, Director of Finance and Accounting and Assistant Secretary since
May of 1994. Mr. Martinelli joined the Company as Accounting Manager and was
named Controller in 1990. Prior to his employment by the Company, Mr.
Martinelli was Accounting Manager at Tippins Incorporated and Pennsylvania
Engineering Corporation from 1980 to 1985. Mr. Martinelli graduated from
Indiana University of Pennsylvania with a B.S. degree in Accounting and is a
member of the Pennsylvania Institute of Certified Public Accountants.
RICHARD W. BOHLEN 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
28
<PAGE>
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 MBA degrees from Massachusetts Institute of Technology (MIT),
Polytechnic Institute of NY and California State University (Fullerton,
California) respectively.
THOMAS E. MISTLER has served as a Director of the Company since 1977. Mr.
Mistler is currently General Manager of the Operating Plant Business Area 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 Nuclear Engineering.
DUNCAN A. J. MORRISON 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 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.
PETER W. SOGNEFEST has served as a Director of the Company since 1979. Mr.
Sognefest is 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. He joined
Motorola, Inc. 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 Semi-Conductor 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.
29
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information available to the Company as of
August 15, 1995, 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.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED (1)
--------------------------
SHARES PRIOR TO AFTER
BENEFICIALLY OWNED OFFERING OFFERING
------------------ ----------- -----------
<S> <C> <C> <C>
Carl J. Johnson (2)........... 1,290,624 25.2% 21.1%
c/o II-VI Incorporated
375 Saxonburg Boulevard
Saxonburg, Pennsylvania 16056
Richard W. Bohlen............. 56,400 1.1% 0.9%
Thomas E. Mistler (3)......... 182,390 3.6% 3.0%
Duncan A. J. Morrison......... 11,060 0.2% 0.2%
Peter W. Sognefest............ 18,064 0.4% 0.3%
Francis J. Kramer (4)......... 57,310 1.1% 0.9%
Herman E. Reedy (5)........... 49,590 1.0% 0.8%
James Martinelli (6).......... 20,632 0.4% 0.3%
All executive officers and
directors as a group (eight
persons) (2)-(7)............. 1,686,070 32.7% 27.4%
</TABLE>
- --------
(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 902,552 shares of Common Stock over which Dr. Johnson has sole
voting and investment power, 24,800 shares subject to vested options under
the Option Plan, 184,000 shares over which Dr. Johnson has sole voting
power and shared investment power (with a voting trust pursuant to rights
of first refusal and option rights over shares held in the voting trust),
and 58,842 shares in a charitable trust over which Dr. Johnson has shared
voting and investment power. Also includes 120,430 shares held by Dr.
Johnson's spouse, as to which shares he disclaims beneficial ownership.
(3) All such shares are held in a family trust. Does not include an aggregate
of 3,000 shares beneficially owned by Mr. Mistler's father as custodian
for the children of Mr. Mistler, as to which shares he disclaims
beneficial ownership.
(4) Includes 21,400 shares subject to stock options held by Mr. Kramer and
exercisable within 60 days of August 15, 1995.
(5) Includes 3,800 shares subject to stock options held by Mr. Reedy and
exercisable within 60 days of August 15, 1995.
(6) Includes 8,900 shares subject to stock options held by Mr. Martinelli as
exercisable within 60 days of August 15, 1995.
(7) Includes 58,900 shares subject to stock options held by executive officers
and directors as a group and exercisable within 60 days of August 15,
1995.
30
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, no par value, and 5,000,000 shares of Preferred Stock, no par
value.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters to
be voted on by shareholders, except that shareholders are entitled to cumulate
their votes in any election of directors. Subject to preferences that may be
applicable to any outstanding Preferred Stock, holders of Common Stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors in its discretion out of funds legally available therefor. In the
event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities and the liquidation preference of any outstanding
Preferred Stock. Holders of Common Stock have no preemptive rights and have no
right to convert their Common Stock into any other securities. The outstanding
shares of Common Stock are, and the Common Stock to be outstanding upon
completion of the offering will be, fully paid and nonassessable.
The By-Laws of the Company, as amended, provide for the Board of Directors
to be divided into three classes of directors, each class to be as nearly
equal in number of directors as possible, serving staggered three-year terms.
As a result, approximately one-third of the Board of Directors is elected in
each year, and at least two annual meetings are necessary to effect a change
in a majority of the Company's directors. The effect of the staggered Board of
Directors under cumulative voting as provided by the By-Laws of the Company is
that shareholders entitled to vote a majority of the shares outstanding could
not necessarily control the election of all positions on the Board of
Directors subject to election in any one year, and that shareholders voting
less than a majority of shares entitled to vote may be able to elect at least
one director in any one year.
The Articles of Incorporation and By-Laws of the Company require the
approval by the holders of at least two-thirds of the outstanding shares of
Common Stock for the removal of any director, class of director or the entire
Board of Directors and for any change to any provision of the Articles of
Incorporation or By-Laws providing for the number of directors, the
classification of directors or the filling of vacancies on the Board of
Directors, unless any such change is unanimously approved by the Board of
Directors of the Company. The overall effect of these provisions regarding the
classification of the Company's Board of Directors may be to render more
difficult or to delay a change in control of the Company or the removal of
incumbent management of the Company.
All other matters submitted to a vote of the shareholders of the Company
shall be adopted by the vote of a majority of the votes present, in person or
by validly executed proxy, at any duly authorized meeting of shareholders.
PREFERRED STOCK
The Preferred Stock may be issued in one or more series with such rights,
preferences, privileges and restrictions as the Board of Directors may
determine, including, but not limited to, voting rights, redemption
provisions, dividend rates, liquidation preferences and conversion privileges,
without further shareholder approval. The issuance of Preferred Stock, which
could occur in a private placement, may have the effect of delaying, deferring
or preventing a change in control of the Company. Issuance of Preferred Stock
with special voting and conversion rights may adversely affect the voting
power of the holders of Common Stock, possibly resulting in the loss of voting
control to others. No such classes or series are currently established and no
shares of Preferred Stock are outstanding, and at present the Company has no
plans to issue any shares of Preferred Stock.
ANTI-TAKEOVER PROVISIONS
In addition to certain provisions of its Articles of Incorporation and By-
Laws discussed in "Description of Capital Stock--Common Stock" and "--
Preferred Stock" above which could have the effect of delaying,
31
<PAGE>
deferring or preventing a change in control of the Company, the Company is
governed by certain "anti-takeover" provisions in the Pennsylvania Business
Corporation Law ("PABCL"), including provisions that (i) prohibit certain
business combinations, (ii) restrict voting rights associated with
"controlling shares," (iii) require disgorgement of short-term profits upon
disposition of stock by certain controlling persons, (iv) require severance
payments and protection of collective bargaining agreements following certain
control share acquisitions, (v) require a fair value be paid by that
controlling shareholder for voting shares, (vi) allow a corporation to say
"no" to a takeover bid, and (vii) allow the Board of Directors broad latitude
in considering the best interests of the Company.
