FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Quarterly Report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended December 31, 1997
[ ] Transition report pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 for the transition
period from to .
---------- ----------
Commission File Number: 0-16195
II-VI INCORPORATED
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1214948
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
375 Saxonburg Boulevard
Saxonburg, PA 16056 16056
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
724-352-4455
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No
--- ---
Indicate the number of shares outstanding of each of the
issuer's classes of common stock as of the latest
practicable date:
At February 6, 1998, 6,826,386 shares of Common Stock, no
par value, of the registrant were outstanding.
II-VI INCORPORATED AND SUBSIDIARIES
INDEX
Page No.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements:
Independent Accountants' Report. . . . . . . . . . . . . 3
Consolidated Balance Sheets -- December 31, 1997
and June 30, 1997. . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Earnings -- Three and
six months ended December 31, 1997 and 1996. . . . . . . 5
Consolidated Statements of Cash Flows -- Six months
ended December 31, 1997 and 1996 . . . . . . . . . . . . 7
Notes to Consolidated Financial Statements . . . . . . . 8
Item 2. Management's Discussion and Analysis
of Financial Condition
and Results of Operations. . . . . . . . . . . 10
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote
of Security-Holders . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K. . . . . . . 12
2
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Shareholders of
II-VI Incorporated and Subsidiaries
Saxonburg, Pennsylvania
We have reviewed the accompanying consolidated balance sheet
of II-VI Incorporated and subsidiaries as of December 31,
1997 and the related consolidated statements of earnings for
the three-month and six-month periods then ended and the
related consolidated statements of cash flows for the six-
month period then ended. These financial statements are the
responsibility of the Company's management. The interim
financial statements as of December 31, 1996, and for the
three-month and six-month periods then ended, were reviewed
by other accountants whose report dated January 20, 1997
stated that they were not aware of any material
modifications that should be made to those statements in
order for them to be in conformity with generally accepted
accounting principles.
We conducted our review in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information
consists principally of applying analytical procedures to
financial data and of making inquiries of persons
responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we
do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to such consolidated
financial statements for them to be in conformity
with generally accepted accounting principles.
We have previously audited, in accordance with generally
accepted auditing standards, the consolidated balance sheet
of II-VI Incorporated and subsidiaries as of June 30, 1997,
and the related consolidated statements of earnings,
shareholders' equity and cash flows for the year then ended
(not presented herein); and in our report dated August 12,
1997, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated
balance sheet as of June 30, 1997 is fairly stated, in all
material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
January 19, 1998
3
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
- ------------------------------------------------
II-VI Incorporated and Subsidiaries
Consolidated Balance Sheets (Unaudited)
($000)
<TABLE>
<CAPTION>
December 31, June 30,
1997 1997
------------ -----------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 2,673 $ 10,854
Accounts receivable - net 11,912 10,808
Inventories 9,672 8,129
Other current assets 1,080 991
---------- ---------
Total Current Assets 25,337 30,782
Property, Plant & Equipment, net 28,558 19,631
Other Assets 3,934 4,099
---------- ---------
$ 57,829 $ 54,512
========== =========
Liabilities and Shareholders' Equity
Current Liabilities
Notes payable $ 595 $ 590
Accounts payable 2,138 3,207
Accrued salaries, wages and bonuses 2,535 3,740
Income taxes payable - 80
Accrued profit sharing contribution 427 740
Other current liabilities 1,099 1,264
Current portion of long-term debt 68 72
--------- ---------
Total Current Liabilities 6,862 9,693
Long-Term Debt--less current portion 2,637 684
Deferred Income Taxes 1,679 1,613
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 - 6,822,386 shares at December 1997,
6,802,946 shares at June 1997 18,297 18,072
Foreign currency translation 78 70
Retained earnings 29,038 25,142
--------- ---------
47,413 43,284
Less treasury stock, at cost - 384,440 shares at
December 1997 and at June 1997 762 762
--------- ---------
46,651 42,522
--------- ---------
$ 57,829 $ 54,512
========== =========
</TABLE>
[FN]
- -See notes to consolidated financial statements.
4
II-VI Incorporated and Subsidiaries
Consolidated Statements of Earnings (Unaudited)
($000 except per share data)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1997 1996
-------- --------
<S> <C> <C>
Revenues
Net Sales:
Domestic $ 8,017 $ 6,531
International 6,364 4,984
-------- --------
14,381 11,515
Contract research and development 677 675
-------- --------
15,058 12,190
-------- --------
Costs, Expenses & Other Expense (Income)
Cost of goods sold 7,799 6,264
Contract research and development 523 468
Internal research and development 345 260
Selling, general and administrative 3,652 2,951
Other expense (income) - net 200 (168)
-------- --------
12,519 9,775
-------- --------
Earnings Before Income Taxes 2,539 2,415
Income Taxes 755 700
-------- --------
Net Earnings $ 1,784 $ 1,715
======== ========
Basic Earnings Per Share $ 0.28 $ 0.27
======== ========
Diluted Earnings Per Share $ 0.27 $ 0.25
======== ========
</TABLE>
[FN]
- -See notes to consolidated financial statements.
5
II-VI Incorporated and Subsidiaries
Consolidated Statements of Earnings (Unaudited)
($000 except per share data)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1997 1996
-------- --------
<S> <C> <C>
Revenues
Net Sales:
Domestic $ 15,810 $ 13,303
International 13,451 9,804
-------- --------
29,261 23,107
Contract research and development 1,316 1,193
-------- --------
30,577 24,300
-------- --------
Costs, Expenses & Other Expense (Income)
Cost of goods sold 16,103 12,612
Contract research and development 994 863
Internal research and development 645 384
Selling, general and administrative 7,102 5,981
Other expense (income) - net 183 (293)
-------- --------
25,027 19,547
-------- --------
Earnings Before Income Taxes 5,550 4,753
Income Taxes 1,654 1,378
-------- --------
Net Earnings $ 3,896 $ 3,375
======== ========
Basic Earnings Per Share $ 0.61 $ 0.53
======== ========
Diluted Earnings Per Share $ 0.58 $ 0.50
======== ========
</TABLE>
[FN]
- -See notes to consolidated financial statements.
