Amendment No. 3
Ultra Clean Holdings, Inc.
Delaware | 3674 | 61-1430858 | ||
(State or Other Jurisdiction of
Incorporation or Organization) |
(Primary Standard Industrial
Classification Code Number) |
(I.R.S. Employer
Identification Number) |
150 Independence Drive
Incorporating Services Inc.
Copies to:
Alan F. Denenberg, Esq.
Davis Polk & Wardwell 1600 El Camino Real Menlo Park, California 94025 (650) 752-2000 |
John A. Fore, Esq.
Michael A. Occhiolini, Esq. Wilson Sonsini Goodrich & Rosati, Professional Corporation 650 Page Mill Road Palo Alto, California (650) 493-9300 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
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, check the following box. o
If this form is filed to register additional
securities for an offering pursuant to Rule 462(b) 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.
o
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.
o
If this form is a post-effective amendment filed
pursuant to Rule 462(d) 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.
o
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o
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.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. |
SUBJECT TO COMPLETION, DATED MARCH 8, 2004
9,100,000 Shares
Ultra Clean Holdings, Inc.
Common Stock
We are selling 7,000,000 shares of common stock and the selling stockholder is selling 2,100,000 shares of common stock.
Prior to the offering, there has been no public market for our common stock. The initial public offering price of our common stock is expected to be between $10.00 and $12.00 per share. Our common stock has been approved for quotation on The Nasdaq National Market under the symbol UCTT.
The underwriters have an option to purchase a maximum of 1,365,000 additional shares from the selling stockholder to cover over-allotments of shares.
Investing in our
common stock involves risks. See Risk Factors on
page 7.
Underwriting
Proceeds to
Discounts and
Proceeds to
Selling
Price to Public
Commissions
Ultra Clean
Stockholder
$
$
$
$
$
$
$
$
Delivery of the shares of common stock will be made on or about , 2004.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Credit Suisse First Boston | JPMorgan |
Banc of America Securities LLC | Piper Jaffray |
The date of this prospectus is , 2004.
Page | ||||
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PROSPECTUS SUMMARY
|
1 | |||
THE OFFERING
|
4 | |||
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
|
5 | |||
RISK FACTORS
|
7 | |||
FORWARD-LOOKING STATEMENTS
|
18 | |||
USE OF PROCEEDS
|
19 | |||
DIVIDEND POLICY
|
19 | |||
CAPITALIZATION
|
20 | |||
DILUTION
|
21 | |||
SELECTED CONSOLIDATED FINANCIAL DATA
|
23 | |||
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
25 | |||
BUSINESS
|
39 | |||
MANAGEMENT
|
49 | |||
PRINCIPAL AND SELLING STOCKHOLDERS
|
58 | |||
CERTAIN RELATIONSHIPS AND RELATED PARTY
TRANSACTIONS
|
61 | |||
SHARES ELIGIBLE FOR FUTURE SALE
|
64 | |||
DESCRIPTION OF CAPITAL STOCK
|
66 | |||
MATERIAL U.S. FEDERAL TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS OF COMMON STOCK
|
68 | |||
UNDERWRITING
|
70 | |||
NOTICE TO CANADIAN RESIDENTS
|
73 | |||
LEGAL MATTERS
|
74 | |||
EXPERTS
|
74 | |||
WHERE YOU CAN FIND ADDITIONAL INFORMATION
|
74 | |||
INDEX TO FINANCIAL STATEMENTS
|
F-1 |
You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate as of the date of this document.
Dealer Prospectus Delivery Obligation
Until , 2004 (25 days after the commencement of the offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions.
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. This summary may not contain all of the information that may be important to you. You should read this entire prospectus, including the section entitled Risk Factors and our consolidated financial data and related notes, before making an investment decision. References in this prospectus to Ultra Clean, we, us, our and our company refer to Ultra Clean Holdings, Inc. and Ultra Clean Technology Systems and Service, Inc. unless otherwise specified. The Ultra Clean Technology logo is our registered trademark. In addition, this prospectus contains trademarks, service marks and trade names of companies and organizations other than Ultra Clean Holdings, Inc.
Ultra Clean Holdings, Inc.
We are a developer and supplier of critical subsystems for the semiconductor capital equipment industry, focusing on gas delivery systems. We develop, design, prototype, engineer, manufacture and test gas delivery systems that enable the precise delivery of numerous specialty gases used in a majority of the key steps in the semiconductor manufacturing process. Our products control the flow, pressure, sequencing and mixing of specialty gases into and out of the process chambers of semiconductor manufacturing tools. Our customers are primarily original equipment manufacturers, or OEMs, of semiconductor capital equipment. These OEMs outsource the manufacturing of their gas delivery systems in order to improve the efficiency and reduce the costs of their design and manufacturing processes. Our system designs are reconfigurable and can accommodate different components and additional functionality with each new generation of semiconductor devices. We do not sell standard systems but design and develop each product in collaboration with our customers. We had sales of $84.3 million and $77.5 million for the years ended December 31, 2002 and 2003.
Our Solution
We offer our customers:
A complete outsourced solution for gas delivery systems. We provide our OEM customers with a complete outsourced solution for the development, design, prototyping, engineering, manufacturing and testing of advanced gas delivery systems. Our engineers work with our customers to customize and improve the design and performance of their gas delivery systems, in addition to ensuring that our products comply with applicable safety and environmental regulations and industry standards. We also manage supply chain logistics and perform comprehensive testing and qualification of final gas delivery systems to help our customers improve their manufacturing efficiencies, design-to-delivery cycle times, capital utilization and product operating characteristics.
Improved design-to-delivery cycle times. Our strong relationships with our customers and familiarity with their products and requirements help us to reduce design-to-delivery cycle times. We have optimized our supply chain management, coordination of design and manufacturing stages of production, logistics expertise and manufacturing controls to reduce design-to-delivery cycle times, allowing us to rapidly respond to order requests and quickly reconfigure product designs to meet end-users constantly changing requirements.
Component neutral design and manufacturing. We do not manufacture any of the components used in gas delivery systems and are therefore component neutral. This enables us to optimize overall designs for our customers by recommending the best available components on the basis of technology, performance and cost for incorporation into their gas delivery systems. Our component neutral position also enables us to maintain close relationships with a wide range of component suppliers who view us solely as a customer rather than as a competitor.
Component testing capabilities. We have made significant investments in advanced analytic and automated test equipment and utilize our engineering expertise to test key components that we incorporate into our gas delivery systems. With our component testing capabilities, we can perform diagnostic tests,
1
Our Strategy
Our objective is to be the leading supplier of advanced gas delivery systems that are critical to the semiconductor manufacturing process. Our strategy is comprised of the following key elements:
Increase our market share at existing customers. We believe that a significant market opportunity exists to grow our business with sales to our existing customers by gaining market share from our competitors and by obtaining new business in different product families as our customers continue to outsource their gas delivery system requirements.
Broaden our customer base by expanding our resources and geographical presence. We plan to continue to attract new customers by promoting both the merits of outsourcing by leading OEMs and our own proven ability to meet the demands of OEMs. As we grow our business, we plan to increase our design, engineering and manufacturing capabilities. We believe significant growth opportunities exist in Europe and Asia.
Drive profitable growth with our flexible cost structure. In response to changes in demand for our products, we undertake cost containment initiatives and benefit from our supply chain efficiencies. We believe that we are well positioned to respond to an upturn in our business without significant new capital investment. In addition, we believe we can add additional manufacturing personnel and test equipment to meet increased demand.
Expand into new product markets using our existing expertise. We are committed to expanding beyond gas delivery systems into new product markets such as liquid delivery systems, catalytic steam generation systems and frame assemblies.
Selectively pursue strategic acquisitions. We plan to accelerate the growth of our business by selectively pursuing strategic acquisitions that will enable us to expand our geographic reach, secure new customers, diversify into complementary product markets and broaden our technological capabilities and product offerings.
Risks Associated With Our Business
Our business is subject to numerous risks, which are highlighted in the section entitled Risk Factors immediately following this prospectus summary, including:
| The semiconductor capital equipment industry is highly cyclical, with recurring periods of over-supply of semiconductor products that have caused customer orders for our products to fluctuate significantly from period to period. | |
| We are dependent on a small number of customers for a significant portion of our sales such that any impairment to our customer relationships would adversely affect our business. If these or other customers do not continue to outsource gas delivery systems for their capital equipment, our revenue would be reduced. | |
| We do not have long-term purchase contracts with any of our customers and, as a result, our sales are difficult to forecast. Any significant reductions, cancellations or delays in customer orders could cause our sales to decline and our operating results suffer. | |
| We are dependent on a number of single source and sole source suppliers for many of the components we use in our products. We do not have long-term commitments from any of our suppliers and the loss of any of our key suppliers could negatively affect our operations. | |
| Our industry is highly competitive and rapidly evolving and we must keep pace with technological changes. |
2
| We are controlled by Francisco Partners, L.P. such that our other stockholders will be unable to affect the outcome of stockholder voting. In addition, for so long as Francisco Partners owns at least 25% of our outstanding common stock, it will be able to nominate a majority of the members of our board of directors. |
Our History
Our business dates back to 1991 when Mitsubishi Corporation founded Ultra Clean Technology Systems and Service, Inc. Our business was operated as a subsidiary of Mitsubishi until November 2002. It was then acquired by Ultra Clean Holdings, Inc., which we refer to as the Ultra Clean acquisition. Ultra Clean Holdings, Inc. is owned by FP-Ultra Clean LLC (95.2%), a wholly-owned subsidiary of Francisco Partners, L.P., and by some of our key employees (4.8%). After completion of this offering, FP-Ultra Clean, LLC will own approximately 44.4% of our outstanding common stock, assuming no exercise of the underwriters over-allotment option. We conduct our operating activities primarily through Ultra Clean Technology Systems and Service, Inc., our wholly-owned subsidiary.
Our principal executive offices are located at 150 Independence Drive, Menlo Park, California 94025 and our telephone number is (650) 323-4100. We maintain a web site at www.uct.com. The information on our web site is not part of this prospectus.
