Note 3.

Acquisition

Kaiam Laser Limited, Inc.

In August 2017, the Company acquired Kaiam Laser Limited, Inc. (“Kaiam”) a privately held company based in Newton Aycliffe, United Kingdom. Under the terms of the merger agreement, the consideration consisted of cash paid at the acquisition date of $79.5 million, net of cash acquired. The acquisition of Kaiam provides the Company with 150mm wafer fabrication platform to significantly expand the Company’s capacity for the production of vertical cavity surface emitting lasers (“VCSELs”) for the 3D sensing market and broadens the capability to address new market opportunities in other compound semiconductor materials. Kaiam will operate under the name II-VI Compound Semiconductor Ltd. within the Company’s II-VI Laser Solutions operating segment. Due to the timing of the acquisition, the Company is still in the process of measuring the fair value of assets acquired, including tangible, intangible assets and related deferred income taxes.

Assets
Accounts receivable	$		79
Inventories			4,559
Prepaid and other assets			1,246
Property, plant & equipment			64,482
Intangible assets			5,146
Goodwill			18,307
Total assets acquired	$		93,819

Liabilities
Accounts payable	$	751
Other accrued liabilities			2,486
Deferred tax liabilities			11,117
Total liabilities assumed			14,354
Net assets acquired	$		79,465

The goodwill of $18.3 million is included in the II-VI Laser Solutions segment and is attributed to the expected synergies and the assembled workforce of Kaiam. None of the goodwill is deductible for income tax purposes. The Company expensed transaction costs of $1.0 million for the three months ended September 30, 2017.

The amount of revenues and net loss of Kaiam included in the Company’s Consolidated Statement of Earnings for the three months ended September 30, 2017 was $0.6 million and $3.7 million, respectively.

Integrated Photonics, Inc.

In June 2017, the Company acquired Integrated Photonics, Inc. (“IPI”), a privately held company based in New Jersey. IPI is a leader in engineered magneto-optic materials that enable high-performance directional components such as optical isolators for the optical communications market. Under the terms of the merger agreement, the consideration consisted of initial cash paid at the acquisition date of $39.4 million, net of cash acquired and a working capital adjustment of $0.7 million. In addition, the agreement provides up to a maximum of $2.5 million of additional cash earnout opportunities based upon IPI achieving certain agreed upon financial and transitional objectives, which if earned would be payable in the amount of $2.5 million for the achievement of the annual target.

The following table presents the preliminary purchase price at the date of acquisition ($000):

Net cash paid at acquisition	$	39,436
Fair value of cash earnout arrangement		2,250
Purchase price	$	41,686

The following table presents the preliminary allocation of the purchase price of the assets acquired and liabilities assumed at the date of acquisition, as the Company intends to finalize its accounting for the valuation of property, plant and equipment, identifiable intangibles and deferred income tax liabilities and anticipates completion of the valuation within one year from the date of the acquisition ($000):

Assets
Accounts receivable	$		2,083
Inventories			3,968
Prepaid and other assets		322
Property, plant & equipment			11,257
Intangible assets			22,213
Goodwill			17,107
Total assets acquired	$		56,950

Liabilities
Accounts payable	$	846
Other accrued liabilities			1,032
Long-term debt assumed			3,834
Deferred tax liabilities			9,552
Total liabilities assumed			15,264
Net assets acquired	$		41,686

The goodwill of $17.1 million is included in the II-VI Photonics segment and is attributed to the expected synergies and the assembled workforce of IPI. None of the goodwill is deductible for income tax purposes. The fair value of accounts receivable acquired was $2.1 million with the gross contractual amount being $2.1 million. At the time of acquisition, the Company expected to collect all of the accounts receivable. The Company expensed transaction costs of $0.3 million all within the year ended June 30, 2017.

The amount of revenues and net earnings of IPI included in the Company’s Consolidated Statement of Earnings for the three months ended September 30, 2017 was $5.4 million and $0.4 million, respectively.