6
II-VI Incorporated and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
($000)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1997 1996
------- -------
<S> <C> <C>
Cash Flows from Operating Activities
Net earnings $ 3,896 $ 3,375
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 2,153 1,663
Loss/(gain) on foreign currency transactions 478 (19)
Deferred income taxes (31) (54)
Increase (decrease) in cash from changes in:
Accounts receivable (1,519) 224
Inventories (1,955) (1,307)
Accounts payable (621) 515
Accrued salaries, wages and bonuses (1,156) (773)
Accrued profit sharing contribution (313) (210)
Income taxes payable (72) (10)
Other operating net assets 174 (69)
------- -------
Net cash provided by operating activities 1,034 3,335
------- -------
Cash Flows from Investing Activities
Additions to property, plant & equipment (10,917) (3,550)
Net change in other assets 2 (87)
------- -------
Net cash used in investing activities (10,915) (3,637)
------- -------
Cash Flows from Financing Activities
Net change in notes payable 76 (388)
Proceeds from long-term borrowings 1,980 741
Payments on long-term borrowings (31) (21)
Proceeds from sale of common stock 83 130
------- -------
Net cash provided by financing activities 2,108 462
------- -------
Effect of exchange rate changes on cash and cash
equivalents (408) (188)
------- -------
Net decrease in cash and cash equivalents (8,181) (28)
Cash and Cash Equivalents at Beginning of Period 10,854 9,417
------- -------
Cash and Cash Equivalents at End of Period $ 2,673 $ 9,389
======= =======
</TABLE>
[FN]
- -See notes to consolidated financial statements.
7
II-VI Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Note A - Basis of Presentation
The consolidated financial statements for the three and six
month periods ended December 31, 1997 and 1996 are
unaudited. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered
necessary for a fair presentation for the periods presented
have been included. These interim statements should be read
in conjunction with the audited consolidated financial
statements and footnotes thereto contained in the Company's
1997 Annual Report to the shareholders. The consolidated
results of operations for the three and six month periods
ended December 31, 1997 and 1996 are not necessarily
indicative of the results to be expected for the full year.
Note B - Inventories ($000)
The components of inventories are as follows:
December 31, June 30,
1997 1997
------------ ------------
Raw materials $ 3,701 $ 3,083
Work in progress 2,585 1,992
Finished goods 3,386 3,054
------------ ------------
$ 9,672 $ 8,129
============ ============
Note C - Property, Plant and Equipment ($000)
Property, plant and equipment consist of the
following:
December 31, June 30,
1997 1997
------------ ------------
Land and land improvements $ 2,048 $ 876
Buildings and improvements 12,878 8,073
Machinery and equipment 32,828 27,893
------------ ------------
47,754 36,842
Less accumulated depreciation 19,196 17,211
------------ ------------
$ 28,558 $ 19,631
============ ============
8
II-VI Incorporated and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited),
Continued
Note D - Credit Facilities
In September 1997, the Company secured a $1,980,000 low
interest rate loan from a bank. The terms of the loan call
for the entire principal amount to be paid on September 25,
2002. Interest payments are payable semi-annually from the
inception of the loan at a rate equal to the lesser of the
floating rate or the maximum rate as defined in the loan
agreement. The floating rate is equal to the Euro-Rate plus
1.49% and the maximum rate is 3.74%.
On December 31, 1997, the Company entered into a $10.0
million unsecured, line of credit with PNC Bank which will
expire December 30, 1998. Borrowings under the line of
credit will bear interest at a rate equal to the Euro-Rate
plus .75%. The interest rate in effect as of December 31,
1997 was 6.56%.
Note E - Earnings Per Share
During the quarter ended December 31, 1997, the Company
adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share" which establishes standards for
computing and presenting earnings per share. This statement
requires restatement of all prior period earnings per share
data presented.
<TABLE>
<CAPTION>
For the Three Months Ended December 31,
1997 1996
------------------------------------- -------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $1,784,000 6,432,246 $ 0.28 $1,715,000 6,338,953 $ 0.27
Effect of Dilutive
Securities -
Options outstanding - 255,293 - 460,712
---------- ------------- ---------- -------------
Diluted EPS $1,784,000 6,687,539 $ 0.27 $1,715,000 6,799,665 $ 0.25
========== ============= ======== ========== ============= ========
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended December 31,
1997 1996
------------------------------------- -------------------------------------
Income Shares Per-Share Income Shares Per-Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $3,896,000 6,426,406 $ 0.61 $3,375,000 6,325,726 $ 0.53
Effect of Dilutive
Securities -
Options outstanding - 256,678 - 435,769
---------- ------------- ---------- -------------
Diluted EPS $3,896,000 6,683,084 $ 0.58 $3,375,000 6,761,495 $ 0.50
========== ============= ======== ========== ============= ========
</TABLE>
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Results of Operations
Net earnings for the second quarter of fiscal 1998, ended
December 31, 1997, were $1,784,000 ($0.27 per share -
diluted) on revenues of $15,058,000. This compares to net
earnings of $1,715,000 ($0.25 per share - diluted) on
revenues of $12,190,000 in the second quarter of fiscal
1997. For the six months ended December 31, 1997, net
earnings were $3,896,000 ($0.58 per share - diluted) on
revenues of $30,577,000. This compares with net earnings of
$3,375,000 ($0.50 per share - diluted) on revenues of
$24,300,000 for the same period last fiscal year. The
increased earnings were driven by increased revenue volume.
Order bookings for the second quarter were $16,825,000
compared to $13,894,000 for the same period last fiscal
Year, a 21% increase. Year-to-date order bookings grew by
23% to $32,875,000 from $26,821,000 last fiscal year.
Commercial orders for infrared optics and materials
accounted for approximately 80% of the quarter and year-to-
date increases.
Manufacturing revenues for the second quarter were
$14,381,000 compared to $11,515,000 for the same period last
fiscal year, a 25% increase. Year-to-date manufacturing
revenues grew by 27% to $29,261,000 from $23,107,000 last
fiscal year. These increases are the result of increased
shipments in all of the markets served by the Company.
Manufacturing gross margin for the second quarter was
$6,582,000 or 46% of revenues compared to $5,251,000 or 46%
of revenues for the second quarter of fiscal 1997.
Manufacturing gross margin year-to-date was $13,158,000 or
45% of revenues compared to $10,495,000 or 45% of revenues
in fiscal 1997.