Certain Business Combinations. The PABCL prohibits certain business
combinations (as defined in the PABCL) involving a Pennsylvania corporation
that has voting shares registered under the Exchange Act and an "interested
shareholder" unless certain conditions are satisfied or an exemption is
applicable. An "interested shareholder" is generally defined to include a
person who beneficially owns at least 20% of the votes that all shareholders
would be entitled to cast in an election of directors of the corporation.
Control Share Acquisitions. The PABCL provides that in a "control-share
acquisition" the voting rights of a significant new shareholder of the
corporation are conditioned upon the consent, given by a majority vote at a
meeting of the independent shareholders of the corporation after disclosure by
the new shareholder of certain information. If consent is not obtained, the
new shareholder is effectively deprived of voting rights.
Disgorgement. The PABCL provides that any profit realized by a "controlling
person or group," generally defined as a 20% beneficial owner, from the
disposition of any equity securities within twenty-four (24) months prior to
and eighteen (18) months succeeding the acquisition of such control is
recoverable by the corporation.
Severance Compensation and Protection of Labor Contracts. The PABCL provides
severance payments to any eligible employee of a covered corporation whose
employment is terminated, other than for willful misconduct, with ninety (90)
days before or twenty-four (24) months after a control-share acquisition. In
addition, the PABCL is designed to prevent the termination of any covered
labor contract as a result of a business combination.
Control Transactions. The PABCL provides that any holder of voting shares of
a registered corporation who objects to a "control transaction" will be
entitled to make a written demand on the "controlling person or group" for
payment of the fair value of the voting shares of the corporation held by the
shareholder. A "control transaction" is defined as the acquisition by a person
or group (the controlling person or group) that would entitle the holders
thereof to cast at least 20% of the votes that all shareholders would be
entitled to cast in an election of the directors of the corporation.
"Just Say No" Provisions. The PABCL contains a set of interrelated
provisions designed to support the validity of company-specific arrangements
to discourage hostile takeovers of corporations. The PABCL expressly provides
a corporation the power to "accept, reject or take no action" with respect to
a takeover bid. The PABCL also permits the unfavorable disparate treatment of
a takeover bidder.
Other Considerations. The PABCL allows the directors broad discretion in
considering the best interests of the corporation. In addition to the
"standard factors" the directors may consider in protecting the best interests
of the Company, the directors may also consider the shortand long-term
interests of the corporation and the resources, intent and conduct of any
person seeking to acquire the corporation.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company is the transfer agent and registrar
for the Common Stock.
32
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions of the Underwriting Agreement,
the Underwriters named below, for whom Advest, Inc. and Cruttenden Roth
Incorporated are acting as representatives (the "Representatives"), have
severally agreed to purchase from the Company, and the Company has agreed to
sell to each Underwriter, the aggregate number of shares of Common Stock set
forth opposite their respective names in the table below. The Underwriting
Agreement provides that the obligations of the Underwriters to pay for and
accept delivery of the shares of Common Stock are subject to certain
conditions precedent, and that the Underwriters are committed to purchase and
pay for all shares if any shares are purchased.
<TABLE>
<CAPTION>
NUMBER
OF
UNDERWRITERS SHARES
------------ ------
<S> <C>
Advest, Inc.....................................................
Cruttenden Roth Incorporated....................................
---------
Total....................................................... 1,000,000
=========
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the offering
price set forth on the cover page of this Prospectus and to certain dealers
(who may include the Underwriters) at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession to certain other dealers (who may include the
Underwriters) not in excess of $ per share. After the offering to the
public, the offering price and other selling terms may be changed by the
Representatives.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a
maximum of 150,000 shares of Common Stock at the public offering price per
share, less the underwriting discounts and commissions, set forth on the cover
page of this Prospectus. The Underwriters may exercise such option only to
cover over-allotments made in connection with the sale of the Common Stock
offered hereby. To the extent the Underwriters exercise such option, each of
the Underwriters will be committed, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares of Common Stock to be purchased by such Underwriter, as shown in the
above table, bears to the total shown.
In connection with this offering, certain of the Underwriters and selling
group members may engage in passive market making transactions in the Common
Stock of the Company in the Nasdaq National Market immediately prior to the
commencement of sales in this offering, in accordance with Rule 10b-6A under
the Exchange Act. Passive market making consists of displaying bids in the
Nasdaq National Market which are limited by the bid prices of independent
market makers and making purchases limited by such prices and effected in
response to order flow. Net purchases by a passive market maker on each day
are generally limited to a specified percentage of the passive market maker's
average daily trading volume in the Company's Common Stock during a specified
prior period and must be discontinued when such limit is reached. Passive
market
33
<PAGE>
making may stabilize the market price of the Common Stock of the Company at a
level above that which might otherwise prevail in the open market and, if
commenced, may be discontinued at any time.
In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriters against certain liabilities that may be incurred in connection
with this offering, including liabilities under the Securities Act, or to
contribute payments that the Underwriters may be required to make in respect
thereof.
The Company and its directors and executive officers have agreed that,
without the prior written consent of the Representatives, they will not
directly or indirectly offer to sell, sell, or otherwise dispose of shares of
Common Stock or any securities convertible or exchangeable therefor, for a
period of 180 days after the date of this Prospectus, subject to certain
limited exceptions.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby and certain other
legal matters in connection with this offering will be passed upon for the
Company by Buchanan Ingersoll Professional Corporation, One Oxford Centre, 301
Grant Street, 20th Floor, Pittsburgh, Pennsylvania 15219-1410. Certain legal
matters also will be passed upon for the Company by Sherrard, German & Kelly,
P.C., 35th Floor, One Oliver Plaza, Pittsburgh, Pennsylvania 15222. Certain
legal matters in connection with the Common Stock offered hereby will be
passed upon for the Underwriters by Kirkpatrick & Lockhart LLP, 1500 Oliver
Building, Pittsburgh, Pennsylvania 15222.
EXPERTS
The consolidated financial statements and related financial statement
schedule of II-VI included and incorporated by reference in this Prospectus
for the years ended June 30, 1995 and 1994, have been audited by Alpern,
Rosenthal & Company, independent auditors, as set forth in their reports
included and incorporated by reference herein. The consolidated financial
statements and related financial statement schedule of II-VI included or
incorporated by reference in this Prospectus for the year ended June 30, 1993,
have been audited by Deloitte & Touche LLP, independent auditors, as set forth
in their reports included and incorporated by reference herein. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such reports given upon the authority of such firms as experts
in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934 and files reports and other information with the
Securities and Exchange Commission in accordance therewith. Reports, proxy
statements and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities of the Securities
and Exchange Commission located at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the following Regional Offices of the
Commission: 7 World Trade Center, Suite 1300, New York, New York 10048, and at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act with respect to the shares of Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto.