3
THE OFFERING
Common stock offered by us | 7,000,000 shares | |
Common stock offered by
the selling stockholder |
2,100,000 shares | |
Common stock outstanding
after the offering |
17,245,395 shares | |
Over-allotment option granted
by the selling stockholder |
1,365,000 shares | |
Use of proceeds | We estimate that our net proceeds from this offering, after deducting the underwriting discount and estimated offering expenses, including a $2.0 million advisory fee payable to Francisco Partners, will be approximately $67.8 million. We expect to use the net proceeds to redeem $29.3 million of our 5% Series A Senior Notes due 2009, which we refer to as our Series A Senior Notes, held by FP-Ultra Clean, LLC, our principal stockholder, and $1.3 million of our Series A Senior Notes held by some of our key employees, plus accrued interest. We intend to use the remainder of the net proceeds for working capital and general corporate purposes. We may also use a portion of the net proceeds to acquire complementary businesses or technologies, although we have no current agreements or commitments with respect to any specific acquisition. We will not receive proceeds from the sale of shares by the selling stockholder or any exercise of the underwriters over-allotment option. See Use of Proceeds. | |
Nasdaq National Market symbol | UCTT | |
The common stock outstanding immediately after the offering is based on 10,245,395 shares outstanding as of December 31, 2003, and excludes:
| 1,055,250 shares subject to options outstanding as of December 31, 2003, at a weighted average exercise price of $1.00 per share; | |
| 110,000 shares subject to options granted since December 31, 2003, at an exercise price of $11.00 per share; | |
| 62,500 shares of restricted common stock granted in March 2004 under our Amended and Restated 2003 Stock Incentive Plan; | |
| 1,889,677 shares available for future issuance under our Amended and Restated 2003 Stock Incentive Plan, 100,750 of which will be subject to options to be granted to some of our employees upon completion of this offering at an exercise price equal to the initial public offering price; and | |
| 555,343 shares reserved for issuance under our Employee Stock Purchase Plan. |
Except as otherwise indicated, all information in this prospectus assumes:
| a one for four reverse stock split that was effected on March 2, 2004; | |
| the redemption of $30.6 million aggregate principal amount of our Series A Senior Notes, plus accrued interest, with a portion of the net proceeds of this offering; and | |
| no exercise of the underwriters over-allotment option. |
4
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following table presents our summary
consolidated financial information. You should read this
information together with the Selected Consolidated
Financial Information, our consolidated financial
statements and related notes and Managements
Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this prospectus. Ultra
Clean Holdings, Inc. (Ultra Clean) was incorporated in October
2002 for the purpose of acquiring Ultra Clean Technology Systems
and Service, Inc. (Predecessor) from Mitsubishi and did not have
any significant operations prior to the Ultra Clean acquisition
on November 15, 2002. Summary financial data for the
periods prior to the Ultra Clean acquisition on
November 15, 2002 are derived from the financial statements
of Predecessor. The following financial information may not be
indicative of our future performance.
Predecessor
Jan. 1,
Nov. 16,
2002
2002
Years Ended December 31,
through
through
Year Ended
Nov. 15,
Dec. 31,
Dec. 31,
1999
2000
2001
2002
2002
2003
(amounts in thousands, except per share amounts)
$
39,574
$
83,001
$
76,486
$
76,338
$
7,916
$
77,520
32,878
68,242
66,129
66,986
7,972
67,313
6,696
14,759
10,357
9,352
(56
)
10,207
399
518
613
634
99
1,155
1,054
1,241
1,302
1,586
332
2,276
2,600
3,746
3,127
6,626
962
4,978
889
4,053
5,505
5,042
8,846
2,282
8,409
2,643
9,254
5,315
506
(2,338
)
1,798
(708
)
(687
)
(436
)
(170
)
(182
)
(1,458
)
(4
)
(6
)
(4
)
(708
)
(687
)
(440
)
(176
)
(178
)
(1,458
)
1,935
8,567
4,875
330
(2,516
)
340
(172
)
136
(1,981
)
(642
)
667
(232
)
$
1,763
$
8,703
$
2,894
$
(312
)
$
(1,849
)
$
108
$
0.48
$
2.36
$
0.79
$
(0.08
)
$
(0.21
)
$
0.01
$
0.40
$
1.95
$
0.64
$
(0.08
)
$
(0.21
)
$
0.01
3,680
3,680
3,680
3,680
8,668
9,976
4,421
4,467
4,535
3,680
8,668
10,711
5
December 31, 2003
Actual
As Adjusted
(unaudited)
(amounts in thousands)
$
6,035
$
42,870
17,519
54,354
50,155
86,990
558
558
30,013
8,320
75,168
The preceding table presents a summary of our balance sheet data as of December 31, 2003:
| on an actual basis; and | |
| on an as adjusted basis to give effect to: |
| the sale by us of 7,000,000 shares of common stock in this offering at an assumed initial public offering price of $11.00 per share, after deducting the underwriting discount and estimated offering expenses payable by us, including a $2.0 million advisory fee payable to Francisco Partners; and | |
| the redemption of $30.6 million aggregate principal amount of our Series A Senior Notes, plus accrued interest, with a portion of the net proceeds of this offering. |
See note 1 of our consolidated financial statements for an explanation of the determination of the number of shares used in computing per share data.
6
RISK FACTORS
You should carefully consider the risks and uncertainties described below before making an investment decision. If any of the events or circumstances described below actually occur, our business, financial condition and results of operations could suffer, the trading price of our common stock could decline and you may lose part or all of your investment.
Risks Related to Our Business
The highly cyclical nature of the semiconductor industry and general economic slowdowns could harm our operating results.
Our business and operating results depend in significant part upon capital expenditures by manufacturers of semiconductors, which in turn depend upon the current and anticipated market demand for semiconductors. Historically, the semiconductor industry has been highly cyclical, with recurring periods of over-supply of semiconductor products that have had a severe negative effect on the demand for capital equipment used to manufacture semiconductors. During these periods, we have experienced significant fluctuations in customer orders for our products. Our sales were $76.5 million in 2001, $84.3 million in 2002 and $77.5 million in 2003. Historically, semiconductor industry slowdowns have had, and future slowdowns may have, a material adverse effect on our operating results.
In addition, the uncertainty regarding the growth rate of economies throughout the world has caused companies to reduce capital investment and may cause further reduction of such investments. These reductions have been particularly severe in the semiconductor capital equipment industry. A potential rebound in the worldwide economy in the near future will not necessarily mean that our business will experience similar effects. Moreover, if the worldwide economy does not rebound in the near future, our business may be further harmed.
Our quarterly revenue and operating results fluctuate significantly from period to period and this may cause volatility in our common stock price.
Our quarterly revenue and operating results have fluctuated significantly in the past and we expect them to continue to fluctuate in the future for a variety of reasons, including:
| demand for and market acceptance of our products as a result of the cyclical nature of the semiconductor industry or otherwise, often resulting in reduced sales during industry downturns and increased sales during periods of industry recovery; | |
| changes in the timing and size of orders by our customers; | |
| cancellations of previously placed orders; | |
| pricing pressure from either our competitors or our customers, resulting in the reduction of our product prices; | |
| disruptions or delays in the manufacturing of our products or in the supply of components or raw materials that we incorporate into or use to manufacture our products, thereby causing us to delay the shipment of our products; | |
| changes in design-to-delivery cycle times; | |
| our inability to quickly reduce our costs in response to decreased demand for our products, as our costs are relatively fixed in the short-term; | |
| changes in our mix of products sold; | |
| write-offs of excess or obsolete inventory; and | |
| announcements by our competitors of new products, services or technological innovations, which may, among other things, render our products less competitive. |
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As a result of the foregoing, we believe that quarter-to-quarter comparisons of our revenue and operating results may not be meaningful, and that these comparisons may not be an accurate indicator of our future performance. Changes in the timing or terms of a small number of transactions could disproportionately affect our operating results in any particular quarter. Moreover, our operating results in one or more future quarters may fail to meet the expectations of securities analysts or investors. If this occurs, we would expect to experience an immediate and significant decline in the trading price of our common stock.
We rely on a small number of customers for a significant portion of our sales, and any impairment of our relationships with these customers would adversely affect our business.
A relatively small number of OEM customers have historically accounted for a significant portion of our sales, and we expect this trend to continue. Applied Materials, Inc. and Novellus Systems, Inc. together accounted for 91% of our sales in 2001. Applied Materials, Inc., Novellus Systems, Inc. and Lam Research Corporation as a group accounted for 98% of our sales in 2002 and 92% of our sales in 2003. Because of the small number of OEMs in our industry, most of whom are already our customers, it would be difficult to replace lost revenue resulting from the loss of, or the reduction, cancellation or delay in purchase orders by, any one of these customers. Consolidation among our customers may further concentrate our business in a limited number of customers and expose us to increased risks relating to dependence on a small number of customers. In addition, any significant pricing pressure exerted by a key customer could adversely effect our operating results.
We have had to qualify, and are required to maintain our status, as a supplier for each of our customers. This is a lengthy process that involves the inspection and approval by a customer of our engineering, documentation, manufacturing and quality control procedures before that customer will place volume orders. Attempts to lessen the adverse effect of any loss of or reduction in sales to an existing customer through the rapid addition of one or more new customers would be difficult because of these qualification requirements. Consequently, our business, operating results and financial condition would be adversely affected by the loss of, or any reduction in orders by, any of our significant customers.
Because we are subject to order and shipment uncertainties, any significant reductions, cancellations or delays in customer orders could cause our revenue to decline and our operating results to suffer.
Our revenue is difficult to forecast because we generally do not have a material backlog of unfilled orders and because of the short time frame within which we are often required to design, produce and deliver products to our customers. Most of our revenue in any quarter depends on customer orders for our products that we receive and fulfill in the same quarter. We do not have long-term purchase orders or contracts that contain minimum purchase commitments from our customers. Instead, we receive non-binding forecasts of the future volume of orders from our customers. At times, we order and build component inventory in advance of the receipt of actual customer orders. Customers may cancel order forecasts, change production quantities from forecasted volumes or delay production for reasons beyond our control. Furthermore, reductions, cancellations or delays in customer order forecasts occur without penalty to or compensation from the customer. Reductions, cancellations or delays in forecasted orders could cause us to hold inventory for longer than anticipated, which could reduce our gross profit, restrict our ability to fund our operations and cause us to incur unanticipated reductions or delays in revenue. If we do not obtain orders as we anticipate, we could have excess component inventory for a specific product that we would not be able to sell to another customer, likely resulting in inventory write-offs, which could have a material adverse affect on our business, financial condition and operating results. In addition, because many of our costs are fixed in the short-term, we could experience deterioration in our gross profit when our production volumes decline.
8
The manufacturing of our products is highly complex, and if we are not able to effectively manage our manufacturing and procurement process, our business and operating results would suffer.
The manufacturing of our products is a highly complex process that involves the integration of multiple components and requires effective management of our supply chain while meeting our customers design-to-delivery cycle time requirements. Through the course of the manufacturing process, our customers may modify design and system configurations in response to changes in their own customers requirements. In order to rapidly respond to these modifications and deliver our products to our customers in a timely manner, we must effectively manage our manufacturing and procurement process. If we fail to effectively manage this process, we risk losing customers and damaging our reputation which could limit our growth and have a material adverse affect on our business, financial condition and operating results.
OEMs may not continue to outsource subsystem manufacturing for their capital equipment which could adversely impact our operating results.
The success of our business depends on OEMs continuing to outsource the manufacturing of gas delivery systems for their semiconductor capital equipment. Most of the largest OEMs have already outsourced a significant portion of their gas delivery systems. If OEMs do not continue to outsource gas delivery systems for their capital equipment, our revenue would be reduced, which could have a material adverse affect on our business, financial condition and operating results. In addition, if we are unable to obtain additional business as OEMs outsource their production of gas delivery systems, our business, financial condition and operating results could be adversely affected.
We may experience a variety of difficulties and incur a variety of costs as a result of acquisitions of companies or technologies, and the anticipated benefits of any such acquisitions may never be realized.
We may make acquisitions of, or significant investments in, complementary companies or technologies, although no acquisitions or investments are currently pending. Any future acquisitions would be accompanied by risks such as:
| difficulties in assimilating the operations and personnel of acquired companies; | |
| difficulties in integrating information systems of acquired companies; | |
| diversion of our managements attention from ongoing business concerns; | |
| our potential inability to maximize our financial and strategic position through the successful incorporation of acquired technology into our products; | |
| additional expense associated with amortization of depreciation of acquired assets; | |
| maintenance of uniform standards, controls, procedures and policies; | |
| impairment of existing relationships with employees, suppliers and customers as a result of the integration of new personnel; | |
| dilution to our stockholders in the event we issue stock as consideration to finance an acquisition; and | |
| increased leverage if we incur debt to finance an acquisition. |
We may not be able to successfully integrate any business, products, technologies or personnel that we might acquire in the future, and our failure to do so could have a material adverse affect on our business, financial condition and operating results.