Selling, General and Administrative expenses for the second
quarter were $3,652,000 or 24% of revenues compared to
$2,951,000 or 24% of revenues for last fiscal year's second
quarter. Selling, General and Administrative expenses
year-to-date were $7,102,000 or 23% of revenues compared to
$5,981,000 or 25% of revenues in fiscal 1997. The increase
in expenses is attributable to higher general and
administrative expenses needed to support the Company's
growth and higher compensation expense associated with the
Company's world-wide profit-driven bonus programs.
Other expense for the second quarter was $200,000 compared
to other income of $168,000 for last fiscal year's second
quarter. Other expense year-to-date was $183,000 compared
to other income of $293,000 in fiscal 1997. The quarter and
year-to-date fluctuations are due to foreign currency
translation losses as a result of the decline of the
Singapore dollar against the U.S. dollar and lower
interest income resulting from lower cash balances. The
lower cash balance was primarily due to increased capital
spending.
The Company's year-to-date effective tax rate was 30% of
pre-tax earnings which was slightly higher than the 29%
effective rate for fiscal 1997. This increase is due to
a higher percentage of earnings generated from U.S.
operations.
Liquidity and Capital Resources
Cash decreased during the first six months of fiscal 1998 by
$8,181,000 primarily due to $10,917,000 in capital
expenditures and payment of compensation costs relating to
the Company's fiscal 1997 world-wide profit-driven bonus and
retirement programs, partially offset by proceeds from a
long-term loan.
The capital expenditures focused on increasing capacity and
included the construction costs incurred for a new 45,000
square foot manufacturing facility at the Company's VLOC
subsidiary in Florida and a new 30,000 square foot
manufacturing facility for the Company's eV PRODUCTS
division in Pennsylvania.
The Company generated $1,034,000 in cash from operations for
the first six months of fiscal 1998. The $6,049,000 in cash
generated from net earnings before depreciation and
amortization year-to-date was offset by the payment of
compensation costs relating to the Company's fiscal 1997
world-wide profit-driven bonus and retirement programs and
increases in accounts receivable and inventories needed to
support the growth in sales volume.
10
Historically, the Company has funded growth from cash flow
from operations and, to a lesser extent, borrowings. In the
first six months of fiscal 1998, in addition to cash
generated from operations, the Company executed a $1,980,000
loan from PNC and entered into a $10.0 million unsecured
line of credit. The December 31, 1997 cash balance, in
addition to these external sources of funding, will be used
for working capital needs, further capital expenditures,
scheduled debt payments and other general corporate business
purposes. Capital expenditures for the second half of fiscal
1998 are estimated to be $11.6 million with continued focus
on expanding capacity and process automation.
This Management's Discussion and Analysis contains forward
looking statements as defined by Section 21E of the
Securities Exchange Act of 1934, including the
statements regarding the Company's ability to fund future
working capital needs, capital expenditures and scheduled
debt payments from internally generated funds
and existing cash reserves. The Company's ability to fund
future capital needs from internally generated funds and
existing cash reserves could differ from
these statements if world-wide economic conditions change,
competitive conditions intensify, technology problems
emerge, and/or if suitable acquisitions of technologies or
businesses cannot be consummated.
There are certain risk factors that could affect the
Company's business, results of operations or financial
condition. Investors are encouraged to review the
risk factors set forth in the Company's 1997 Form 10-K filed
on September 29, 1997.
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
On November 7, 1997, the Company held its annual meeting of
shareholders. The three matters voted upon at the annual
meeting were the election of two directors, the ratification
of the selection of Deloitte & Touche LLP as auditors for
the year ending June 30, 1998 and the approval of the II-VI
Incorporated Stock Option Plan of 1997.
Each of the Company's nominees for director was reelected at
the annual meeting. The total number of votes cast for the
election of directors was 6,056,402.
Votes For Votes Withheld
--------- --------------
Richard W. Bohlen 5,820,717 229,266
Duncan A.J. Morrison 5,822,736 227,166
The total number of votes cast for the ratification of the
appointment of Deloitte & Touche LLP as auditors for the
year ending June 30, 1998 was 6,056,402 with 6,015,062 votes
for, 13,082 votes against and 28,258 votes abstaining.
The total number of votes cast for the ratification of the
approval of the II-VI Incorporated Stock Option Plan of 1997
was 4,945,195 with 4,071,232 votes for, 830,875 votes
against and 43,088 votes abstaining.
There were no broker non-votes on these three matters.
11
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
---------------------------------
(a) Exhibits.
--------
10.01 II-VI Incorporated 1997 Incentive Incorporated herein
Stock Option Plan by reference is
Exhibit A to the
Registrant's Proxy
Statement from the
Annual Meeting of
Shareholders held on
November 7, 1997.
10.02 Agreement by and between PNC Bank, Filed herewith.
National Association and II-VI
Incorporated for Committed Line of
Credit (including credit note) and
Japanese Yen Term Loan
15.01 Accountant's awareness letter dated Filed herewith.
February 13, 1998
27.01 Financial Data Schedule Filed herewith.
(b) Reports on Form 8-K.
None
12
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
II-VI INCORPORATED
(Registrant)
Date: February 14, 1998 By: /s/ Carl J. Johnson
Carl J. Johnson
Chairman and Chief Executive Officer
Date: February 14, 1998 By: /s/ James Martinelli
James Martinelli
Treasurer & Chief Financial Officer
13
EXHIBIT INDEX
Exhibit No.
10.01 II-VI Incorporated 1997 Incentive Incorporated herein
Stock Option Plan by reference is
Exhibit A to the
Registrant's Proxy
Statement from the
Annual Meeting of
Shareholders held on
November 7, 1997.
10.02 Agreement by and between PNC Bank, Filed herewith.
National Association and II-VI
Incorporated for Committed Line of
Credit (including credit note) and
Japanese Yen Term Loan
15.01 Accountant's awareness letter dated
February 13, 1998 Filed herewith.