For further information with respect to the Company and the Common Stock
offered hereby, reference is made to the Registration
34
<PAGE>
Statement and the exhibits and schedules filed therewith. Statements contained
in this Prospectus regarding the contents of any contract or other document
referred to are not necessarily complete, and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement, including the exhibits and
schedules thereto, may be inspected at the principal offices of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of such
materials may be obtained upon written request from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C., at
prescribed rates.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed with the Commission are incorporated into this
Prospectus by reference:
(1) The Company's Annual Report on Form 10-K for the year ended June 30,
1995, as amended;
(2) The description of the Common Stock contained in the Company's Form 8-A;
and
(3) The Company's Current Report on Form 8-K for the event dated December
29, 1994, as amended;
(4) The Company's Current Report on Form 8-K for the event dated October 2,
1995; and
(5) All other reports and other documents filed by the Company since June
30, 1995, pursuant to Section 13(a) or 15(d) of the Exchange Act.
All documents filed by the Company after the date of this Prospectus
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to
the termination of the offering, shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or
is deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner of any of the Common Stock, to whom a copy of this Prospectus
has been delivered, upon the written or oral request of such person, a copy of
any and all of the documents referred to above which have been or may be
incorporated by reference in this Prospectus, except that exhibits to such
documents shall not be provided unless they are specifically incorporated by
reference into such documents. Requests for such copies of any document should
be directed to II-VI Incorporated, 375 Saxonburg Boulevard, Saxonburg,
Pennsylvania 16056, Attention: James Martinelli, Treasurer and Director of
Finance and Accounting, telephone: 412-562-4455.
35
<PAGE>
II-VI INCORPORATED AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
II-VI INCORPORATED
<TABLE>
<S> <C>
Independent Auditors' Reports............................................ F-2
Consolidated Balance Sheets at June 30, 1994 and 1995.................... F-4
Consolidated Statements of Earnings for the years ended June 30, 1993,
1994 and 1995............................................................ F-5
Consolidated Statements of Shareholders' Equity for the years ended June
30, 1993, 1994 and 1995.................................................. F-6
Consolidated Statements of Cash Flows for the years ended June 30, 1993,
1994 and 1995............................................................ F-7
Notes to Consolidated Financial Statements............................... F-8
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation.................................................... F-16
Unaudited Pro Forma Condensed Consolidated Statements of Operations...... F-17
Notes to Unaudited Pro Forma Condensed Consolidated Statements of
Operations............................................................... F-18
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTOR AND SHAREHOLDERS OF II-VI INCORPORATED AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of II-VI
Incorporated and Subsidiaries as of June 30, 1994 and 1995, and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the two years in the period ended June 30, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. The consolidated financial statements of II-VI
Incorporated and Subsidiaries as of June 30, 1993 were audited by other
auditors whose report dated August 11, 1993, expressed an unqualified opinion
on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of II-VI
Incorporated and Subsidiaries as of June 30, 1994 and 1995 and the results of
their operations and their cash flows for each of the two years in the period
ended June 30, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note A to the consolidated financial statements, effective
July 1, 1993, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes.
Alpern, Rosenthal & Company
Pittsburgh, Pennsylvania August 19, 1995
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORTS
To the Board of Directors and Stockholders of II-VI Incorporated Saxonburg,
Pennsylvania
We have audited the accompanying consolidated statements of earnings,
stockholders' equity, and cash flows of II-VI Incorporated and subsidiaries
for the year ended June 30, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the results of operations and cash flows of II-VI
Incorporated and subsidiaries for the year ended June 30, 1993, in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania August 11, 1993
F-3
<PAGE>
II-VI INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
---------------
($000) EXCEPT SHARE DATA 1994 1995
- ------------------------ ------- -------
<S> <C> <C>
CURRENT ASSETS
Cash and equivalents.......................................... $ 1,734 $ 3,822
Accounts receivable--less allowance for doubtful accounts of
$125 in 1994 and
$261 in 1995................................................. 3,683 5,412
Inventories................................................... 3,204 4,165
Deferred income taxes......................................... 269 309
Prepaid and other current assets.............................. 260 376
------- -------
Total Current Assets.......................................... 9,150 14,084
PROPERTY, PLANT & EQUIPMENT, NET.............................. 8,093 9,892
OTHER ASSETS.................................................. 327 391
------- -------
TOTAL ASSETS.................................................. $17,570 $24,367
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.............................................. $ 444 $ 835
Accrued salaries, wages and bonuses........................... 737 2,114
Income taxes payable.......................................... 375 585
Accrued profit sharing contribution........................... 70 278
Other current liabilities..................................... 613 1,027
Current portion of long-term debt............................. 263 373
------- -------
Total Current Liabilities..................................... 2,502 5,212
LONG-TERM DEBT (LESS CURRENT PORTION)......................... -- 1,190
DEFERRED INCOME TAXES......................................... 831 967
COMMITMENTS & CONTINGENCIES................................... -- --
SHAREHOLDERS' EQUITY
Preferred stock, no par value; authorized--5,000,000 shares;
unissued...................................................... -- --
Common stock, no par value; authorized--30,000,000 shares;
issued--5,585,607
shares in 1994; 5,669,987 in 1995............................ 4,184 4,485
Cumulative translation adjustment............................. 10 (17)
Retained earnings............................................. 11,142 13,660
------- -------
15,336 18,128
Less treasury stock at cost................................... 1,099 1,130
------- -------
Total Shareholders' Equity.................................... 14,237 16,998
------- -------
$17,570 $24,367
======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
II-VI INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------
($000 EXCEPT PER SHARE DATA) 1993 1994 1995
- ---------------------------- ------- ------- -------
<S> <C> <C> <C>
REVENUES
Net sales:
Domestic............................................ $ 7,860 $ 8,301 $13,697
International....................................... 8,207 8,787 12,901
Contract research and development..................... 1,102 1,593 1,162
------- ------- -------
17,169 18,681 27,760
------- ------- -------
COSTS, EXPENSES AND OTHER INCOME
Cost of goods sold.................................... 11,421 11,313 15,765
Contract research and development..................... 820 1,040 923
Internal research and development..................... 266 251 447
Selling, general and administrative expenses.......... 4,455 5,159 7,324
Interest expense...................................... 75 36 57
Gain on sale of investment............................ -- (699) --
Other expense (income)--net........................... 19 (123) (143)
------- ------- -------
17,056 16,977 24,373
------- ------- -------
EARNINGS BEFORE INCOME TAXES.......................... 113 1,704 3,387
INCOME TAXES.......................................... 38 569 869
------- ------- -------
NET EARNINGS.......................................... $ 75 $ 1,135 $ 2,518
------- ------- -------
EARNINGS PER SHARE.................................... $ 0.01 $ 0.22 $ 0.48
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
II-VI INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
------------- --------------
CUMULATIVE
TRANSLATION RETAINED
(000) SHARES AMOUNT ADJUSTMENT EARNINGS SHARES AMOUNT TOTAL
- ----- ------ ------ ----------- -------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE--JULY 1, 1992... 5,550 $4,145 $ -- $ 9,932 (422) $ (718) $13,359
Purchase of treasury -- -- -- -- (93) (217) (217)
stock..................