If we do not keep pace with developments in the semiconductor industry, and with technological innovation generally, our products may not be competitive.
Rapid technological innovation in semiconductor manufacturing processes requires the semiconductor capital equipment industry to anticipate and respond quickly to evolving customer requirements and could
9
The timely development of new or enhanced products is a complex and uncertain process which requires that we:
| design innovative and performance-enhancing features that differentiate our products from those of our competitors; | |
| identify emerging technological trends in the semiconductor industry, including new standards for our products; | |
| accurately identify and design new products to meet market needs; | |
| collaborate with OEMs to design and develop products on a timely and cost-effective basis; | |
| successfully manage development production cycles; and | |
| respond effectively to technological changes or product announcements by others. |
The industry in which we participate is highly competitive and rapidly evolving, and if we are unable to compete effectively, our operating results would be harmed.
Our industry is highly competitive and rapidly evolving. Our competitors are primarily companies that design and manufacture gas delivery systems for semiconductor capital equipment. Although we have not faced competition in the past from the largest subsystem and component manufacturers in the semiconductor capital equipment industry, these suppliers could compete with us in the future. Increased competition has in the past resulted, and could in the future result, in price reductions, reduced gross margins or loss of market share, any of which would harm our operating results. We are currently experiencing pricing pressure as we attempt to increase market share with our existing customers. Competitors may introduce new products for the markets currently served by our products. These products may have better performance, lower prices and achieve broader market acceptance than our products. Further, OEMs typically own the design rights to their products and may provide these designs to subsystem manufacturers. If our competitors obtain proprietary rights to these designs such that we are unable to obtain the designs necessary to manufacture products for our OEM customers, our business, financial condition and operating results could be adversely affected.
Our competitors may have greater financial, technical, manufacturing and marketing resources than we do. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements, devote greater resources to the development, promotion, sale and support of their products, and reduce prices to increase market share. Moreover, there may be merger and acquisition activity among our competitors and potential competitors that may provide our competitors and potential competitors with an advantage over us by enabling them to expand their product offerings and service capabilities to meet a broader range of customer needs. Further, if one of our customers develops or acquires the internal capability to develop and produce gas delivery systems, the loss of that customer could have a material adverse affect on our business, financial condition and operating results. The introduction of new technologies and new market entrants may also increase competitive pressures.
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We must achieve design wins to retain our existing customers and to obtain new customers.
New semiconductor capital equipment typically has a lifespan of several years, and OEMs frequently specify which systems, subassemblies, components and instruments are to be used in their equipment. Once a specific system, subassembly, component or instrument is incorporated into a piece of semiconductor capital equipment, it will likely continue to be incorporated into that piece of equipment for a period of at least several months before the OEM uses the product of another supplier. Accordingly, it is important that our products are designed into the new semiconductor capital equipment of OEMs, which we refer to as a design win, in order to retain our competitive position with existing customers and to obtain new customers.
We incur technology development and sales expenses with no assurance that our products will ultimately be designed into an OEMs semiconductor capital equipment. Further, developing new customer relationships, as well as increasing our market share at existing customers, requires a substantial investment of our sales, engineering and management resources without any assurance from prospective customers that they will place significant orders. We believe that OEMs often select their suppliers and place orders based on long-term relationships. Accordingly, we may have difficulty achieving design wins from OEMs that are not currently our customers. Our operating results and potential growth could be adversely affected if we fail to achieve design wins with leading OEMs.
We have experienced significant growth in our business in recent periods, and we may not be able to manage our future growth successfully.
Our ability to successfully execute our business plan in a rapidly evolving market requires an effective planning and management process. We have increased, and plan to continue to increase, the scope of our operations. Due to the cyclical nature of the semiconductor industry, however, future growth is difficult to predict. Future expansion efforts could be expensive and may strain our managerial and other resources. To manage future growth effectively, we must maintain and enhance our financial and operating systems and controls and manage expanded operations. The number of people we employ has grown and we expect this number to continue to grow in the near term. As of December 31, 2001 we had 130 employees, as of December 31, 2003 we had 229 employees, and as of February 23, 2004 we had 288 employees. The addition and training of new employees may lead to short-term quality control problems and place increased demands on our management and experienced personnel. If we do not manage growth properly, our business, operating results and financial condition would be adversely affected.
We will incur increased costs as a result of being a public company.
We will face increased legal, accounting, administrative and other costs and expenses as a public company that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the Securities and Exchange Commission, the Public Company Accounting Oversight Board and The Nasdaq National Market, have required changes in the corporate governance practices of public companies. We expect these new rules and regulations to increase our legal and financial compliance costs and to make legal, accounting and administrative activities more time-consuming and costly. For example, as a result of becoming a public company, we plan to add two additional independent directors, create additional committees of our board of directors and adopt policies regarding internal controls and disclosure controls and procedures. We also expect to incur substantially higher costs to obtain directors and officers insurance. We cannot estimate the amount of additional costs we may incur or the timing of such costs.
We may not be able to respond quickly enough to increases in demand for our products.
Demand shifts in the semiconductor industry are rapid and difficult to predict, and we may not be able to respond quickly enough to an increase in demand. Our ability to increase sales of our products depends, in part, upon our ability to:
| mobilize our supply chain in order to maintain component and raw material supply; |
11
| optimize the use of our design, engineering and manufacturing capacity in a timely manner; | |
| deliver our products to our customers in a timely fashion; | |
| expand, if necessary, our manufacturing capacity; and | |
| maintain our product quality as we increase production. |
If we are unable to respond to rapid increases in demand for our products on a timely basis or to manage any corresponding expansion of our manufacturing capacity effectively, our customers could increase their purchases from our competitors, which would adversely affect our business.
Our dependence on our suppliers may prevent us from delivering an acceptable product on a timely basis.
We rely on both single source and sole source suppliers, some of whom are relatively small in size, for many of the components we use in our products. In addition, our customers often specify components made by particular suppliers that we must incorporate into their products. Our suppliers are under no obligation to provide us with components. As a result, the loss of or failure to perform by any of these providers could adversely affect our business and operating results. In addition, the manufacturing of certain components and subassemblies is an extremely complex process. Therefore, if a supplier was unable to provide the volume of components we require on a timely basis and at acceptable prices, we would have to identify and qualify replacements from alternative sources of supply. The process of qualifying new suppliers for these complex components is lengthy and could delay our production and adversely affect our business, operating results and financial condition. We may also experience difficulty in obtaining sufficient supply of components and raw materials in times of significant growth in our business. For example, we have recently experienced shortages in supplies of various components, such as mass flow controllers, valves and regulators, and certain prefabricated parts, such as sheet metal enclosures, used in the manufacture of our products. In addition, one of our competitors manufactures mass flow controllers that may be specified by one or more of our customers. If we are unable to obtain these particular mass flow controllers from our competitor or convince a customer to select alternative mass flow controllers, we may be unable to meet that customers requirements.
The technology labor market is very competitive, and our business will suffer if we are unable to hire and retain key personnel.
Our future success depends in part on the continued service of our key executive officers, as well as our research, engineering, sales, manufacturing and administrative personnel, most of whom are not subject to employment or non-competition agreements. In addition, competition for qualified personnel in the technology industry is intense, and we operate in geographic locations in which labor markets are particularly competitive. Our business is particularly dependent on expertise which only a very limited number of engineers possess. The loss of any of our key employees, including Clarence L. Granger, our Chief Executive Officer, Bruce Wier, our Vice President of Engineering, Deborah Hayward, our Vice President of Sales, and Sowmya Krishnan, our Vice President of Technology, or the failure to attract and retain new qualified employees, would adversely affect our business, operating results and financial condition.
Defects in our products could damage our reputation, decrease market acceptance of our products, cause the unintended release of hazardous materials and result in potentially costly litigation.
A number of factors, including design flaws, material and component failures, contamination in the manufacturing environment, impurities in the materials used and unknown sensitivities to process conditions, such as temperature and humidity, as well as equipment failures, may cause our products to contain undetected errors or defects. Problems with our products may:
| cause delays in product introductions and shipments; | |
| result in increased costs and diversion of development resources; |
12
| cause us to incur increased charges due to unusable inventory; | |
| require design modifications; | |
| decrease market acceptance of, or customer satisfaction with, our products, which could result in decreased sales and product returns; or | |
| result in lower yields for semiconductor manufacturers. |
If any of our products contain defects or have reliability, quality or compatibility problems, our reputation might be damaged and customers might be reluctant to buy our products. We may also face a higher rate of product defects as we increase our production levels. Product defects could result in the loss of, or impair our ability to attract, customers. In addition, we may not find defects or failures in our products until after they are installed in a semiconductor manufacturers fabrication facility. We may have to invest significant capital and other resources to correct these problems. Our current or potential customers also might seek to recover from us any losses resulting from defects or failures in our products. Hazardous materials flow through and are controlled by our products and an unintended release of these materials could result in serious injury or death. Liability claims could require us to spend significant time and money in litigation or pay significant damages.
Our business is largely dependent on the know-how of our employees, and we generally do not have a protected intellectual property position.
Our business is largely dependent upon our design, engineering, manufacturing and testing know-how. We rely on a combination of trade secrets and contractual confidentiality provisions, and to a much lesser extent, patents, copyrights and trademarks, to protect our proprietary rights. Accordingly, our intellectual property position is more vulnerable than it otherwise would be if it were protected by issued patents. If we fail to successfully protect our proprietary rights, our competitive position could suffer, which could harm our operating results. We may be required to spend significant resources to monitor and protect our proprietary rights. In addition, we may not be able to detect infringement of our proprietary rights and may lose our competitive position in the market if any such infringement occurs. In addition, competitors may design around our technology or develop competing technologies and know-how.
Third parties may claim we are infringing their intellectual property which could subject us to litigation or licensing expenses, and we may be prevented from selling our products if any such claims prove successful.
While we are not aware of any claims by third parties that we are infringing their intellectual property rights, we may be subject to such claims in the future. In addition, we may be unaware of intellectual property rights of others that may be applicable to our products. Any litigation regarding patents or other intellectual property could be costly and time-consuming and divert our management and key personnel from our business operations. The complexity of the technology involved in our products and the uncertainty of intellectual property litigation increase these risks. Claims of intellectual property infringement may also require us to enter into costly license agreements. However, we may not be able to obtain licenses on terms acceptable to us, or at all. We also may be subject to significant damages or injunctions against the development and sale of certain of our products if any such claims prove successful.
Our historical financial information may not be representative of our results as a stand-alone entity.
From 1991 through 2002, we operated as a subsidiary of Mitsubishi Corporation. During that period, Mitsubishi provided us with financing. Accordingly, the historical financial information included in this prospectus does not necessarily reflect what our financial position, operating results and cash flows will be in the future or what they would have been had we been a separate, stand-alone entity during the periods in which we were owned by Mitsubishi. Furthermore, as a stand-alone entity, we will need to obtain any required funding from third parties.