27.01 Financial Data Schedule Filed herewith.
14
September 25, 1997
II-VI Incorporated
375 Saxonburg Boulevard
Saxonburg, PA 16056
Attention: James Martinelli
Vice President and Chief Financial Officer
Re: $10,000,000 Committed Line of Credit
237,000,000 Japanese Yen Term Loan
Ladies/Gentlemen:
We are pleased to inform you that PNC Bank, National Association
(the "Bank") has approved your request for (i) a $10,000,000
unsecured, committed line of credit (the "Line of Credit") and
(ii) a 237,000,000 Japanese Yen term loan (the "Tern Loan") to II-
VI, Inc. (the "Borrower"). The Bank is willing to establish the
Line of Credit and the Term Loan upon the following terms and
conditions:
1. The Line of Credit.
(a) Commitment. The Bank hereby agrees to make
advances ("Advances") to the Borrower under the Line of
Credit in an aggregate amount not to exceed $10,000,000 at
any one time outstanding. The Line of Credit shall be
available for a period of 364 days from the date hereof to
September 24, 1998 (the "Expiration Date"), or such later
date as may be designated by the Bank by written notice to
the Borrower. Subject to the terms and conditions hereof,
the Borrower shall have the right to borrow, repay and
reborrow amounts hereunder during the period of the Line of
Credit; provided that principal amounts outstanding and all
accrued unpaid interest under the Line of Credit shall be
repaid in full on or before the Expiration Date.
(b) Note. The Borrower's obligation to repay the
Advances shall be evidenced by a promissory note
substantially in the form of Exhibit "A" attached hereto
(the "Line of Credit Note").
(c) Advance Procedures. The Borrower may request
Advances under the Line of Credit upon giving oral or
written notice to the Bank by 11:00 a.m. (Pittsburgh,
Pennsylvania time) (i) two (2) Business Days prior to the
proposed Advance, for Advances bearing interest based on
the Euro-Rate as provided below, or (ii) on the
same day (which shall be a Business Day) as the proposed
Advance, for Advances bearing interest based on the Prime
Rate as provided below; in each case followed promptly
thereafter by the Borrower's written confirmation to the
Bank of any oral notice. The Borrower authorizes the Bank
to accept telephonic requests for Advances, and the Bank
shall be entitled to rely upon the authority of any person
providing such instructions.
(d) Interest Rate. Each Advance under the Line of
Credit shall bear interest at a rate per annum (computed on
the basis of a year of 360 days and the actual number of
days elapsed) equal to the sum of (i) the Euro-Rate plus
(ii) seventy-five (75) basis points (0.75%) per annum, for
the Euro-Rate Interest Period in an amount equal to such
Advance and having a comparable maturity as determined at or
about 11 a.m. (eastern time) two Business Days prior to the
commencement of the Euro-Rate Interest Period. For the
purpose hereof, the following terms shall have the following
meanings:
"Business Day" shall mean any day other than a
Saturday or Sunday or a legal holiday on which
commercial banks are authorized or required to be
closed for business in Pittsburgh, Pennsylvania
"Euro-Rate" shall mean, with respect to any
Advance for any Euro-Rate Interest Period, the
interest rate per annum determined by the Bank by
dividing (the resulting quotient rounded upward to the
nearest 1/16th of 1% per annum) (i) the rate of
interest determined by the Bank in accordance with its
usual procedures (which determination shall be
conclusive absent manifest error) to be the eurodollar
rate two (2) Business Days prior to the first day of
such Euro-Rate Interest Period for an amount
comparable to such Advance and having a borrowing date
and a maturity comparable to such Euro-Rate Interest
Period by (ii) a number equal to 1.00 minus the Euro-
Rate Reserve Percentage.
"Euro-Rate Interest Period" shall mean the
period of one, two or three months selected by the
Borrower commencing on the date of disbursement of a
Advance and each successive period selected by the
Borrower thereafter; provided, that if a Euro-Rate
Interest Period would end on a day which is not a
Business Day, it shall end on the next succeeding
Business Day, unless such day falls in the succeeding
calendar month in which case the Euro-Rate Interest
Period shall end on the next preceding Business Day.
In no event shall any Euro-Rate Interest Period end on
a day after the Expiration Date.
"Euro-Rate Reserve Percentage" shall mean the
maximum effective percentage in effect on such day as
prescribed by the Board of Governors of the Federal
Reserve System (or any successor) for determining the
reserve requirements (including, without limitation,
supplemental, marginal and emergency reserve
requirements) with respect to eurocurrency funding
(currently referred to as "Eurocurrency liabilities").
If the Bank determines (which determination shall be final
and conclusive) that, by reason of circumstances affecting
the interbank eurodollar market generally, deposits in
dollars (in the applicable amounts) are not being offered to
banks in the interbank eurodollar market for the selected
term, or adequate means do not exist for ascertaining the
Euro-Rate, then the Bank shall give notice thereof to the
Borrower. Thereafter, until the Bank notifies the Borrower
that the circumstances giving rise to such suspension no
longer exist, (a) the availability of Advances bearing
interest based on the Euro-Rate shall be suspended, and (b)
the interest rate for all Advances then bearing interest
based on the Euro-Rate shall be converted at the expiration
of the then current Euro-Rate Interest Period(s) to, and any
new Advances shall be made at, a per annum interest rate
equal to the rate announced from time to time by the Bank as
its prime rate, which rate may not be the lowest interest
rate then being charged to commercial borrowers by the Bank
(the "Prime Rate") minus 125 basis points (1.25%).
In addition, if, after the date of this letter, the Bank
shall determine (which determination shall be final and
conclusive) that any enactment, promulgation or adoption of
or any change in any applicable law, rule or regulation, or
any change in the interpretation or administration thereof
by a governmental authority, central bank or comparable
agency charged with the interpretation or administration
thereof, or compliance by the Bank with any guideline,
request or directive (whether or not having the force of
law) of any such authority, central bank or comparable
agency shall make it unlawful or impossible for the Bank to
make or maintain or fund loans bearing interest based on the
Euro-Rate Option, the Bank shall notify the Borrower. Upon
receipt of such notice, until the Bank notifies the Borrower
that the circumstances giving rise to such determination no
longer apply, (a) the availability of Advances bearing
interest based on the Euro-Rate shall be suspended, and (b)
the interest rate on all Advances then bearing interest
based on the Euro-Rate shall be converted to bear interest
at a rate equal to the Prime Rate minus 125 basis points
(1.25%) per annum either (i) on the last day of the then
current Euro-Rate Interest Period(s) if the Bank may
lawfully continue to maintain Advances based on the Euro-
Rate to such day, or (ii) immediately if the Bank may not
lawfully continue to maintain Advances based on the Euro-
Rate.