Net earnings for the -- -- -- 75 -- -- 75
year...................
----- ------ ---- ------- ---- ------- -------
BALANCE--JUNE 30, 1993.. 5,550 4,145 -- 10,007 (515) (935) 13,217
Shares issued under the
stock
option plan............ 36 39 -- -- -- -- 39
Purchase of treasury -- -- -- -- (51) (164) (164)
stock..................
Net earnings for the -- -- -- 1,135 -- -- 1,135
year...................
Translation adjustment.. -- -- 10 -- -- -- 10
----- ------ ---- ------- ---- ------- -------
BALANCE--JUNE 30, 1994.. 5,586 4,184 10 11,142 (566) (1,099) 14,237
Shares issued under the
stock
option plan............ 84 131 -- -- -- -- 131
Purchase of treasury -- -- -- -- (5) (31) (31)
stock..................
Net earnings for the -- -- -- 2,518 -- -- 2,518
year...................
Translation adjustment.. -- -- (27) -- -- -- (27)
Tax benefit for options -- 170 -- -- -- -- 170
exercised..............
----- ------ ---- ------- ---- ------- -------
BALANCE--JUNE 30, 1995.. 5,670 $4,485 $(17) $13,660 (571) $(1,130) $16,998
===== ====== ==== ======= ==== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
II-VI INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
($000) 1993 1994 1995
- ------ ------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net earnings............................. $ 75 $ 1,135 $ 2,518
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization.......... 1,754 1,835 2,006
Gain on sale of investment............. -- (699) --
Loss (gain) on foreign currency
transactions.......................... 24 (140) (171)
Net loss on disposal of property and
equipment............................. 103 61 19
Deferred income taxes.................. (207) (17) 96
Increase (decrease) in cash from
changes in:
Accounts receivable.................. (1,054) (245) (826)
Inventories.......................... (97) (263) (384)
Accounts payable..................... 343 (300) 196
Other operating net assets........... (148) 1,015 1,917
------- ------- -------
Net cash provided by operating
activities.............................. 793 2,382 5,371
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant &
equipment............................... (1,932) (1,643) (2,384)
Proceeds from sale of property, plant &
equipment............................... 53 6 --
Proceeds from sale of investment......... 740 -- --
Proceeds on note receivable.............. 90 -- --
Net cash on purchase of Virgo Optics..... -- -- (2,353)
Additions to other assets................ (10) (247) (115)
------- ------- -------
Net cash used in investing activities.... (1,059) (1,884) (4,852)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Payments) proceeds on short-term
borrowings.............................. (109) -- 1,472
Proceeds from long-term borrowings....... -- -- 108
Payments on long-term borrowings......... (610) (501) (281)
Proceeds from sale of common stock....... -- 39 301
Purchase of treasury stock............... (217) (164) (31)
------- ------- -------
Net cash provided by (used in) financing
activities.............................. (936) (626) 1,569
------- ------- -------
Net increase (decrease) in cash and
equivalents............................. (1,202) (128) 2,088
------- ------- -------
CASH AND EQUIVALENTS:
Beginning of year........................ 3,064 1,862 1,734
------- ------- -------
End of year.............................. $ 1,862 $ 1,734 $ 3,822
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
II-VI INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1993, 1994 AND 1995
NOTE A
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation The consolidated financial statements include
II-VI Incorporated and its wholly owned subsidiaries II-VI Worldwide, Inc.,
II-VI Delaware, Inc., II-VI Japan Incorporated, II-VI Virgo Incorporated and
its 97.5%-owned subsidiary, II-VI Singapore Pte., Ltd. All significant
intercompany transactions and balances have been eliminated.
Inventories Inventories are valued at the lower of cost or market, with cost
determined on the first-in, first-out basis. Inventory costs include material,
labor and manufacturing overhead.
Depreciation Depreciation for financial reporting purposes is computed
primarily by the straight-line method over the estimated useful lives of the
assets.
Foreign Currency Translation For II-VI Japan Incorporated, the local
currency is the functional currency for purposes of translating the local
currency asset and liability accounts at current exchange rates. The resulting
translation adjustments are accumulated as a separate component of
Shareholders' Equity. For other foreign operations, the U.S. dollar is the
functional currency. Gains and losses resulting from translating asset and
liability accounts that are denominated in currencies other than the
functional currency are included in income.
Income Taxes Effective July 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS
109). The cumulative effect of adopting SFAS 109 on the Company's financial
statements was not material.
Under SFAS 109, deferred taxes are determined based on the differences
between financial statement and tax bases of assets and liabilities using
enacted tax rates in effect in the years in which the assets or liabilities
are expected to be settled. A valuation allowance is established for any
deferred tax asset for which realization is not considered likely. No deferred
taxes have been provided for the income tax which would be incurred on
repatriation of the undistributed earnings of the Company's foreign
subsidiaries because the Company intends to indefinitely reinvest the earnings
outside the United States.
Revenue Recognition Revenue, other than on long-term U.S. Government sales
contracts and subcontracts, is recognized from sales when a product is
shipped. Revenue on long-term U.S. Government sales contracts and subcontracts
is accounted for using the percentage-of-completion method, whereby revenue
and profits are recognized throughout the performance period of the contract.
Losses on contracts are recorded in full when identified.
Earnings Per Share Earnings per share is calculated using the weighted
average number of shares outstanding giving retroactive effect to the two-for-
one stock split (see Note M) and assuming dilutive stock options outstanding
were exercised at the beginning of the year or at the date of issuance, if
later. Weighted average shares outstanding for 1993, 1994 and 1995 used in the
earnings per share calculation were 5,254,752, 5,061,376 and 5,289,072,
respectively. (See Note M)
Cash For purposes of the statement of cash flows, the Company considers
highly liquid debt instruments with an original maturity of three months or
less to be cash equivalents. The majority of cash and cash equivalents are on
deposit at the parent's U.S. bank. Sufficient cash to fund foreign subsidiary
current operations is on deposit at Japan and Singapore banks.
Nature of Business The Company designs, manufactures and markets optical and
electro-optical components, devices and materials for precision use in
infrared, near infrared, visible light and x-ray instruments and applications.
The Company's products are used in lasers for industrial processing and
commercial and
F-8
<PAGE>
military sensing systems. The Company markets its products in the United
States through its direct sales force and worldwide through its wholly-owned
sales subsidiary, II-VI Japan, and manufacturers' representatives.
The Company uses certain uncommon materials and compounds to manufacture its
products. Some of these materials are available from only one proven outside
source. The continued high quality of these raw materials is critical to the
stability of the Company's manufacturing yields. The Company has not
experienced significant production delays due to a shortage of materials.
However, the Company does occasionally experience problems associated with
vendor supplied materials not meeting contract specifications for quality or
purity. A signficant failure of the Company's suppliers to deliver sufficient
quantities of necessary high quality materials on a timely basis could have a
material adverse effect on the Company's results of operations.