13
We may not be able to fund our future capital requirements from our operations, and financing from other sources may not be available on favorable terms or at all.
We made capital expenditures of $0.6 million in 2001, $1.8 million in 2002 and $0.5 million in 2003. The amount of our future capital requirements will depend on many factors, including:
| the cost required to ensure access to adequate manufacturing capacity; | |
| the timing and extent of spending to support product development efforts; | |
| the timing of introductions of new products and enhancements to existing products; | |
| changing manufacturing capabilities to meet new customer requirements; and | |
| market acceptance of our products. |
To the extent that existing cash, together with any cash from operations, are insufficient to fund our future activities, we may need to raise additional funds through public or private equity or debt financing. Future equity financings could be dilutive to holders of our common stock, and debt financings could involve covenants that restrict our business operations. If we cannot raise funds on acceptable terms, if and when needed, we may not be able to develop or enhance our products, take advantage of future opportunities, grow our business or respond to competitive pressures or unanticipated requirements, any of which could adversely affect our business, operating results and financial condition.
If environmental contamination were to occur in one of our manufacturing facilities, we could be subject to substantial liabilities.
We use substances regulated under various federal, state and local environmental laws in our manufacturing facilities. Our failure or inability to comply with existing or future environmental laws could result in significant remediation liabilities, the imposition of fines or the suspension or termination of the production of our products. In addition, we may not be aware of all environmental laws or regulations that could subject us to liability.
If our facilities were to experience catastrophic loss due to natural disasters, our operations would be seriously harmed.
Our facilities could be subject to a catastrophic loss caused by natural disasters, including fires and earthquakes. We have facilities in areas with above average seismic activity, such as our manufacturing and headquarters facilities in Menlo Park, California. If any of our facilities were to experience a catastrophic loss, it could disrupt our operations, delay production and shipments, reduce revenue and result in large expenses to repair or replace the facility. In addition, we have in the past experienced, and may in the future experience, extended power outages at our Menlo Park, California facilities. We do not carry insurance policies which cover potential losses caused by earthquakes or other natural disasters or power loss.
Threatened or actual terrorist attacks may negatively impact our business and cause our stock price to decline.
Future threatened or actual terrorist attacks against United States targets or military or trade disruptions impacting our component suppliers may cause delays or loss of customer orders. More generally, any of these events could cause consumer confidence and spending to decrease or result in increased volatility in United States and worldwide financial markets. These events could also result in further economic recession in the United States or abroad. Any of these occurrences would have an adverse impact on our business, operating results and financial condition.
14
Risks Related to Our Ownership by Francisco Partners
We will be controlled by FP-Ultra Clean, LLC as long as it owns a significant percentage of our common stock, and our other stockholders will be unable to affect the outcome of stockholder voting during such time.
After the completion of this offering, Francisco Partners, through its membership interests in FP-Ultra Clean, LLC, will beneficially own approximately 44.4% of our outstanding common stock, or approximately 36.4% if the underwriters exercise in full their over-allotment option to purchase additional shares. Pursuant to a stockholders agreement, our principal stockholder, FP-Ultra Clean, LLC, which is controlled by Francisco Partners, has the right, to nominate for election a majority of the members of our board of directors for so long as it holds at least 25% of our outstanding common stock.
The stockholders agreement also provides that our board of directors may not take certain significant actions without the approval of FP-Ultra Clean, LLC as long as it owns at least 25% of our outstanding common stock. These actions include:
| mergers, acquisitions or certain sales of assets; | |
| any liquidation, dissolution or bankruptcy; | |
| issuances of securities; | |
| determination of compensation and benefits for our chief executive officer and chief financial officer; | |
| appointment or dismissal of any of the chairman of our board of directors, chief executive officer, chief financial officer or any other executive officer in any similar capacity; | |
| amendments to the stockholders agreement or exercise or waiver of rights under the stockholders agreement; | |
| amendments to our charter or bylaws; | |
| any increase or decrease in the number of directors that comprise our board of directors; | |
| the declaration of dividends or other distributions; | |
| any incurrence or refinancing of indebtedness in excess of $10 million; | |
| approval of our business plan, budget and strategy; and | |
| modification of our long-term business strategy. |
Such power could have the effect of delaying, deterring or preventing a change of control, business combination or other transaction that might otherwise be beneficial to our stockholders. FP-Ultra Clean, LLC also is not prohibited from selling a controlling interest in us to a third party or a participant in our industry. For additional information regarding our relationship with FP-Ultra Clean, LLC, you should read the section of this prospectus entitled Certain Relationships and Related Party Transactions.
FP-Ultra Clean, LLC and its designees on our board of directors may have interests that conflict with our interests and the interests of our other stockholders.
FP-Ultra Clean, LLC and its designees on our board of directors may have interests that conflict with, or are different from, our own and those of our other stockholders. Francisco Partners, which will be the beneficial holder of 44.4% of our outstanding common stock after completion of this offering, assuming no exercise of the underwriters over-allotment option, through its membership interests in FP-Ultra Clean, LLC, has invested in or acquired other businesses that are involved in the semiconductor industry and may invest in or acquire others in the future. Conflicts of interest between FP-Ultra Clean, LLC and us or our other stockholders may arise. Our amended and restated certificate of incorporation to be effective upon the completion of this offering does not contain any provisions designed to facilitate resolution of actual or
15
Risks Related to the Securities Markets and Ownership of Our Common Stock
Future sales of our common stock by existing stockholders could depress our stock price.
Sales of substantial amounts of our common stock by FP-Ultra Clean, LLC, or the perception that these sales might occur, may depress prevailing market prices of our common stock. All of our outstanding shares are subject to lock-up agreements with the underwriters as described in Underwriting that prohibit the resale of these shares for 180 days from the date of this prospectus, although the underwriters may release all or a portion of the shares subject to lock-up agreements at any time without notice. The shares owned by FP-Ultra Clean, LLC have the benefit of an agreement with us that provides for customary demand and piggyback registration rights. Upon expiration of the 180-day lock-up period, in addition to the shares owned by FP-Ultra Clean, LLC that may be sold under a registration statement, shares underlying exercisable options to purchase our common stock will be available for resale without restriction or further registration under the Securities Act.
Our securities have no prior trading history, and we cannot assure you that our stock price will not decline after the offering.
Prior to this offering, there was no public market for our common stock, and an active public market for our common stock may not develop or be sustained after this offering. The market price of our common stock could be subject to significant fluctuations after this offering. Among the factors that could affect our stock price are:
| quarterly variations in our operating results; | |
| our ability to successfully introduce new products and manage new product transitions; | |
| changes in revenue or earnings estimates or publication of research reports by analysts; | |
| speculation in the press or investment community; | |
| strategic actions by us or our competitors, such as acquisitions or restructurings; | |
| announcements relating to any of our key customers, significant suppliers or the semiconductor manufacturing and capital equipment industry generally; | |
| general market conditions; and | |
| domestic and international economic factors unrelated to our performance. |
The stock markets in general, and the markets for technology stocks in particular, have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock. In particular, we cannot assure you that you will be able to resell your shares at or above the initial public offering price, which will be determined by negotiations between the representatives of the underwriters and us.
16
We have broad discretion in how we use a portion of the net proceeds of this offering, and we may not use these proceeds in a manner desired by our stockholders.
We do not currently have a specific plan with respect to the use of a significant portion of the net proceeds of this offering and have not committed these proceeds to any particular purpose. After deducting the underwriting discount and estimated offering expenses, including a $2.0 million advisory fee payable to Francisco Partners, we expect to use the net proceeds to redeem $29.3 million of our Series A Senior Notes held by FP-Ultra Clean LLC and $1.3 million of our Series A Senior Notes held by some of our key employees, plus accrued interest. We plan to use the balance of the net proceeds of this offering primarily for working capital and general corporate purposes. We may also use a portion of the net proceeds to acquire complementary businesses or technologies, although we have no current agreements or commitments with respect to any specific acquisition. Our management will have broad discretion with respect to the use of the net proceeds and investors will be relying on the judgment of our management regarding the application of these proceeds. Our management could spend these proceeds in ways which our stockholders may not desire or that do not yield a favorable return. You will not have the opportunity, as part of your investment in our common stock, to influence the manner in which the net proceeds of this offering are used.
Provisions of our charter documents could discourage potential acquisition proposals and could delay, deter or prevent a change in control.
In addition to the provisions of our stockholders agreement with FP-Ultra Clean, LLC described above, the provisions of our amended and restated certificate of incorporation and by-laws to be effective on the completion of this offering could deter, delay or prevent a third party from acquiring us, even if doing so would benefit our stockholders. These provisions include:
| a requirement that special meetings of stockholders may be called only by our board of directors, the chairman of our board of directors, our president or our secretary; | |
| advance notice requirements for stockholder proposals and director nominations; and | |
| the authority of our board of directors to issue, without stockholder approval, preferred stock with such terms as our board of directors board may determine. |
You will incur immediate and substantial dilution.
The initial public offering price is substantially higher than the net book value per share of our outstanding common stock. As a result, if you purchase shares in this offering, you will incur immediate and substantial dilution, which would have been $7.55 per share as of December 31, 2003. In addition, as of December 31, 2003, options to purchase a total of 1,055,250 shares of common stock were outstanding, at a weighted average exercise price of $1.00 per share. To the extent these options are exercised, you will incur further dilution. See Dilution for a more complete description of the dilution that you will incur.
17
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements which reflect our current views with respect to future events and financial performance. In this prospectus, we use words such as anticipates, believes, plans, expects, future, intends, may, will, should, estimates, predicts, potential, continue and similar expressions to identify these forward-looking statements. This prospectus also contains forward-looking statements attributed to third parties relating to their estimates regarding the growth of our markets. All forward-looking statements address matters that involve risks and uncertainties. Accordingly, you should not rely on forward-looking statements in this prospectus, as there are or will be important factors that could cause our actual results, as well as those of the markets we serve, levels of activity, performance, achievements and prospects to differ materially from the results predicted or implied by these forward-looking statements. These risks, uncertainties and other factors include, among others, those identified in Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this prospectus. We undertake no obligation to publicly update or review any forward-looking statements, whether as a result of new information, future developments or otherwise.
18
USE OF PROCEEDS
We estimate that our net proceeds from this offering, after deducting the underwriting discount and estimated offering expenses, including a $2.0 million advisory fee payable to Francisco Partners, will be approximately $67.8 million, based on an assumed initial public offering price of $11.00 per share. We expect to use the net proceeds to redeem $29.3 million of our Series A Senior Notes held by FP-Ultra Clean, LLC and $1.3 million of our Series A Senior Notes held by some of our key employees, plus accrued interest. Our Series A Senior Notes bear interest at a rate of 5% per annum and mature on November 15, 2009. We intend to use the remainder of the net proceeds for working capital and general corporate purposes. We may also use a portion of the net proceeds to acquire complementary businesses or technologies, although we have no current agreements or commitments with respect to any specific acquisition. We will have discretion in the use of a significant portion of the net proceeds we receive from this offering. Investors will be relying on the judgment of our management regarding the application of those net proceeds. In addition, any investments, capital expenditures, cash acquisitions or other application of our proceeds may not produce the anticipated results. Pending use of these proceeds as discussed above, we intend to invest these funds in short-term, interest-bearing investment-grade obligations. We will not receive any proceeds from the sale of shares by the selling stockholder or any exercise of the underwriters over-allotment option.