(e) Payment of Interest. The Borrower shall pay
accrued interest on the unpaid principal balance of the Line
of Credit Note in arrears: (a) for the portion of the
Advances bearing interest based on the Euro-Rate, on the
last day of each Euro-Rate Interest Period, (b) if any Euro-
Rate Interest Period is longer than ninety days, then also
on the ninetieth day of such interest period and every
ninety days thereafter, (c) for the portion of the Advances
bearing interest based on the Prime Rate, on the last
Business Day of each calendar quarter during the term
hereof, and (d) for all Advances, at maturity, whether by
acceleration of the Line of Credit Note or otherwise, and
after maturity, on demand until paid in full.
(f) Default Rate. After the principal amount of all
or any part of the Advances shall have become due and
payable, whether by acceleration or otherwise, all the
Advances shall bear interest at a rate per annum which shall
be 200 basis points (2%) per annum above the rate otherwise
in effect
2. Term Loan.
(a) Type of Facility and Use of Proceeds. This is a
term loan in the amount of 237,000,000 Japanese Yen (the
"Term Loan").
(b) Interest Rate. Amounts outstanding under the
Term Loan will bear interest as provided in the Term Note
(as defined below).
(c) Repayment. Principal of, and interest accrued
on, the Term Loan shall be payable as provided in the Term
Note.
(d) Note. The obligation of the Borrower to repay
the Term Loan shall be evidenced by a rate protection term
note substantially in the form of Exhibit "B" attached
hereto (the "Term Note").
3. Use of Proceeds. The proceeds of the Advances shall be
used by the Borrower as direct extensions of credit from the Bank
to fund working capital needs of the Borrower and other general
corporate purposes. The proceeds of the Term Loan shall be used by
the Borrower for funding foreign exchange transactions.
4. Loan Documents. This Agreement, the Line of Credit Note
and the Term Note are collectively referred to as the "Loan
Documents".
5. Conditions to Lending. The obligation of the Bank to
make any loan hereunder is subject to the conditions that:
(a) in the case of the initial loan hereunder, the
Borrower shall provide to the Bank this Agreement and the
Notes, each duly executed by the Borrower; evidence of the
due authorization by the Borrower of this Agreement and the
Notes; and such other instruments as the Bank shall
reasonably require in form and substance satisfactory to the
Bank.
(b) each request for an advance under the Line of
Credit shall constitute, and the advance under the Term Loan
as of the time made, a certification by the Borrower that
the Borrower shall have performed and complied with all
agreements and conditions herein required under this
Agreement, and at the time of such advance, no condition or
event shall exist which constitutes an Event of Default.
6. Covenants. Unless waived in writing by the Bank or
until payment in full of the Term Loan and the Line of Credit and
termination of the Line of Credit:
(a) The Borrower shall maintain books and records in
accordance with GAAP and give representatives of the Bank
access thereto at all reasonable times, including permission
to examine, copy and make abstracts from any of such books
and records and such other information as the Bank may from
time to time reasonably request, and the Borrower will make
available to the Bank for examination copies of any reports,
statements or returns which the Borrower may make to or file
with any governmental department, bureau or agency, federal
or state.
(b) Within 90 days of the end of the Borrower's fiscal
year, the Borrower will deliver to the Bank (i) its annual
report on Securities and Exchange Commission Form 10K, and
(ii) its balance sheet and statement of income and cash
flows for the fiscal year, audited and certified without
qualification by a certified public accountant acceptable to
the Bank and prepared in accordance with generally accepted
accounting principles.
(c) Within 45 days of the end of each of the
Borrower's fiscal quarters, the Borrower will deliver to the
Bank its quarterly report on Securities and Exchange
Commission Form 10Q.
(d) The Borrower will promptly submit to Bank such
other information relating to the Borrower as the Bank may
reasonably request.
(e) The Borrower will pay and discharge when due all
indebtedness and all taxes, assessments, charges, levies and
other liabilities imposed upon the Borrower, its income,
profits, property or business, except those which currently
are being contested in good faith by appropriate proceedings
and for which the Borrower shall have set aside adequate
reserves or made other adequate provision with respect
thereto acceptable to the Bank in its sole discretion.
(f) The Borrower will do all things necessary to
maintain, renew and keep in full force and effect its
organizational existence and all rights, permits and
franchises necessary to enable it to continue its business;
continue in operation in substantially the same manner as at
present; keep its properties in good operating condition and
repair; and make all necessary and proper repairs, renewals,
replacements, additions and improvements thereto.
(g) The Borrower will maintain with financially sound
and reputable insurers, insurance with respect to its
property and business against such casualties and
contingencies, of such types and in such amounts as is
customary for established companies engaged in the same or
similar business and similarly situated. In the event of a
conflict between the provisions of this Section and the
terms of any Security Documents relating to insurance, the
provisions in the Security Documents will control.
(h) The Borrower will comply with all laws applicable
to the Borrower and to the operation of its business
(including any statute, rule or regulation relating to
employment practices and pension benefits or to
environmental, occupational and health standards and
controls).
(i) The Borrower shall cause, at all times, the
indebtedness outstanding under this letter agreement to
rank at least pari passu with all other indebtedness for
borrowed money of the Borrower, the principal amount of
which is in excess of $1,000,000.
(j) The Borrower will not make or permit any change
in the nature of its business as carried on as of the date
of this letter or permit any change in control of more than
a majority of its board of directors or its voting stock.
(k) The Borrower will not merge or consolidate with
or into any person, firm or corporation (except for mergers
or consolidations where the Borrower is the surviving
entity) or lease, sell, transfer or otherwise dispose of
all, or substantially all, of its property, assets and
business whether now owned or hereafter acquired.
(l) The Borrower will not allow its Tangible Net
Worth to be less than $20,000,000 at any time during the
term hereof. "Tangible Net Worth" means stockholder's
equity in the Borrower less any advances to third parties
and any items properly classified as intangibles, in
accordance with generally accepted accounting principles.
(m) The Borrower will maintain at all times a ratio of
(i) total liabilities to (ii) Tangible Net Worth of less
than 2.0 to 1.