Estimates The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Acquisition On December 29, 1994, the Company acquired the net assets of
Virgo Optics Division of Sandoz Chemicals Corporation ("Virgo Optics"). The
acquisition was accounted for as a purchase and included inventory, accounts
receivable, machinery and equipment and certain current liabilities. The
purchase price was allocated as follows:
<TABLE>
<S> <C>
Accounts receivable........................................... $ 720,000
Inventory..................................................... 400,000
Machinery and equipment....................................... 1,387,000
Other assets.................................................. 3,000
----------
2,510,000
Current liabilities........................................... (157,000)
----------
Cash purchase price........................................... $2,353,000
==========
</TABLE>
The following pro forma financial information is based upon the historical
financial statements of II-VI Incorporated and Virgo Optics, adjusted to give
effect to the acquisition of substantially all of the assets and the
assumption of certain liabilities of Virgo Optics and the integration of the
activities of II-VI Incorporated and Virgo Optics. This information assumes
that such events occurred on the first day of II-VI Incorporated's 1994 fiscal
year (July 1, 1993).
This information does not purport to present what II-VI Incorporated's
results of operations actually would have been had the acquisition occurred on
July 1, 1993, or to project the actual results of operations for any future
period.
<TABLE>
<CAPTION>
PRO FORMA RESULTS
FOR THE
YEAR ENDED JUNE 30,
-------------------
($000) EXCEPT SHARE DATA 1994 1995
------------------------ --------- ---------
<S> <C> <C>
Revenues............................................ $ 22,806 $ 30,164
Net Earnings........................................ 1,098 2,856
Earnings Per Share.................................. 0.22 0.54
</TABLE>
F-9
<PAGE>
NOTE B
INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------
($000) 1994 1995
------ ------ ------
<S> <C> <C>
Raw materials............................................... $1,753 $1,750
Work in process............................................. 730 1,348
Finished goods.............................................. 721 1,067
------ ------
Total....................................................... $3,204 $4,165
====== ======
</TABLE>
NOTE C
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment (at cost) consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------
($000) 1994 1995
------ ------- -------
<S> <C> <C>
Land and land improvements............................... $ 307 $ 307
Buildings and improvements............................... 3,743 4,258
Machinery and equipment.................................. 14,305 17,486
------- -------
18,355 22,051
Less accumulated depreciation............................ 10,262 12,159
------- -------
Total.................................................... $ 8,093 $ 9,892
======= =======
</TABLE>
NOTE D
NOTE PAYABLE
The Company has a line of credit (cash overdraft) facility with a Singapore
bank which permits maximum borrowings of approximately $572,000. Borrowings
are payable upon demand with interest being charged at the rate of 1.5% above
the bank's prevailing prime lending rate. The interest rate at June 30, 1995
was 7.5%. At June 30, 1995 there were no borrowings under this facility.
NOTE E
DEFERRED GAIN ON SALE OF INVESTMENT
In fiscal 1994, the Company recognized $699,000 of gain resulting from the
sale, in 1993, of its ownership in its former Japanese distributor. The gain
had been deferred in order to match it with the final negotiated costs, if
any, of terminating the agency agreement with the distributor. Final
termination of the agency agreement took place in fiscal 1994.
NOTE F
LONG-TERM DEBT
Long-term debt at June 30, 1994, consisted of borrowings on a term loan due
to a Singapore bank. Principal payments were being made in seven equal semi-
annual installments, with the final installment being paid in September 1994.
The loan was collateralized by all assets of II-VI Singapore Pte., Ltd. and
was guaranteed by a standby letter of credit.
Long-term debt at June 30, 1995 consists of an installment loan in the
amount of $91,000 at the Company's Singapore location due to mature in August
2000 with equal monthly payments due on this loan including interest
calculated at an annual interest rate of 7.5%, and a note payable in the
amount of $1,472,000 at the Company's Japan location. At June 30, 1995, the
terms of the note payable called for monthly principal payments plus interest
charged at the rate of .5% above the bank's prevailing prime lending rate for
a five year period. The
F-10
<PAGE>
bank was to review the borrowing agreement annually and at that time had the
option of calling the loan. The interest rate at June 30, 1995 was 2.875%.
These borrowings are guaranteed by the Parent Company.
Subsequent to June 30, 1995, the callable feature of the note payable was
amended to December 1996. Based upon this amendment, $1,190,000 has been
recorded in the accompanying balance sheet as long-term debt.
The Company has entered into foreign currency forward contracts in order to
hedge its currency exposure in Japan. Gains and losses on those contracts are
recognized as they occur. At June 30, 1995, the Company had contracts
outstanding of approximately $735,000. The counterparties to these financial
instruments consist of large financial institutions, and the Company does not
believe that it is subject to any significant credit risk associated with
these contracts.
Interest payments made during the years ended June 30, 1993, 1994 and 1995
totaled $82,000, $41,000 and $48,000 respectively.
NOTE G
INCOME TAXES
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------
($000) 1993 1994 1995
------ ------- ------ ------
<S> <C> <C> <C>
Current:
Federal......................................... $ 207 $ 491 $ 534
State........................................... -- 54 174
Foreign......................................... 38 41 65
Deferred.......................................... (207) (17) 96
------- ------ ------
Total............................................. $ 38 $ 569 $ 869
======= ====== ======
</TABLE>
Deferred income taxes reflect the net effect of temporary differences
between the amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Principal items comprising net
deferred income tax liabilities are as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------------
($000) 1994 1995
------ ------ ------
<S> <C> <C>
DEFERRED TAX LIABILITIES
Tax over book accumulated depreciation.................... $1,106 $1,008
------ ------
DEFERRED TAX ASSETS
Alternative minimum tax carryforward...................... $ 275 $ --
Inventory capitalization.................................. 121 134
Non-deductible accruals................................... 148 175
Net operating loss carryforwards - state.................. 47 41
------ ------
Gross deferred tax asset.................................. 591 350
Allowance for deferred tax assets......................... (47) --
------ ------
Net deferred tax assets................................... 544 350
------ ------
Net deferred tax liabilities.............................. $ 562 $ 658
====== ======
</TABLE>
The Company has not recorded deferred income taxes applicable to
undistributed earnings of foreign subsidiaries that are indefinitely
reinvested in foreign operations. If the earnings of such foreign subsidiaries
were not indefinitely reinvested, a deferred tax liability of approximately
$950,000 would have been required.