DIVIDEND POLICY
We have not paid any cash dividends on our common stock since the Ultra Clean acquisition. We intend to retain any future earnings to fund the development and growth of our business and do not anticipate paying any cash dividends in the foreseeable future. Any determination to pay dividends in the future will be at the discretion of our board of directors and, under the terms of our stockholders agreement, will require the approval of FP-Ultra Clean, LLC for as long as it holds at least 25% of our common stock. In addition, our revolving credit facility prohibits us from paying cash dividends on our common stock.
19
CAPITALIZATION
The following table sets forth our long-term debt and capitalization as of December 31, 2003.
Our capitalization is presented:
| on an actual basis; and | |
| on an as adjusted basis to reflect: |
| the sale by us of 7,000,000 shares of common stock in this offering at an assumed initial public offering price of $11.00 per share; | |
| the application of the net proceeds from the sale of the shares of common stock by us in this offering, after deducting the underwriting discount and estimated offering expenses, including a $2.0 million advisory fee payable to Francisco Partners, to redeem $29.3 million of our Series A Senior Notes held by FP-Ultra Clean, LLC and $1.3 million of our Series A Senior Notes held by some of our key employees, plus accrued interest, as described in Use of Proceeds; and | |
| the one for four reverse stock split that was effected on March 2, 2004. |
You should read the information set forth below together with the Selected Consolidated Financial Information, our consolidated financial statements and the related notes and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this prospectus.
December 31, 2003 | |||||||||||
|
|||||||||||
Actual | As Adjusted | ||||||||||
|
|
||||||||||
(unaudited) | |||||||||||
(in thousands, except | |||||||||||
share and per share data) | |||||||||||
Long-term debt:
|
|||||||||||
5% Series A Senior Notes due 2009
|
$ | 30,013 | $ | | |||||||
Stockholders equity:
|
|||||||||||
Preferred stock, par value $0.001 per share, no
shares authorized, actual; 10,000,000 shares authorized, no
shares issued and outstanding, as adjusted
|
| | |||||||||
Common stock, par value $0.001 per share,
60,000,000 shares authorized, 10,245,395 shares issued
and outstanding, actual; 90,000,000 shares authorized,
17,245,395 shares issued and outstanding, as adjusted
|
10,377 | 78,187 | |||||||||
Deferred stock-based compensation
|
(316 | ) | (316 | ) | |||||||
Accumulated deficit
|
(1,741 | ) | (2,703 | ) | |||||||
|
|
||||||||||
Total stockholders equity
|
8,320 | 75,168 | |||||||||
|
|
||||||||||
Total capitalization
|
$ | 38,333 | $ | 75,168 | |||||||
|
|
The number of shares of common stock outstanding after this offering excludes: 1,055,250 shares subject to options outstanding as of December 31, 2003, at a weighted average exercise price of $1.00 per share; 110,000 shares subject to options granted since December 31, 2003, at an exercise price of $11.00 per share; 62,500 shares of restricted common stock granted in March 2004 under our Amended and Restated 2003 Stock Incentive Plan; 1,889,677 shares available for future issuance under our Amended and Restated 2003 Stock Incentive Plan, 100,750 of which will be subject to options to be granted to some of our employees upon completion of this offering at an exercise price equal to the initial public offering price; and 555,343 shares reserved for issuance under our Employee Stock Purchase Plan.
20
DILUTION
If you invest in our common stock in this
offering, your ownership interest will be diluted to the extent
of the difference between the amount you pay per share for our
common stock in this offering and the net tangible book value
per share of our common stock immediately after this offering.
Net tangible book value per share is determined by dividing our
tangible net worth, which is equal to our total tangible assets
less total liabilities, by the aggregate number of shares of
common stock outstanding. Our net tangible book value as of
December 31, 2003 was a deficit of approximately
$7,284,000, or $0.71 per share of common stock. After
giving effect to the sale by us of 7,000,000 shares of
common stock in this offering at an assumed initial public
offering price of $11.00 per share and after deducting the
underwriting discount and estimated offering expenses, including
a $2.0 million advisory fee payable to Francisco Partners,
and the receipt and application of a portion of the net proceeds
to repurchase our outstanding Series A Senior Notes as
described under Use of Proceeds, our net tangible
book value at December 31, 2003 would have been
$59,564,000, or $3.45 per share. This represents an
immediate increase in net tangible book value to existing
stockholders of $4.16 per share and an immediate dilution
to new investors of $7.55 per share. The following table
illustrates this per share dilution:
$
11.00
$
(0.71
)
4.16
3.45
$
7.55
Assuming the initial public offering had occurred on December 31, 2003, the following tables set forth, as of December 31, 2003, the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid by existing stockholders and by the new investors, at an assumed initial public offering price of $11.00 per share before deducting the underwriting discount and estimated offering expenses payable by us.
Shares Purchased | Total Consideration | Average | ||||||||||||||||||
|
|
Price Per | ||||||||||||||||||
Number | Percent | Amount | Percent | Share | ||||||||||||||||
|
|
|
|
|
||||||||||||||||
Existing stockholders
|
10,245,395 | 59.4 | % | $ | 9,929,225 | 11.4 | % | $ | 0.97 | |||||||||||
New investors
|
7,000,000 | 40.6 | 77,000,000 | 88.6 | 11.00 | |||||||||||||||
|
|
|
|
|||||||||||||||||
Total
|
17,245,395 | 100 | % | $ | 86,929,225 | 100 | % |
Taking into account the sale by the selling stockholder, the number of shares held by existing stockholders would be 8,145,395, or approximately 47.2% of the total shares of common stock outstanding, and the number of shares held by new investors would be 9,100,000, or approximately 52.8% of the total shares of common stock outstanding. The foregoing table includes 201,393 shares of common stock that were subject to our right of repurchase at December 31, 2003, at a weighted average price of $1.00 per share. The foregoing table assumes no exercise of the underwriters over-allotment option or outstanding stock options after December 31, 2003, no issuance of shares reserved under our Amended and Restated 2003 Stock Incentive Plan and no issuance of shares reserved under our Employee Stock Purchase Plan.
If the underwriters over-allotment option is exercised in full, the number of shares held by existing stockholders would be reduced to 6,780,395 or approximately 39.3% of the total shares of common stock outstanding, and the number of shares held by new investors would be 10,465,000, or approximately 60.7% of the total shares of common stock outstanding.
As of December 31, 2003, options to purchase a total of 1,055,250 shares of common stock were outstanding, at a weighted average exercise price of $1.00 per share. Since December 31, 2003, we have granted options to purchase an additional 110,000 shares of common stock, at an exercise price of $11.00 per share, and issued 62,500 shares of restricted common stock under our Amended and Restated 2003 Stock Incentive Plan. In addition, we intend to grant options to purchase 100,750 shares of
21
Shares Purchased | Total Consideration | Average | ||||||||||||||||||
|
|
Price Per | ||||||||||||||||||
Number | Percent | Amount | Percent | Share | ||||||||||||||||
|
|
|
|
|
||||||||||||||||
Existing stockholders
|
10,307,895 | 55.5 | % | $ | 9,929,225 | 11.0 | % | $ | 0.96 | |||||||||||
Shares subject to options
|
1,266,000 | 6.8 | % | 3,373,500 | 3.7 | % | 2.66 | |||||||||||||
New investors
|
7,000,000 | 37.7 | % | 77,000,000 | 85.3 | % | 11.00 | |||||||||||||
|
|
|
|
|||||||||||||||||
Total
|
18,573,895 | 100 | % | $ | 90,302,725 | 100 | % |
22
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read together with our consolidated financial statements and related notes and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this prospectus. This financial data includes the accounts of Ultra Clean Technology Systems and Service, Inc. (Predecessor) for the period from January 1, 2002 through November 15, 2002 and for the years ended December 31, 2001, 2000 and 1999 and the accounts of Ultra Clean Holdings, Inc. (Ultra Clean) for the period from November 16, 2002 through December 31, 2002 and for the year ended December 31, 2003. See note 1 of the consolidated financial statements for a description of the Ultra Clean acquisition. The selected consolidated balance sheet data as of December 31, 2002 and 2003 and the selected consolidated statements of operations data for the year ended December 31, 2003, the periods from January 1, 2002 through November 15, 2002 and November 16, 2002 through December 31, 2002 and the year ended December 31, 2001 have been derived from our audited consolidated financial statements which are included elsewhere in this prospectus. The selected consolidated balance sheet data as of December 31, 1999, 2000 and 2001 and the selected consolidated statements of operations data for the years ended December 31, 1999 and 2000 have been derived from our audited consolidated financial statements not included in this prospectus. Historical results are not necessarily indicative of the results to be expected in the future.
23
Predecessor
Jan. 1, 2002
Nov. 16,
Years Ended Dec. 31,
through
2002 through
Year Ended
Nov. 15,
Dec. 31,
Dec. 31,
1999
2000
2001
2002
2002
2003
(amounts in thousands, except per share amounts)
$
39,574
$
83,001
$
76,486
$
76,338
$
7,916
$
77,520
32,878
68,242
66,129
66,986
7,972
67,313
6,696
14,759
10,357
9,352
(56
)
10,207
399
518
613
634
99
1,155
1,054
1,241
1,302
1,586
332
2,276
2,600
3,746
3,127
6,626
962
4,978
889
4,053
5,505
5,042
8,846
2,282
8,409
2,643
9,254
5,315
506
(2,338
)
1,798
(708
)
(687
)
(436
)
(170
)
(182
)
(1,458
)
(4
)
(6
)
4
(708
)
(687
)
(440
)
(176
)
(178
)
(1,458
)
1,935
8,567
4,875
330
(2,516
)
340
(172
)
136
(1,981
)
(642
)
667
(232
)
$
1,763
$
8,703
$
2,894
$
(312
)
$
(1,849
)
$
108
$
0.48
$
2.36
$
0.79
$
(0.08
)
$
(0.21
)
$
0.01
$
0.40
$
1.95
$
0.64
$
(0.08
)
$
(0.21
)
$
0.01
3,680
3,680
3,680
3,680
8,668
9,976
4,421
4,467
4,535
3,680
8,668
10,711
Predecessor
Dec. 31,
Dec. 31,
1999
2000
2001
2002
2003
$
851
$
3,722
$
760
$
6,237
$
6,035
(7,705
)
(924
)
2,519
16,067
17,519
13,296
34,918
20,652
48,836
50,155
260
344
554
662
558
12,500
9,800
8,400
29,812
30,013
(2,927
)
5,776
8,670
8,089
8,320
24
MANAGEMENTS DISCUSSION AND ANALYSIS OF
The following discussion should be read in conjunction with and is qualified in its entirety by reference to our audited financial statements included elsewhere in this prospectus. Except for the historical information contained herein, the discussions in this section contain forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed below. See Risk Factors and Forward-Looking Statements for a discussion of these risks and uncertainties.
Overview
General |
We are a developer and supplier of critical subsystems for the semiconductor capital equipment industry, focusing on gas delivery systems. Our gas delivery systems enable the precise delivery of specialty gases used in a majority of the key steps in the semiconductor manufacturing process. Our customers are primarily OEMs of semiconductor capital equipment. These OEMs outsource the manufacturing of their gas delivery systems in order to improve the efficiency and reduce the costs of their design and manufacturing processes. We provide our customers with a full range of services for the development, design, prototyping, engineering, manufacturing and testing of gas delivery systems.