(n) The Borrower will maintain at all times a ratio
of Operating Cash Flow to the total of Fixed Charges of at
least 1.2 to 1. "Operating Cash Flow" means net income plus
interest expense plus depreciation plus amortization plus
other non-cash items less dividends. "Fixed Charges" means
the sum of Current Maturities plus interest expense plus
Unfunded Capital Expenditures. "Current Maturities" means
the current principal maturities of all indebtedness for
borrowed money (including but not limited to amortization of
capitalized lease obligations) having an original term of
one year or more, as well as any prepayments of such
indebtedness prior to scheduled maturity. "Unfunded Capital
Expenditures" means capital expenditures made from the
Borrower's funds other than borrowed funds.
7. Representations and Warranties. The Borrower
represents and warrants to the Bank as follows:
(a) The Borrower is duly organized, validly existing
and in good standing under the laws of the state of its
incorporation or organization and has the power and
authority to own and operate its assets and to conduct its
business as now or proposed to be carried on, and is duly
qualified, licensed and in good standing to do business in
all jurisdictions where its ownership of property or the
nature of its business requires such qualification or
licensing.
(b) The Borrower has the power to make and carry out
the terms of the Loan Documents and has taken all necessary
corporate action to authorize the execution, delivery and
performance of the Loan Documents.
(c) The Loan Documents constitute the legally binding
obligations of the Borrower, enforceable in accordance with
their respective terms.
(d) The making and performance of the Loan Documents
do not and will not violate in any respect any provisions of
(i) any federal, state or local law or regulation or any
order or decree of any federal, state or local governmental
authority, agency or court, or (ii) the organizational
documents of the Borrower or of any of its subsidiaries, or
(iii) any mortgage, contract or other undertaking to which
the Borrower is a party or which is binding upon the
Borrower or any of its subsidiaries or any of their
respective assets, and do not and will not result in the
creation or imposition of any security interest, lien,
charge or other encumbrance on any of their respective
assets pursuant to the provisions of any such mortgage,
contract or other undertaking.
(e) Neither the Borrower nor any of its subsidiaries
is in default with respect to any material order, writ,
injunction or decree (i) of any court or (ii) of any
Federal, state, municipal or other governmental in-
strumentality. The Borrower and each subsidiary is
substantially complying with all applicable statutes and
regulations of each governmental authority having
jurisdiction over its activities, except where failure to
comply would not have a material adverse effect on the
Borrower and its subsidiaries, taken as a whole.
(f) There are no actions, suits, proceedings or
governmental investigations pending or, to the knowledge of
the Borrower, threatened against the Borrower which could
result in a material adverse change in its business, assets,
operations, financial condition or results of operations and
there is no basis known to the Borrower or its officers or
directors for any such action, suit, proceedings or
investigation.
(g) The Borrower's latest financial statements
provided to the Bank are true, complete and accurate in all
material respects and fairly present the financial
condition, assets and liabilities, whether accrued,
absolute, contingent or otherwise and the results of the
Borrower's operations for the period specified therein. The
Borrower's financial statements have been prepared in
accordance with generally accepted accounting principles
consistently applied from period to period subject in the
case of interim statements to normal year-end adjustments.
Since the date of the latest financial statements provided
to the Bank, the Borrower has not suffered any damage,
destruction or loss which has materially adversely affected
its business, assets, operations, financial condition or
results of operations.
(h) The Borrower has filed all returns and reports
that are required to be filed by it in connection with any
federal, state or local tax, duty or charge levied, assessed
or imposed upon the Borrower or its property, including
unemployment, social security and similar taxes and all of
such taxes have been either paid or adequate reserve or
other provision has been made therefor.
8. Default. The events which give the Bank the right to
accelerate the maturity of the loans outstanding hereunder and/or
terminate commitment of the Bank to lend under the Line of Credit
are set forth in the Notes.
9. Notices. All notices required to be sent to the
Borrower shall be sent by hand delivery, overnight courier or
facsimile transmission (with confirmation of receipt) to the
Borrower at the address set forth on the records of the Bank.
10. Expenses. The Borrower shall reimburse the Bank for
the Bank's expenses (including the reasonable fees and expenses of
the Bank's outside and in-house counsel) in documenting and
closing this transaction and in connection with any amendments,
modifications, renewals or enforcement actions relating to the
advances hereunder.
11. Governing Law. This Agreement and the Notes shall be
governed by the laws of the Commonwealth of Pennsylvania,
excluding its conflict of law rules.
12. Counterparts. This Agreement may be executed in
counterparts, each of which when executed by the Borrower and the
Bank shall be regarded as an original.
If the foregoing accurately reflects the understanding of the
parties, please execute the duplicate original of this Agreement
and return it to me.
Very truly yours,
PNC BANK, NATIONAL ASSOCIATION
By /s/ Enrico Della Corna
----------------------------------
Title Vice President
-------------------------------
Accepted, with the intent to be legally bound,
this 31st day of December, 1997
II-VI INCORPORATED
By /s/ James Martinelli
----------------------------------
Title Treasurer & C.F.O.
-------------------------------
COMMITTED LINE OF CREDIT NOTE
$10,000,000.00 September 25, 1997
FOR VALUE RECEIVED, II-VI INCORPORATED (the "Borrower"), with an
address at 375 Saxonburg Boulevard, Saxonburg, Pa 16056 promises
to pay to the order of PNC BANK, NATIONAL ASSOCIATION (the
"Bank"), in lawful money of the United States of America in
immediately available funds at its offices located at One PNC
Plaza, 249 Fifth Avenue, Pittsburgh, PA 15222-2707, or at such
other location as the Bank may designate from time to time, the
principal sum of TEN MILLION AND NO/100 DOLLARS ($10,000,000.00)
(the "Facility") or such lesser amount as may be advanced to or
for the benefit of the Borrower hereunder, together with interest
accruing on the outstanding principal balance from the date
hereof, as provided below:
1. Interest. Interest on the unpaid principal balance hereof
shall be due and payable at the rates and the times set forth in
that certain Letter Agreement dated December 30, 1998 by and
between the Borrower and the Bank (the Letter Agreement and all
extensions, renewals, amendments, substitutions or replacements
referred to herein as the "Agreement"). In no event will the rate
of interest hereunder exceed the maximum rate allowed by law.