F-11
<PAGE>
The source of differences resulting in deferred income tax expense (credit)
and the related tax effect of each were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------
($000) 1993 1994 1995
------ ------ ------ ------
<S> <C> <C> <C>
Depreciation...................................... $ 94 $ (58) $ (98)
Inventory capitalization.......................... (2) (13) (13)
Alternative minimum tax carryforward.............. (96) (34) 275
Gain on sale of investment........................ (238) 238 --
Other--Primarily non-deductible accruals.......... 35 (150) (68)
------ ------ -----
Total............................................. $ (207) $ (17) $ 96
====== ====== =====
</TABLE>
The reconciliation of income tax expense at the statutory federal rate to
the reported income tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------
($000) 1993 % 1994 % 1995 %
------ ----- --- ----- --- ------ ---
<S> <C> <C> <C> <C> <C> <C>
Taxes at statutory rate............. $ 38 34 $ 579 34 $1,152 34
Increase (decrease) in taxes
resulting from:
State income taxes--net of federal
benefit........................ -- -- 35 2 88 3
Excludable FSC income............. -- -- -- -- (45) (1)
Excludable foreign income......... (103) (91) (164) (10) (376) (11)
Foreign taxes..................... 38 34 27 2 43 1
Non-deductible expenses........... 65 57 92 5 7 0
----- --- ----- --- ------ ---
Total............................... $ 38 34 $ 569 33 $ 869 26
===== === ===== === ====== ===
</TABLE>
One of the Company's foreign subsidiaries operates under a tax holiday and
does not pay income taxes. The tax holiday expires in March 1997.
During the years ended June 30, 1993, 1994 and 1995, cash paid by the
Company for income taxes was approximately $245,000, $125,000 and $379,000,
respectively.
NOTE H
OPERATING LEASES
The Company leases certain property under operating leases that expire at
various dates through 1997. Future rental commitments applicable to the
operating leases at June 30, 1995 are approximately $372,000 and $200,000 for
1996 and 1997, respectively. Rent expense was approximately $109,000, $303,000
and $462,000 for the years ended June 30, 1993, 1994 and 1995, respectively.
NOTE I
STOCK OPTION PLANS
The Company has a stock option plan under which stock options have been
granted by the Board of Directors to certain officers and key employees, with
1,240,000 shares of common stock reserved for use under this plan. All stock
options granted to-date have been at market price at the date of grant. Twenty
to twenty-five percent of the options granted may be exercised one year from
the date of grant with comparable annual increases on a cumulative basis each
year thereafter.
F-12
<PAGE>
Stock option activity relating to the plan in each of the three years ended
June 30, 1995 is as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES PER SHARE
OPTIONS SUBJECT TO OPTION PRICE RANGE
------- ----------------- -------------
<S> <C> <C>
Outstanding--July 1, 1992................. 398,440 $1.11 - $3.94
Granted................................... 3,000 $1.25
Exercised................................. (440) $1.11
Forfeited................................. (46,600) $1.11 - $3.69
------- -------------
Outstanding--June 30, 1993................ 354,400 $1.11 - $3.94
Granted................................... 34,000 $1.32 - $1.50
Exercised................................. (35,000) $1.11
Forfeited................................. (25,600) $1.83 - $3.64
------- -------------
Outstanding--June 30, 1994................ 327,800 $1.11 - $3.94
Granted................................... 254,000 $1.97 - $4.94
Exercised................................. (84,380) $1.11 - $2.69
Forfeited................................. (54,900) $1.25 - $3.94
------- -------------
Outstanding--June 30, 1995................ 442,520 $1.11 - $4.94
======= =============
</TABLE>
Outstanding options at June 30, 1995, by expiration date are as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES PER SHARE
---------------- ---------
<S> <C> <C>
May 1996....................................... 1,240 $2.69
May 1997....................................... 26,400 $1.11
May 1999....................................... 8,000 $3.69
August 2000.................................... 62,700 $1.83
February 2002.................................. 53,980 $2.13
June 2002...................................... 3,000 $2.13
February 2003.................................. 30,000 $1.32
April 2004..................................... 3,200 $1.50
July 2004...................................... 30,000 $2.00
July 2004...................................... 4,000 $1.97
September 2004................................. 100,000 $2.69
December 2004.................................. 112,000 $3.94
February 2005.................................. 8,000 $4.94
-------
Total.......................................... 442,520
=======
</TABLE>
The Company added a nonemployee directors stock option plan in 1995, with
120,000 shares of common stock reserved for use under this plan. All stock
options granted to-date have been at market price on the date of grant. Twenty
percent of the options granted may be exercised one year from the date of
grant with comparable annual increases on a cumulative basis each year
thereafter.
The number of shares subject to option for options granted in 1995 was
60,000 at an option price of $4.00 per share. The outstanding shares subject
to option at June 30, 1995 was 60,000 and as of that date none were
exercisable.
NOTE J
EMPLOYEE BENEFIT PLANS
Eligible employees of the Company participate in a profit-sharing retirement
plan. Contributions to the plan are made at the discretion of the Company's
Board of Directors and were approximately $13,000 in 1993, $70,000 in 1994 and
$259,000 in 1995.
F-13
<PAGE>
The Company has an employee stock purchase plan for all employees who have
six months of continuous employment with the Company. The employee may
purchase the common stock at 5% below the prevailing market price. The amount
of shares which may be bought by an employee is limited to 10% of the
employee's base pay for each fiscal year. The plan, as amended, limits the
number of shares of common stock available for purchase to 200,000 shares. At
June 30, 1995, 133,878 shares of common stock were available for purchase
under the plan.
The Company has no program for postretirement health and welfare and
postemployment benefits.
NOTE K
INTERNATIONAL AND DOMESTIC OPERATIONS AND EXPORT SALES
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------
($000) 1993 1994 1995
- ------ ------- ------- -------
<S> <C> <C> <C>
Sales:
United States....................................... $17,191 $18,640 $26,644
International....................................... 3,787 6,070 11,158
------- ------- -------
Total................................................. $20,978 $24,710 $37,802
------- ------- -------
Sales or transfers between geographic areas
United States....................................... $ 1,003 $ 3,126 $ 5,847
International....................................... 2,806 2,903 4,195
------- ------- -------
Total................................................. 3,809 6,029 10,042
------- ------- -------
Net sales............................................. $17,169 $18,681 $27,760
======= ======= =======
Operating income (loss):
United States....................................... $ (597) $ 135 $ 1,860
International....................................... 804 783 1,440
------- ------- -------
Total operating income................................ $ 207 $ 918 $ 3,300
======= ======= =======
Identifiable assets:
United States....................................... $15,488 $14,521 $20,633
International....................................... 1,777 3,049 3,734
------- ------- -------
Total assets.......................................... $17,265 $17,570 $24,367
======= ======= =======
</TABLE>
- --------
Sales to Western Europe and Asia comprised 87% of total export sales from the
United States in 1995, 91% in 1994 and 88% in 1993.
NOTE L
CONTINGENCY
The Company is a member of the Frontier Chemical Phase II PRP Group which
has agreed with the Environmental Protection Agency to remove the contents of
certain tanks at a site in Niagara Falls, New York. All site work has been
completed and substantial progress has been made by the Group in meeting its
financial obligations. Based on the information available, the Company has
recorded $26,000 as its best estimate of its share of the remaining liability
as of June 30, 1995.
NOTE M
SUBSEQUENT EVENTS
On August 16, 1995, the Board of Directors declared a two-for-one split of
II-VI's common stock to be distributed to shareholders of record on August 30,
1995, effective at the close of business September 6, 1995. Weighted average
shares outstanding and all per share amounts included in the consolidated
financial statements and notes are based on the increased number of shares
giving retroactive effect to the stock split, unless otherwise noted.