Our business dates back to 1991 when Mitsubishi Corporation founded Ultra Clean Technology Systems and Service, Inc. Our business was operated as a subsidiary of Mitsubishi until November 2002. It was then acquired by Ultra Clean Holdings, Inc., which we refer to as the Ultra Clean acquisition. Ultra Clean Holdings, Inc. is owned by FP-Ultra Clean LLC (95.2%), a wholly-owned subsidiary of Francisco Partners, and by members of our management (4.8%). After completion of this offering, FP-Ultra Clean, LLC will beneficially own approximately 44.4% of our outstanding common stock, assuming no exercise of the underwriters over-allotment option. We conduct our operating activities primarily through Ultra Clean Technology Systems and Service, Inc., our wholly-owned subsidiary.
We have entered into a stockholders agreement with FP-Ultra Clean, LLC which provides that our board of directors may not take certain significant actions without the approval of FP-Ultra Clean, LLC as long as it owns at least 25% of our outstanding common stock, including mergers, acquisitions or sales of assets outside the ordinary course of business, the issuance of securities and the incurrence or refinancing of indebtedness in excess of $10 million. See Certain Relationships and Related Party Transactions Relationship with Francisco Partners Stockholders Agreement.
Cyclical Business |
Our business and operating results depend in significant part upon capital expenditures by manufacturers of semiconductors, which in turn depend upon the current and anticipated market demand for semiconductors. Historically, the semiconductor industry has been highly cyclical, with recurring periods of over-supply of semiconductor products that have had a severe negative effect on the demand for capital equipment used to manufacture semiconductors. During these periods, we have experienced significant fluctuations in customer orders for our products. Our sales were $76.5 million in 2001, $84.3 million in 2002 and $77.5 million in 2003. In periods where supply exceeds demand for semiconductor capital equipment, we generally experience significant reductions in customer orders for our products. Sharp decreases in demand for semiconductor capital equipment may lead our customers to cancel order forecasts, change production quantities from forecasted volumes or delay production, which may negatively impact our gross profit, as we may be unable to quickly reduce costs and may be required to hold inventory longer than anticipated. In periods where demand for semiconductor capital equipment exceeds supply, we generally need to quickly increase our production of gas delivery systems, requiring us to order additional inventory, effectively manage our component supply chain, hire additional employees and expand, if necessary, our manufacturing capacity. If we are unable to respond to rapid increases in demand for our products on a timely basis or to manage any corresponding expansion of our
25
Outsourcing Trend |
We generate revenue from the sale of gas delivery systems. The success of our business and our ability to generate future sales depends on OEMs continuing to outsource the manufacturing of gas delivery systems for their semiconductor capital equipment. Most of the largest OEMs have already outsourced a significant portion of their gas delivery systems. If OEMs do not continue to outsource gas delivery systems for their capital equipment, our revenue would be reduced, which could have a material adverse affect on our business, financial condition and operating results. In addition, if we are unable to obtain additional business as OEMs outsource their production of gas delivery systems, our business, financial condition and operating results could be adversely affected.
Customer Concentration |
A relatively small number of OEM customers have historically accounted for a significant portion of our revenue, and we expect this trend to continue. Applied Materials, Inc. and Novellus Systems, Inc. together accounted for 91% of our sales in 2001. Applied Materials, Inc., Novellus Systems, Inc. and Lam Research Corporation as a group accounted for 98% of our sales in 2002 and 92% of our sales in 2003. Because of the small number of OEMs in our industry, most of whom are already our customers, it would be difficult to replace lost revenue resulting from the loss of, or the reduction, cancellation or delay in purchase orders by, any one of these customers. Consolidation among our customers may further concentrate our business in a limited number of customers and expose us to increased risks relating to dependence on a small number of customers. In addition, any significant pricing pressure exerted by a key customer could adversely effect our operating results.
Anticipated Increased General and Administrative Costs |
We will face increased legal, accounting, administrative and other costs and expenses as a public company that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the Securities and Exchange Commission, the Public Company Accounting Oversight Board and The Nasdaq National Market, have required changes in the corporate governance practices of public companies. We expect these new rules and regulations to increase our legal and financial compliance costs and to make legal, accounting and administrative activities more time-consuming and costly. For example, as a result of becoming a public company, we plan to add two additional independent directors, create additional committees of our board of directors and adopt policies regarding internal controls and disclosure controls and procedures. We also expect to incur substantially higher costs to obtain directors and officers insurance. We cannot estimate the amount of additional costs we may incur or the timing of such costs.
Deferred Compensation |
We recorded deferred compensation with respect to the unvested portion of our Series A Senior Notes and common stock granted to some of our key employees in connection with the Ultra Clean acquisition. In addition, we record deferred stock-based compensation resulting from the grant of stock options to employees at exercise prices less than the estimated fair value of the underlying common stock on the grant date. We determined the estimated fair value of our common stock based on several factors, including our historical and projected operating performance. We recorded total deferred compensation of $1.1 million and $0.1 million for the years ended December 31, 2002 and 2003, respectively. We amortized $33,000 and $0.3 million for the years ended December 31, 2002 and 2003, respectively. We expect to record amortization expense associated with this deferred compensation, assuming no forefeiture of awards, of $0.7 million in 2004, $0.1 million in 2005 and $0.1 million in 2006.
26
Basis of Presentation |
Our financial statements include the accounts of the predecessor company, Ultra Clean Technology Service and Systems, Inc. for the year ended December 31, 2001 and for the period from January 1, 2002 to November 15, 2002 and the accounts of the successor company, Ultra Clean Holdings, Inc. and its subsidiary, since inception, including the period from November 16, 2002 through December 31, 2002 and for the year ended December 31, 2003.
In the discussion of our financial statements for the year ended December 31, 2002 in this Managements Discussion and Analysis of Financial Condition and Results of Operations, we refer to the financial statements for 2002 as combined for comparative purposes. These combined financial results for 2002 represent the sum of the financial data for Ultra Clean Technology Systems and Service, Inc. (Predecessor) for the period from January 1, 2002 through November 15, 2002 and the financial data for Ultra Clean Holdings, Inc. (Ultra Clean) for the period from its inception to December 31, 2002. We further refer to the period from our inception through December 31, 2002 as the November 16, 2002 through December 31, 2002 period, because we had no operations in the period from October 28, 2002, our date of incorporation, to November 15, 2002, the closing date of the Ultra Clean acquisition. These combined financial results are for informational purposes only and do not purport to represent what our financial position would have actually been in such periods had the Ultra Clean acquisition occurred prior to November 15, 2002.
Critical Accounting Policies, Significant Judgments and Estimates
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States, which requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure at the date of our financial statements. On an on-going basis, we evaluate our estimates and judgments, including those related to sales, inventories, intangible assets, stock compensation and income taxes. We base our estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis of our judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. We consider certain accounting policies related to the Ultra Clean acquisition, revenue recognition, inventory valuation, accounting for income taxes, valuation of intangible assets and goodwill and stock options to employees to be critical policies due to the estimates and judgments involved in each.
Ultra Clean Acquisition |
In connection with the Ultra Clean acquisition, we allocated the purchase price associated with the acquisition to the tangible and intangible assets acquired, liabilities assumed and in-process research and development based on their estimated fair values. We engaged a third-party appraisal firm to assist us in determining the fair values of the assets acquired and the liabilities assumed. Such valuations required us to make significant estimates and assumptions, especially with respect to intangible assets. Estimates associated with the accounting for the Ultra Clean acquisition may change as additional information becomes available regarding the assets acquired and liabilities assumed. In particular, a claim by us for a refund of approximately $470,000 of the purchase price remains unresolved. Any payment of this unresolved amount will reduce recorded goodwill.
The critical estimates we used in allocating the purchase price and valuing certain intangible assets include but were not limited to: future expected cash flows from customer contracts, customer lists, distribution agreements, acquired developed technologies and patents; expected costs to develop in-process research and development into commercially viable products and brand awareness and market position of acquired products and assumptions about the period of time the brand will continue to be used in the combined product portfolio. Our estimates of fair value at the time when they were made are based upon assumptions that we believed to be reasonable, but which are inherently uncertain and unpredictable.
27
Revenue Recognition |
Our revenue is concentrated in a few OEM customers in the semiconductor capital equipment industry in the United States. Our standard arrangement for our customers includes a signed purchase order or contract, no right of return of delivered products and no customer acceptance provisions. Revenue from sales of products is recognized when:
| we enter into a legally binding arrangement with a customer; | |
| we ship the products; | |
| customer payment is deemed fixed or determinable and free of contingencies or significant uncertainties; and | |
| collection is probable. |
Revenue is generally recognized upon shipment of the product. In arrangements which specify title transfer upon delivery, revenue is not recognized until the product is delivered. In addition, if we have not substantially completed a product or fulfilled the terms of the agreement at the time of shipment, revenue recognition is deferred until completion. Determination of criteria in the third and fourth bullet points above is based on our judgment regarding the fixed nature of the amounts charged for the products delivered and the collectability of those amounts.
We assess collectability based on the credit worthiness of the customer and past transaction history. We perform on-going credit evaluations of, and do not require collateral from, our customers. We have not experienced collection losses in the past. A significant change in the liquidity or financial position of any one customer could make it more difficult for us to assess collectability.
Inventory Valuation |
We value our inventories at the lesser of standard cost, determined on a first-in, first-out basis, or market. We assess the valuation of all inventories, including raw materials, work-in-process, finished goods and spare parts on a periodic basis. Obsolete inventory or inventory in excess of our estimated usage is written-down to its estimated market value less costs to sell, if less than its cost. The inventory write-downs are recorded as an inventory valuation allowance established on the basis of obsolete inventory or specific identified inventory in excess of established usage. Inherent in our estimates of market value in determining inventory valuation are estimates related to economic trends, future demand for our products and technological obsolescence of our products. If actual market conditions are less favorable than our projections, additional inventory write-downs may be required. If the inventory value is written down to its net realizable value, and subsequently there is an increased demand for the inventory at a higher value, the increased value of the inventory is not realized until the inventory is sold either as a component of a gas delivery system or as separate inventory. During the year ended December 31, 2002, we charged $0.3 million to cost of goods sold to write down excess and obsolete inventory. During the year ended December 31, 2003, we recorded an immaterial charge for excess and obsolete inventory.
Accounting for Income Taxes |
The determination of our tax provision is subject to judgments and estimates. The carrying value of our net deferred tax assets, which is made up primarily of tax deductions, assumes we will be able to generate sufficient future income to fully realize these deductions. In determining whether the realization of these deferred tax assets may be impaired, we make judgments with respect to whether we are likely to generate sufficient future taxable income to realize these assets. We have not recorded any valuation allowance to impair our tax assets because, based on the available evidence, we believe it is more likely than not that we will be able to utilize all of our deferred tax assets in the future. If we do not generate sufficient future income, the realization of these deferred tax assets may be impaired, resulting in an additional income tax expense.