2. Advances. The Borrower may borrow, repay and reborrow
hereunder until the Expiration Date, subject to the terms and
conditions of this Note and the Loan Documents (as defined
herein). The "Expiration Date" shall mean September 24, 1998, or
such later date as may be designated by the Bank by written notice
from the Bank to the Borrower. The Borrower acknowledges and
agrees that in no event will the Bank be under any obligation to
extend or renew the Facility or this Note beyond the initial
Expiration Date. In no event shall the aggregate unpaid principal
amount of advances under this Note exceed the face amount of this
Note.
3. Payment Terms. The outstanding principal balance and any
accrued but unpaid interest shall be due and payable on the
Expiration Date. If any payment under this Note shall become due
on a Saturday, Sunday or public holiday under the laws of the
State where the Bank's office indicated above is located, such
payment shall be made on the next succeeding business day and such
extension of time shall be included in computing interest in
connection with such payment. The Borrower hereby authorizes the
Bank to charge the Borrower's deposit account at the Bank for any
payment when due hereunder. Payments received will be applied to
charges, fees and expenses (including attorneys' fees), accrued
interest and principal in any order the Bank may choose, in its
sole discretion.
4. Prepayment. The Borrower shall have the right to prepay at
any time and from time to time, in whole or in part, without
penalty, any advance hereunder which is accruing interest at a
rate based upon a floating rate. If the Borrower prepays all or
any part of any advance which is accruing interest at a fixed rate
on other than the last day of the applicable interest period, the
Borrower shall also pay to the Bank, on demand therefor, the Cost
of Prepayment. "Cost of Prepayment" means an amount equal to the
present value, if positive, of the product of (a) the difference
between (i) the yield, on the beginning date of the applicable
interest period, of a U.S. Treasury obligation with a maturity
similar to the applicable interest period minus (ii) the yield, on
the prepayment date, of a U.S. Treasury obligation with a maturity
similar to the remaining maturity of the applicable interest
period, and (b) the principal amount to be prepaid, and (c) the
number of years, including fractional years from the prepayment
date to the end of the applicable interest period. The yield on
any U.S. Treasury obligation shall be determined by reference to
Federal Reserve Statistical Release H.15(519) "Selected Interest
Rates". For purposes of making present value calculations, the
yield to maturity of a similar maturity U.S. Treasury obligation
on the prepayment date shall be deemed the discount rate. The
Cost of Prepayment shall also apply to any payments made after
acceleration of the maturity of this Note.
5. Yield Protection. The Borrower shall pay to the Bank, on
written demand therefor, together with the written evidence of the
justification therefor, all direct costs incurred, losses suffered
or payments made by Bank by reason of any change in law or
regulation or its interpretation imposing any reserve, deposit,
allocation of capital, or similar requirement (including without
limitation, Regulation D of the Board of Governors of the Federal
Reserve System) on the Bank, its holding company or any of their
respective assets. In addition, the Borrower agrees to indemnify
the Bank against any loss or expense which the Bank, as a
consequence of either (i) the Borrower's failure to make a payment
on the due date thereof or (ii) the Borrower's payment, prepayment
or conversion of any Loan bearing interest based upon the Euro-
Rate on a day other than the last day of the applicable Euro-Rate
Interest Period, may sustain or incur in liquidating or employing
deposits from third parties acquired to effect, fund or maintain
such Loan or any part thereof. The Bank's determination of an
amount payable under this paragraph shall, in the absence of
manifest error, be conclusive and shall be payable on demand.
6. Loan Account. The Bank shall open and maintain on its books a
loan account in the name of the Borrower with respect to advances,
payments and the computation and payment of interest, fees and
other amounts due hereunder and under the Agreement. Such loan
account shall be conclusive and binding on the Borrower as to the
amount at any time due to the Bank from the Borrower except in the
case of error in computation.
7. Other Loan Documents. This Note is issued in connection with
the Agreement, the terms of which are incorporated herein by
reference (the Agreement, the Notes and the other instruments and
agreements described therein, shall be collectively referred to as
the "Loan Documents"), and is secured by the property described in
the Loan Documents (if any) and by such other collateral as
previously may have been or may in the future be granted to the
Bank to secure this Note. Initially capitalized words and terms
used in this Note without definition shall have the same meanings
herein as are assigned to them in the other Loan Documents.
8. Events of Default. The occurrence of any of the following
events will be deemed to be an "Event of Default" under this Note:
(i) the nonpayment of any principal, interest or other
indebtedness under this Note when due; (ii) the occurrence of any
event of default or default and the lapse of any notice or cure
period under any Loan Document or any other debt, liability or
obligation to the Bank of any Obligor; (iii) the filing by or
against any Obligor of any proceeding in bankruptcy, receivership,
insolvency, reorganization, liquidation, conservatorship or
similar proceeding (and, in the case of any such proceeding
instituted against any Obligor, such proceeding is not dismissed
or stayed within 30 days of the commencement thereof, provided
that the Bank shall not be obligated to advance additional funds
during such period); (iv) any assignment by any Obligor for the
benefit of creditors, or any levy, garnishment, attachment or
similar proceeding is instituted against any property of any
Obligor held by or deposited with the Bank; (v) a default with
respect to any other indebtedness of any Obligor for borrowed
money, if the effect of such default is to cause or permit the
acceleration of such debt; (vi) the commencement of any
foreclosure or forfeiture proceeding, execution or attachment
against any collateral securing the obligations of any Obligor to
the Bank; (vii) the entry of a final judgment against any Obligor
and the failure of such Obligor to discharge the judgment within
ten days of the entry thereof; (viii) in the event that this Note
or any guarantee executed by any Guarantor is secured, the failure
of any Obligor to provide the Bank with additional collateral if
in the opinion of the Bank at any time or times, the market value
of any of the collateral securing this Note or any guarantee has
depreciated; (ix) any material adverse change in the business,
assets, operations, financial condition or results of operations
of any Obligor; (x) the revocation or attempted revocation, in
whole or in part, of any guarantee by any Guarantor; (xi) any
representation or warranty made by any Obligor to the Bank in any
Loan Document, or any other documents now or in the future
securing the obligations of any Obligor to the Bank, is false,
erroneous or misleading in any material respect; or (xii) the
failure of any Obligor to observe or perform any covenant or other
agreement with the Bank contained in any Loan Document or any
other documents now or in the future securing the obligations of
any Obligor to the Bank.