F-14
<PAGE>
On August 19, 1995 the Board of Directors approved the filing of a
registration statement with the Securities and Exchange Commission covering a
proposed public offering of 1,000,000 shares of newly issued common stock.
F-15
<PAGE>
II-VI INCORPORATED AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
The following Unaudited Pro Forma Condensed Consolidated Statements of
Operations are based on the historical financial statements of the Company and
the Virgo Optics Division of Sandoz Chemicals Corporation ("Virgo Optics"),
adjusted to give effect to the acquisition of substantially all of the assets
and the assumption of certain liabilities of Virgo Optics and the integration
of the activities of the Company and Virgo Optics. These statements assume
that such events occurred on the first day of the Company's 1995 fiscal year
(July 1, 1994) and reflect the purchase accounting method for the acquisition.
These statements do not purport to present what the Company's actual results
of operations would have been had the acquisition occurred on July 1, 1994, or
to project the results of operations for any future period.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1995
-----------------------------------------------------
II-VI &
VIRGO OPTICS ACQUISITION VIRGO OPTICS
II-VI FOR THE PERIOD PRO FORMA PRO FORMA
REPORTED 7/1/94 - 12/29/94 ADJUSTMENTS CONSOLIDATED
-------- ----------------- ----------- ------------
(NOTE 1) (NOTE 2) (NOTE 2)
<S> <C> <C> <C> <C>
Revenues
Net Sales................ $26,598 $2,404 $29,002
Contract R&D............. 1,162 0 1,162
------- ------ -------
Total.................. 27,760 2,404 30,164
------- ------ -------
Costs, Expenses & Other
Income
Cost of goods sold....... 15,765 1,685(a) (172)(e) 17,278
Contact research and
development............. 923 0 923
Internal research and
development............. 447 105 552
Selling, general and
administrative expenses. 7,324 564 (121)(d) 7,767
Interest and other
expense--net............ (86) 117(b) 42(f) 73
------- ------ -------
Total.................. 24,373 2,471 26,593
------- ------ -------
Earnings (Loss) Before
Income Taxes.............. 3,387 (67) 3,571
Income Tax Expense
(Benefit)................. 869 (229)(c) 75(g) 715
------- ------ -------
Net Earnings (Loss)........ $ 2,518 $ 162 $ 2,856
======= ====== =======
Earnings per Share......... $0.48 $0.54
Weighted Average Shares
Outstanding (1)........... 5,289 5,289
</TABLE>
- --------
(1) Includes effect of a two-for-one stock split
See accompanying Notes to Pro Forma Condensed Statements of Operations
F-16
<PAGE>
II-VI INCORPORATED AND SUBSIDIARIES NOTES TO PRO FORMA CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
1. II-VI INCORPORATED AND SUBSIDIARIES HISTORICAL:
The historical amounts represent II-VI Incorporated's results of operations
for the year ended June 30, 1995, as reported in the historical consolidated
financial statements of II-VI Incorporated, included elsewhere in this
Prospectus.
2. VIRGO OPTICS ACQUISITION:
On December 29, 1994, the Company acquired the net assets of the Virgo
Optics Division of Sandoz Chemicals Corporation for $2.4 million in cash. The
acquisition was accounted for as a purchase and included inventory, accounts
receivable, machinery and equipment and certain current liabilities.
Following are notes regarding the Virgo Optics historical information and
pro forma adjustments for the acquisition:
NOTES TO VIRGO OPTICS RESULTS FROM 7/1/94 - 12/29/94:
The Virgo Optics results for the period 7/1/94 through 12/31/94 include the
following items which the Company does not anticipate occurring in the
future:
(a) This amount includes a one time credit of $235,000 to properly reflect the
inventory obsolescence reserve.
(b) This amount includes a $107,000 loss on the disposal of certain assets.
(c) This amount includes a $200,000 credit to properly reflect Virgo Optics'
tax position at December 31, 1994
PRO FORMA ADJUSTMENTS:
(d) This pro forma adjustment reflects the elimination of certain intercompany
royalty and commission payments paid to the former parent of Virgo Optics.
(e) This pro forma adjustment reflects $32,000 in reduced lease costs as a
result of negotiating the lease during the acquisition, and a reduction in
depreciation expense of $140,000 as a result of recording depreciation
based on fair market values as of the date of acquisition.
(f) This pro forma adjustment reflects the estimated decrease in interest
income as a result of acquiring the assets of Virgo through the use of
cash.
(g) This pro forma adjustment reflects the net impact on income tax expense as
a result of the pro forma adjustments.
F-17
<PAGE>
NEW THRUSTS...
[PHOTO] [PHOTO]
[GRAPHIC: Photo of a diode pumped [GRAPHIC: Photo of "Filtec" liquid
microlaser assembly generating blue level gauging instrument operating
light] in a bottling plant with inset
showing eV PRODUCTS gamma-ray detector
next to liquid container.
Blue Light Components. The Company's Industrial Gauging. Gamma-ray detectors
Virgo Optics Division is developing developed by the Company's eV PRODUCTS
and marketing potassium niobate based Division are being incorporated
microlaser assemblies (MLA's) for use by industrial gauging OEM's into
by laser OEM's. Diode pumped MLA's instruments for controlling quality
have recently produced up to 50 mW of on high speed production lines.
blue laser light. The Company is also Liquid level, sheet thickness and
introducing single crystal Zinc uniformity, density, total mass,
Selenide substrates for use by fill ratio and other critical quality
developers of blue light laser diodes. factors are measurable using nuclear
radiation.
- -------------------------------------------------------------------------------
FOR A GLOBAL II-VI...
[GRAPHIC: The world map with four II-VI locations pictured in insets]
[PHOTO]
II-VI Incorporated
Headquarters and eV Products Division
Saxonburg, PA USA
[PHOTO] [PHOTO] [PHOTO]
Virgo Optics Division II-VI Singapore II-VI Japan
Port Richey, FL USA
<PAGE>
===============================================================================
NO DEALER, SALESPERSON, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CURRENT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN
ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION.
------------
TABLE OF CONTENTS
Page
<TABLE>
<S> <C>
Prospectus Summary.......................................................... 3
Risk Factors................................................................ 5
Use of Proceeds............................................................. 9
Price Range of Common Stock................................................. 10
Dividend Policy............................................................. 10
Capitalization.............................................................. 11
Selected Consolidated Financial Data........................................ 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.............................................................. 13
Business.................................................................... 19
Management.................................................................. 28
Principal Shareholders...................................................... 30
Description of Capital Stock................................................ 31
Underwriting................................................................ 33
Legal Matters............................................................... 34
Experts..................................................................... 34
Available Information....................................................... 34
Information Incorporated by Reference....................................... 35
Index to Consolidated Financial Statements.................................. F-1
</TABLE>
===============================================================================
===============================================================================
1,000,000 Shares
[LOGO OF II-VI]
Common Stock
----------------
PROSPECTUS
----------------
ADVEST, INC.