28
Valuation of Intangible Assets and Goodwill |
We periodically evaluate our intangible assets and goodwill in accordance with Statement of Financial Accounting Standards, or SFAS No. 142, Goodwill and Other Intangible Assets , for indications of impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Intangible assets include goodwill, purchased technology and tradename. Factors we consider important that could trigger an impairment review include significant under-performance relative to historical or projected future operating results, significant changes in the manner of our use of the acquired assets or the strategy for our overall business, or significant negative industry or economic trends. The provisions of SFAS No. 142 also require an annual goodwill impairment test or more frequently if impairment indicators arise. In testing for a potential impairment of goodwill, the provisions of SFAS No. 142 require the application of a fair value based test at the reporting unit level. We operate in one segment and have one reporting unit. Therefore, all goodwill is considered enterprise goodwill and the first step of the impairment test prescribed by SFAS No. 142 requires a comparison of our fair value to our book value. If our estimated fair value is less than the our book value, SFAS No. 142 requires an estimate of the fair value of all identifiable assets and liabilities of the business, in a manner similar to a purchase price allocation for an acquired business. This estimate requires valuations of certain internally generated and unrecognized intangible assets such as in-process research and development and developed technology. Potential goodwill impairment is measured based upon this two-step process. We performed the annual goodwill impairment test as of December 31, 2002 and 2003 and determined that goodwill was not impaired.
Stock Options to Employees |
We have elected to follow the intrinsic value-based method prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees , or APB 25, and the related interpretations in accounting for employee stock options rather than adopting the alternative fair value accounting provided under SFAS No. 123, Accounting for Stock Based Compensation . Therefore, we do not record any compensation expense for stock options we grant to our employees where the exercise price equals the fair market value of the stock options on the date of grant and the exercise price, number of shares eligible for issuance under the options and vesting period are fixed. We comply with the disclosure provisions of SFAS No. 123 and SFAS No. 148, which require that we disclose our pro forma net income or loss and net income or loss per common share as if we had expensed the fair value of the options. In calculating such fair values, we use assumptions of estimated option life, dividend policy and interest rates.
29
Results of Operations
The following table sets forth statements of
operations data for the periods indicated as a percentage of
revenue.
Years Ended December 31,
Combined(1)
2001
2002
2003
100.0
%
100.0
%
100.0
%
86.5
%
89.0
%
86.8
%
13.5
%
11.0
%
13.2
%
0.8
%
0.9
%
1.5
%
1.7
%
2.3
%
2.9
%
4.1
%
9.0
%
6.4
%
1.1
%
6.6
%
13.2
%
10.8
%
6.9
%
(2.2
)%
2.4
%
(0.6
)%
(0.4
)%
(1.9
)%
(0.6
)%
(0.4
)%
(1.9
)%
6.4
%
(2.6
)%
0.5
%
(2.6
)%
0.0
%
(0.3
)%
3.8
%
(2.6
)%
0.2
%
(1) | The combined financial results for 2002 represent the sum of the financial data for Ultra Clean Technology Systems and Service, Inc. (Predecessor) for the period from January 1, 2002 through November 15, 2002 and the financial data for Ultra Clean Holdings, Inc. for the period from November 16, 2002 (inception) to December 31, 2002. The combined financial data for 2002 is presented to facilitate comparison with other annual periods. |
Year Ended December 31, 2003 Compared With Year Ended December 31, 2002 |
Sales |
We generate revenue from the sale of gas delivery systems. Sales for the year ended December 31, 2003 decreased 8.1% to $77.5 million from $84.3 million for the year ended December 31, 2002, a decrease of $6.8 million. This decrease in sales was due to the continued downturn in the semiconductor capital equipment industry during the first three quarters of 2003, which resulted in decreased demand for, and therefore reduced sales of, our gas delivery systems.
Gross Profit |
Cost of goods sold consists primarily of purchased materials, labor and overhead, including depreciation, associated with the design and manufacture of products sold. Gross profit for the year ended December 31, 2003 increased 9.7% to $10.2 million from $9.3 million for the year ended December 31, 2002, an increase of $0.9 million. Gross profit as a percentage of sales increased to 13.2% for the year ended December 31, 2003 compared to 11.0% for the year ended December 31, 2002. The increase in gross profit for the year ended December 31, 2003 was primarily attributable to sharply higher sales of gas
30
Research and Development Expense |
Research and development expense consists primarily of activities related to new component testing and evaluation, test equipment, design and implementation, new product design and testing and other product development activities. Research and development expense for the year ended December 31, 2003 increased 71.4% to $1.2 million from $0.7 million for the year ended December 31, 2002, an increase of $0.5 million. Research and development expense as a percentage of sales increased to 1.5% for the year ended December 31, 2003 compared to 0.9% for the year ended December 31, 2002. This increase in research and development expense was primarily attributable to the development of additional test fixtures for a wider range of products and to additional design activity required by two of our major customers.
Sales and Marketing Expense |
Sales and marketing expense consists primarily of salaries and commissions paid to our sales and service employees and salaries paid to our engineers who work with our sales and service employees to help determine the components and configuration requirements for new products. Sales and marketing expense for the year ended December 31, 2003 increased 21.1% to $2.3 million from $1.9 million for the year ended December 31, 2002, an increase of $0.4 million. Sales and marketing expense as a percentage of sales increased to 2.9% for the year ended December 31, 2003 compared to 2.3% for the year ended December 31, 2002. This increase in sales and marketing expense was primarily attributable to our expansion into new product lines at one of our major customers.
General and Administrative Expense |
General and administrative expense consists primarily of salaries and overhead of our administrative staff. General and administrative expense for the year ended December 31, 2003 decreased 34.2% to $5.0 million from $7.6 million for the year ended December 31, 2002, a decrease of $2.6 million. General and administrative expense as a percentage of sales decreased to 6.4% for the year ended December 31, 2003 compared to 9.0% for the year ended December 31, 2002. We experienced higher general and administrative expense in 2002, primarily due to costs of $4.6 million associated with the Ultra Clean acquisition. General and administrative expense for the year ended December 31, 2003 included $1.1 million in professional fees paid to third party financial advisors for services they performed for us, approximately $0.2 million in bonus accrual associated with our management bonus and profit sharing plans and approximately $0.3 million associated with deferred compensation amortization resulting from restricted stock and employee debt which originated at the time of the Ultra Clean acquisition. We expect our general and administrative expense to increase in 2004 as we incur additional expenses as a public company.
In-Process Research and Development Expense |
In-process research and development expense for the year ended December 31, 2002 was $0.9 million, resulting from one project related to the development of technology and a related product that simplified the generation of steam for use in the semiconductor manufacturing process the catalytic steam generator. Our development efforts were completed in December 2003. Actual costs incurred to complete this project were not significantly different from the initial estimate. Value ascribed to the project was based on the cost method and represented the cost of personnel, material, equipment and finance charges that would have been incurred to replicate the project to its development stage at the date of acquisition. We had no in process research and development expenses for the year ended December 31, 2003.
31
Interest Expense |
Interest expense for the year ended December 31, 2003 increased to $1.5 million from $0.4 million for the year ended December 31, 2002, an increase of $1.1 million. This increase in interest expense was attributable to interest payable on our Series A Senior Notes held by FP-Ultra Clean, LLC and some of our key employees which were issued in the fourth quarter of 2002 in connection with the Ultra Clean acquisition.
Provision for Income Taxes |
Provision for income taxes for the year ended December 31, 2003 was $0.2 million compared to $0.03 million income tax benefit for the year ended December 31, 2002. This increase in provision for income taxes was primarily attributable to the increase in taxable income for the year ended December 31, 2003. For the year ended December 31, 2003, the state tax rate was higher than the statutory rate due the mix of taxable income and losses in Texas combined with a consolidated net income approximating break even.
Year Ended December 31, 2002 Compared With Year Ended December 31, 2001 |
In the discussion of our financial statements for the year ended December 31, 2002 in this Managements Discussion and Analysis of Financial Condition and Results of Operations, we refer to financial statements for 2002 as combined for comparative purposes. These combined financial results for 2002 represent the sum of the financial data for Ultra Clean Technology Systems and Service, Inc. (Predecessor) for the period from January 1, 2002 through November 15, 2002 and the financial data for Ultra Clean Holdings, Inc. (Ultra Clean) for the period from its inception to December 31, 2002. We further refer to the period from our inception through December 31, 2002 as the November 16, 2002 through December 31, 2002 period, because we had no operations in the period from October 28, 2002, our date of incorporation, to November 15, 2002, the closing date of the Ultra Clean acquisition. These combined financial results are for informational purposes only and do not purport to represent what our financial position would have actually been in such periods had the Ultra Clean acquisition occurred prior to November 15, 2002.
Sales |
Sales for the year ended December 31, 2002 increased 10.2% to $84.3 million from $76.5 million for the year ended December 31, 2001, an increase of $7.8 million. This increase in sales was primarily attributable to the addition of a significant new customer. Sales to our other significant customers for the year ended December 31, 2002 decreased due to the downturn in the semiconductor capital equipment industry, which resulted in decreased demand for, and therefore reduced sales of, our gas delivery systems.
Gross Profit |
Gross profit for the year ended December 31, 2002 decreased 10.6% to $9.3 million from $10.4 million for the year ended December 31, 2001, a decrease of $1.1 million. Gross profit as a percentage of sales decreased to 11.0% for the year ended December 31, 2002 compared to 13.5% for the year ended December 31, 2001. This decrease in gross profit was primarily attributable to a sharp decrease in sales in the fourth quarter of 2002 resulting in a lower absorption of our fixed costs. We also recorded $0.3 million in charges for excess and obsolete inventory for the year ended December 31, 2002, compared to $0.02 million for the year ended December 31, 2001. In addition, we opened a new manufacturing facility in Tualatin, Oregon in October 2002 which increased manufacturing expenses in the fourth quarter of 2002 and did not generate significant sales. We also recorded a charge of $0.1 million to step up inventory associated with the Ultra Clean acquisition.
32
Research and Development Expense |
Research and development expense for the year ended December 31, 2002 increased 16.7% to $0.7 million from $0.6 million for the year ended December 31, 2001, an increase of $0.1 million. Research and development expense as a percentage of sales increased to 0.9% for the year ended December 31, 2002 compared to 0.8% for year ended December 31, 2001.
Sales and Marketing Expense |
Sales and marketing expense for the year ended December 31, 2002 increased 46.2% to $1.9 million from $1.3 million for the year ended December 31, 2001, an increase of $0.6 million. Sales and marketing expense as a percentage of sales increased to 2.3% for the year ended December 31, 2002 compared to 1.7% for the year ended December 31, 2001. This increase in sales and marketing expense was primarily attributable to an increase in commissions paid to our sales force as a result of sales made to a significant new customer during 2002. In addition, we increased the size of our sales force during 2002 in order to increase our sales efforts with our significant customers.
General and Administrative Expense |
General and administrative expense for the year ended December 31, 2002 increased 145.2% to $7.6 million from $3.1 million for the year ended December 31, 2001, an increase of $4.5 million. General and administrative expense as a percentage of sales increased to 9.0% for the year ended December 31, 2002 compared to 4.1% for the year ended December 31, 2001. This increase in general and administrative expense was primarily attributable to the buyout of stock options of $2.5 million from, and one-time bonus payments of $0.7 million to, some of our key employees in connection with the Ultra Clean acquisition and a $1.3 million charge related to the expiration of unexercised stock options held by a former executive officer at the time of the Ultra Clean acquisition.