As used herein, the term "Obligor" means any Borrower and any
Guarantor, and the term "Guarantor" means any guarantor of the
obligations of the Borrower to the Bank existing on the date of
this Note or arising in the future.
Upon the occurrence of an Event of Default: (a) the Bank shall be
under no further obligation to make advances hereunder; (b) if an
Event of Default specified in clause (iii) or (iv) above shall
occur, the outstanding principal balance and accrued interest
hereunder together with any additional amounts payable hereunder
shall be immediately due and payable without demand or notice of
any kind; (c) if any other Event of Default shall occur, the
outstanding principal balance and accrued interest hereunder
together with any additional amounts payable hereunder, at the
option of the Bank and without demand or notice of any kind, may
be accelerated and become immediately due and payable; (d) at the
option of the Bank, this Note will bear interest at the Default
Rate (as provided for in the Agreement) from the date of the
occurrence of the Event of Default; and (e) the Bank may exercise
from time to time any of the rights and remedies available to the
Bank under the Loan Documents or under applicable law.
9. Right of Setoff. In addition to all liens upon and rights of
setoff against the money, securities or other property of the
Borrower given to the Bank by law, the Bank shall have, with
respect to the Borrower's obligations to the Bank under this Note
and to the extent permitted by law, a contractual possessory
security interest in and a contractual right of setoff against,
and the Borrower hereby assigns, conveys, delivers, pledges and
transfers to the Bank all of the Borrower's right, title and
interest in and to, all deposits, moneys, securities and other
property of the Borrower now or hereafter in the possession of or
on deposit with, or in transit to, the Bank whether held in a
general or special account or deposit, whether held jointly with
someone else, or whether held for safekeeping or otherwise,
excluding, however, all IRA, Keogh, and trust accounts. Every
such security interest and right of setoff may be exercised
without demand upon or notice to the Borrower. Every such right
of setoff shall be deemed to have been exercised immediately upon
the occurrence of an Event of Default hereunder without any action
of the Bank, although the Bank may enter such setoff on its books
and records at a later time.
10. Miscellaneous. No delay or omission of the Bank to exercise
any right or power arising hereunder shall impair any such right
or power or be considered to be a waiver of any such right or
power, nor shall the Bank's action or inaction impair any such
right or power. The Borrower agrees to pay on demand, to the
extent permitted by law, all costs and expenses incurred by the
Bank in the enforcement of its rights in this Note and in any
security therefor, including without limitation reasonable fees
and expenses of the Bank's counsel. If any provision of this Note
is found to be invalid by a court, all the other provisions of
this Note will remain in full force and effect.
The Borrower and all other makers and indorsers of this Note
hereby forever waive presentment, protest, notice of dishonor and
notice of non-payment. The Borrower also waives all defenses
based on suretyship or impairment of collateral.
If this Note is executed by more than one Borrower, the
obligations of such persons or entities hereunder will be joint
and several. This Note shall bind the Borrower and its heirs,
executors, administrators, successors and assigns, and the
benefits hereof shall inure to the benefit of Bank and its
successors and assigns.
This Note has been delivered to and accepted by the Bank and will
be deemed to be made in the State where the Bank's office
indicated above is located. THIS NOTE WILL BE INTERPRETED AND THE
RIGHTS AND LIABILITIES OF THE BANK AND THE BORROWER HERETO DETERMINED
IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE BANK'S OFFICE
INDICATED ABOVE IS LOCATED, EXCLUDING ITS CONFLICT OF LAWS RULES.
The Borrower hereby irrevocably consents to the exclusive jurisdiction
of any state or federal court for the county or judicial district where
the Bank's office indicated above is located, and consents that all
service of process be sent by nationally recognized overnight courier
service directed to the Borrower at the Borrower's address set forth
herein and service so made will be deemed to be completed on the
business day after deposit with such courier; provided that
nothing contained in this Note will prevent the Bank from bringing
any action, enforcing any award or judgment or exercising any
rights against the Borrower individually, against any security or
against any property of the Borrower within any other county,
state or other foreign or domestic jurisdiction. The Borrower
acknowledges and agrees that the venue provided above is the most
convenient forum for both the Bank and the Borrower. The Borrower
waives any objection to venue and any objection based on a more
convenient forum in any action instituted under this Note.
11. WAIVER OF JURY TRIAL. THE BORROWER IRREVOCABLY WAIVES ANY
AND ALL RIGHTS THE BORROWER MAY HAVE TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR CLAIM OF ANY NATURE RELATING TO THIS NOTE,
ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS NOTE OR ANY
TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. THE BORROWER
ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
The Borrower acknowledges that it has read and understood all the
provisions of this Note, including the waiver of jury trial, and
has been advised by counsel as necessary or appropriate.
WITNESS the due execution hereof as a document under seal, as of
the date first written above, with the intent to be legally bound
hereby.
WITNESS / ATTEST: II-VI INCORPORATED
/s/ Michelle L. Freehling By: /s/ James Martinelli (SEAL)
- -------------------------- ----------------------------
Print Name: Michelle L. Freehling Print Name: James Martinelli
Title: Treasurer & C.F.O.
February 13, 1998
II-VI Incorporated
375 Saxonburg Boulevard
Saxonburg, PA 16056
We have made a review, in accordance with standards
established by the American Institute of Certified Public
accountants, of the unaudited interim financial information
of II-VI Incorporated and subsidiaries for the period ended
December 31, 1997, as indicated in our report dated
January 19, 1998; because we did not perform an audit, we
expressed no opinion on that information.
We are aware that our report referred to above, which is
included in your Quarterly Report on Form 10-Q for the
quarter ended December 31, 1997, is incorporated by
reference in Registration Statements No. 33-19511, No.
33-38019, No. 33-19510, No. 33-63739, and No. 333-12737 on
Form S-8 and Registration Statement No. 333-04531 on Form
S-3.
We also are aware that the aforementioned report, pursuant
to Rule 436(c) under the Securities Act of 1933, is not
considered a part of the Registration Statement prepared or
certified by an accountant or a report prepared or certified
by an accountant within the meaning of Sections 7 and 11 of
that Act.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
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<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
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<RECEIVABLES> 12,257
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<INVENTORY> 9,672
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<COMMON> 18,297
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</TABLE>