CRUTTENDEN ROTH
INCORPORATED
----------------
, 1995
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of this offering in connection with the distribution
of the Common Stock being registered hereby, all of which are to be borne by
the Registrant, are as follows:
<TABLE>
<S> <C>
SEC registration fee............................................... $ 7,981
NASD filing fee.................................................... 2,814
NASD listing fee................................................... 17,500
Accounting fees and expenses....................................... 35,000
Legal fees and expenses............................................ 90,000
Blue Sky fees and expenses......................................... 10,000
Transfer agent and registrar fees.................................. 2,000
Printing........................................................... 75,000
Miscellaneous...................................................... 59,705
--------
Total.............................................................. $300,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pennsylvania statutory law regarding directors and officers insurance and
indemnification is embodied in Subchapter D (Sections 1741 through 1750) of
the Pennsylvania Business Corporation Law of 1988, as amended (the "BCL").
Sections 1741 (relating to third party actions) and 1742 (relating to
derivative actions) of the BCL provide that, unless otherwise restricted by
its bylaws, a business corporation shall have the power to indemnity any
person who is made a party to a third-party or derivative action,
respectively, by reason that such person is or was a representative of the
corporation. The BCL defines representative to mean a director, officer,
employee or agent thereof (a "Representative"). The sections further state
that the corporation is authorized to indemnify the Representative against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her in connection with
the action. However, the Representative must have acted in good faith and with
a reasonable belief that his or her actions were in the best interests, or not
opposed to the best interests, of the corporation; and with respect to any
criminal proceeding, the Representative must have had no reasonable cause to
believe his or her conduct was unlawful.
Section 1743 of the BCL provides mandatory indemnification for a
Representative if he or she succeeds on the merits or otherwise in the defense
of any claim or action. The corporation must indemnity him or her to the
extent of his or her actual and reasonable expenses (including attorney's
fees) in connection with the claim or action.
Section 1746(a) states that the statutory rights of indemnification shall
not be deemed exclusive of any other rights to which a person might be
entitled under any bylaw, agreement, or otherwise. However, 1746(b) forbids
indemnification to be made in any case where the act or failure to act giving
rise to the claim is determined by a court to be willful misconduct or
recklessness. A corporation may not provide indemnification in the case of
willful misconduct or recklessness.
The BCL, in Section 1747, also authorizes corporations to purchase and
maintain insurance on behalf of a Representative. whether or not the
corporation would have the power to indemnify him or her. Such insurance is
declared to be consistent with Pennsylvania's public policy.
Section 6.02 of the Company's By-Laws provides that a director shall not be
personally liable for monetary damages for any action taken or failed to be
taken unless the director has breached or failed to perform the duties of his
office and such breach or failure to perform constitutes self-dealing, willful
misconduct or recklessness. A director's criminal or tax liability is not
limited by the foregoing provision.
II-1
<PAGE>
Section 6.03 of the Company's By-Laws requires the Company to indemnify any
director or officer who is involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative, unless a court determines
that such director or officer's conduct constituted willful misconduct or
recklessness. The right to indemnification conferred by this provision
includes payment of all reasonable expenses, including attorney's fees, and
any liability and loss.
ITEM 16. EXHIBITS
The following is a complete list of Exhibits filed as part of this
Registration Statement;
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<C> <S>
1.01 Form of Underwriting Agreement
5.01 Opinion of Buchanan Ingersoll
Professional Corporation
23.01 Consent of Alpern, Rosenthal & Company
23.02 Consent of Deloitte & Touche LLP
23.03 Consent of Alpern, Rosenthal & Company
23.04 Consent of Buchanan Ingersoll
Professional Corporation (included in
Exhibit 5.01)
24.01 Power of Attorney (Appears on
Signature Page)
</TABLE>
- --------
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered thereby and the offerings of such
securities at the time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
II-2
<PAGE>
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all
requirements for filing on Form S-3 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Pittsburgh, Commonwealth of
Pennsylvania, on October 5, 1995.
II-VI INCORPORATED
By: /s/ James Martinelli
------------------------------------
James Martinelli
Treasurer and Director of
Finance and Accounting
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
* Chairman of the Board October 5, 1995
- -------------------------------- and Chief Executive Officer
Carl J. Johnson and Director
* President and Chief Operating October 5, 1995
- -------------------------------- Officer and Director
Francis J. Kramer
PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER:
/s/ James Martinelli Treasurer and Director of October 5, 1995
- -------------------------------- Finance and Accounting
James Martinelli
* Director October 5, 1995
- --------------------------------
Richard W. Bohlen
* Director October 5, 1995
- --------------------------------
Thomas E. Mistler
* Director October 5, 1995
- --------------------------------
Duncan A. J. Morrison
* Director October 5, 1995
- --------------------------------
Peter W. Sognefest
</TABLE>
*By: /s/ James Martinelli
--------------------------------------
James Martinelli
Attorney-in-Fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. REFERENCE
----------- ---------
<C> <S> <C>
1.01 Form of Underwriting Agreement Previously filed
herewith.
5.01 Opinion of Buchanan Ingersoll Professional Corporation Previously filed
herewith.
23.01 Consent of Alpern, Rosenthal & Company Filed herewith.
23.02 Consent of Deloitte & Touche LLP Filed herewith.
23.03 Consent of Alpern, Rosenthal & Company Filed herewith.
23.04 Consent of Buchanan Ingersoll Professional Corporation Previously filed
(included in Exhibit 5.01) herewith.
24.01 Power of Attorney (Appears on Signature Page) Previously filed
herewith.
</TABLE>
<PAGE>
EXHIBIT 23.01
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the use in this Amendment No. 2 to Registration
Statement No. 33-62737 on Form S-3 of our report included herein dated August
19, 1995 relating to the Consolidated Financial Statements of II-VI
Incorporated and subsidiaries, to the incorporation by reference of our
reports included in the Company's 1995 Annual Report on Form 10-K, and to the
reference to our firm under the caption "Experts" in the Prospectus.
Alpern, Rosenthal & Company
Pittsburgh, Pennsylvania
October 5, 1995
<PAGE>
EXHIBIT 23.02
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
33-62737 of II-VI Incorporated on Form S-3 of our reports dated August 11,
1993 appearing or incorporated by reference in the Prospectus, which is a part
of such Registration Statement, and to the reference to us under the heading
"Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Pittsburgh, Pennsylvania
October 5, 1995
<PAGE>
EXHIBIT 23.03
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the incorporation by reference in this Amendment No. 2
to Registration Statement No. 33-62737 on Form S-3, of our report dated
September 22, 1995 relating to the financial statements of Virgo Optics (a
Division of Sandoz Chemicals Corporation) for the period January 1 to December
29, 1994, which appears in the Form 8-K for the event dated October 2, 1995.
Alpern, Rosenthal & Company
Pittsburgh, Pennsylvania
October 5, 1995