In-Process Research and Development Expense |
In-process research and development expense for the year ended December 31, 2002 was $0.9 million for purchased in-process research and development that had not yet reached technological feasibility and had no alternative future use.
Interest Expense |
Interest expense for the year ended December 31, 2002 decreased to $0.4 million from $0.5 million for the year ended December 31, 2001, a decrease of $0.1 million. This decrease in interest expense was primarily attributable to our lower average short-term borrowing balance during 2002.
Provision for Income Taxes |
Provision for income taxes for the year ended December 31, 2002 was negligible compared to an expense of $2.0 million for the year ended December 31, 2001. This decrease in provision for income taxes was attributable to the decrease in taxable income for the year ended December 31, 2002.
33
Unaudited Quarterly Financial Results
The following tables set forth statement of
operations data for the periods indicated in dollars and as a
percentage of sales. The information for each of these periods
is unaudited and has been prepared on the same basis as our
audited consolidated financial statements included elsewhere in
this prospectus and includes all adjustments, consisting only of
normal recurring adjustments, that we consider necessary for a
fair presentation of our unaudited operations data for the
periods presented. Historical results are not necessarily
indicative of the results to be expected in the future.
Predecessor
Oct. 1,
Nov. 16
Quarter Ended
2002
2002
Quarter Ended
through
through
Mar.
Jun.
Sept.
Nov. 15,
Dec. 31,
Mar.
Jun.
Sept.
Dec.
31, 2002
30, 2002
30, 2002
2002
2002
31, 2003
30, 2003
30, 2003
31, 2003
(In thousands)
$
13,262
$
27,440
$
26,916
$
8,720
$
7,916
$
17,626
$
17,410
$
16,726
$
25,758
12,067
23,469
22,993
8,457
7,972
16,245
14,768
14,605
21,695
1,195
3,971
3,923
263
(56
)
1,381
2,642
2,121
4,063
135
187
202
110
99
259
268
290
338
273
488
619
206
332
471
553
595
657
611
812
856
4,346
962
821
2,051
802
1,304
889
1,019
1,487
1,677
4,662
2,282
1,551
2,872
1,687
2,299
176
2,484
2,246
(4,399
)
(2,338
)
(171
)
(230
)
434
1,765
(50
)
(43
)
(53
)
(24
)
(182
)
(403
)
(333
)
(371
)
(351
)
(6
)
4
(2
)
(3
)
(4
)
9
(50
)
(43
)
(53
)
(30
)
(178
)
(405
)
(336
)
(375
)
(342
)
126
2,441
2,193
(4,429
)
(2,516
)
(576
)
(566
)
59
1,423
(35
)
(1,103
)
(910
)
1,406
667
132
411
(38
)
(737
)
$
91
$
1,338
$
1,283
$
(3,023
)
$
(1,849
)
$
(444
)
$
(155
)
$
21
$
686
34
Predecessor
Quarter Ended
Nov.
Quarter Ended
Oct. 1,
16,
Mar.
Jun.
Sept.
through
through
Mar.
Jun.
Sept.
Dec.
31,
30,
30,
Nov. 15,
Dec. 31,
31,
30,
30,
31,
2002
2002
2002
2002
2002
2003
2003
2003
2003
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
91.0
%
85.5
%
85.4
%
97.0
%
100.7
%
92.2
%
84.8
%
87.3
%
84.2
%
9.0
%
14.5
%
14.6
%
3.0
%
(0.7
)%
7.8
%
15.2
%
12.7
%
15.8
%
1.0
%
0.7
%
0.8
%
1.3
%
1.3
%
1.5
%
1.5
%
1.7
%
1.3
%
2.1
%
1.8
%
2.3
%
2.4
%
4.2
%
2.7
%
3.2
%
3.6
%
2.6
%
4.6
%
3.0
%
3.2
%
49.8
%
12.2
%
4.7
%
11.8
%
4.8
%
5.1
%
11.2
%
7.7
%
5.4
%
6.2
%
53.5
%
28.8
%
8.8
%
16.5
%
10.1
%
8.9
%
1.3
%
9.1
%
8.3
%
(50.4
)%
(29.5
)%
(1.0
)%
(1.3
)%
2.6
%
6.9
%
(0.4
)%
(0.2
)%
(0.2
)%
(0.3
)%
(2.3
)%
(2.3
)%
(1.9
)%
(2.2
)%
(1.4
)%
0.0
%
0.0
%
0.0
%
(0.1
)%
0.1
%
(0.0
)%
(0.0
)%
(0.0
)%
0.0
%
(0.4
)%
(0.2
)%
(0.2
)%
(0.4
)%
(2.2
)%
(2.3
)%
(1.9
)%
(2.2
)%
(1.3
)%
1.0
%
8.9
%
8.1
%
(50.8
)%
(31.8
)%
(3.3
)%
(3.3
)%
0.4
%
5.5
%
(0.3
)%
(4.0
)%
(3.4
)%
16.1
%
8.4
%
0.7
%
2.4
%
(0.2
)%
(2.9
)%
0.7
%
4.9
%
4.8
%
(34.7
)%
(23.4
)%
(2.5
)%
(0.9
)%
0.1
%
2.7
%
Our sales sharply increased during the fourth
quarter of 2003, as compared to each of the first three quarters
of 2003, as a result of significant growth in the semiconductor
industry. In order to support this increased demand, we recently
added a significant number of manufacturing personnel and
additional test equipment. The addition and training of new
employees may lead to short-term quality control problems and
place increased demands on our management and experienced
personnel. We have also recently experienced shortages in
supplies of various components, such as mass flow controllers,
valves and regulators, and certain prefabricated parts, such as
sheet metal enclosures, used in the manufacture of our products.
At the same time, we are experiencing pricing pressure on our
products as we attempt to increase market share with our
existing customers.
Liquidity and Capital Resources
Historically, we have required capital
principally to fund our working capital needs, satisfy our debt
obligations, maintain our equipment and purchase new capital
equipment. We anticipate that our operating cash flow, together
with the net proceeds of this offering and available borrowings
under our revolving credit facility, will be sufficient to meet
our working capital requirements, capital lease obligations,
expansion plans and technology development projects for at least
the next twelve months. The adequacy of these resources to meet
our liquidity needs beyond that period will depend on our
growth, the cyclical expansion or contraction of the
semiconductor capital equipment industry and capital
expenditures required to meet possible increased demand for our
products. Prior to the Ultra Clean acquisition, we relied on
capital contributions and borrowings from Mitsubishi to fund our
liquidity needs. As of December 31,
35
For the year ended December 31, 2003, we
generated cash from operating activities of $0.4 million,
primarily attributable to generating net income from operations
and carrying a higher level of payables compared with the year
ended December 31, 2002. These increases were offset by
funding an increase in accounts receivable and inventories. For
the year ended December 31, 2002, we generated cash from
operating activities of $2.7 million, primarily
attributable to increases in accounts payable and other
liabilities and from lower inventory requirements associated
with the downturn in the semiconductor capital equipment
industry which resulted in a decreased demand for our gas
delivery systems. For the year ended December 31, 2001, we
had a net use of $0.6 million in cash from operating
activities.
For the year ended December 31, 2003, we
used net cash from investing activities of $0.5 million,
primarily for the purchase of computer hardware and an
engineering software application. For the year ended
December 31, 2002, we used net cash from investing
activities of $26.3 million in connection with the Ultra
Clean acquisition and $1.7 million to construct and equip a
new manufacturing facility in Tualatin, Oregon. For the year
ended December 31, 2001, we used net cash from investing
activities of $0.6 million, primarily to construct and
equip a new manufacturing facility in Austin, Texas.
For the year ended December 31, 2003, we
used cash in financing activities of $0.1 million for
principal payments on our capital lease obligations. For the
year ended December 31, 2002, cash provided by financing
activities was $31.0 million, primarily from the issuance
of our Series A Senior Notes and common stock in connection
with the Ultra Clean acquisition. Of these proceeds,
$9.0 million was used to repay borrowings from Mitsubishi
under a revolving credit facility. For the year ended
December 31, 2001, we used cash in financing activities of
$1.7 million, primarily for repayment of borrowings from
Mitsubishi.
Ultra Clean Technology Systems and Service, Inc.,
our wholly owned subsidiary, entered into a revolving credit
facility with Union Bank of California in July 2003, as amended
in March 2004, providing for borrowings of up to
$10.0 million based upon a defined borrowing base. The
proceeds of the revolving credit facility may only be used for
working capital purposes. Ultra Clean Technology Systems and
Service, Inc. has never utilized this revolving credit facility.
We have unconditionally guaranteed all obligations under this
facility. These obligations are secured by substantially all of
our and their respective assets. Borrowings under the revolving
credit facility bear interest, at our option, at a rate equal to
2% per annum plus LIBOR or at 0.25% per annum plus the reference
rate established from time to time by the lender. Under the
terms of the credit facility agreement, we are subject to
customary covenants related to our business and financial
condition.
Capital Expenditures
We spent $0.5 million in capital
expenditures for the year ended December 31, 2003,
$1.8 million for the year ended December 31, 2002 and
$0.6 million for the year ended December 31, 2001. We
do not anticipate significant requirements for additional
capital expenditures in the next twelve months but our
requirements are subject to change depending upon industry
conditions.
36
Contractual Obligations and Contingent
Liabilities and Commitments
Other than operating leases for certain equipment
and real estate, we have no significant off-balance sheet
transactions, unconditional purchase obligations or similar
instruments and, other than with respect to the revolving credit
facility described above, are not a guarantor of any other
entities debt or other financial obligations. The
following table presents a summary of our future minimum lease
payments:
At December 31, 2003, $30.0 million
aggregate principal amount of our Series A Senior Notes
were outstanding and an additional $0.6 million
Series A Senior Notes were subject to vesting in the
future. We expect to repurchase all of the vested and unvested
Series A Senior Notes with a portion of the net proceeds of
this offering. See Use of Proceeds and
Management Restricted Securities Purchase
Agreements. As of December 31, 2003, no amount was
drawn on our revolving credit facility.
At December 31, 2003, we had commitments to
purchase inventory totaling $13,416,000.
Recently Adopted Accounting
Standards
In June 2002, the FASB issued SFAS
No. 146,
Accounting for Costs Associated with Exit or
Disposal Activities
. SFAS No. 146 supersedes previous
accounting guidance, principally Emerging Issues Task Force, or
EITF Issue No. 94-3. The provisions of SFAS No. 146
are applicable for restructuring activities initiated after
December 28, 2002. SFAS No. 146 requires that a
liability for costs associated with an exit or disposal activity
be recognized when the liability is incurred. Under EITF Issue
No. 94-3, a liability for an exit cost was recognized at
the date of the commitment to an exit plan. SFAS No. 146
also establishes that the liability should initially be measured
and recorded at fair value. The adoption of SFAS No. 146 on
January 1, 2003 did not have a material effect on our
consolidated financial statements.
In November 2002, the FASB issued FASB
Interpretation, or FIN, No. 45,
Guarantors
Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others
. This
interpretation specifies the disclosures to be made by a
guarantor in its interim and annual financial statements
concerning its obligations under certain guarantees that it has
issued. FIN No. 45 also requires a guarantor to recognize a
liability, at the inception of the guarantee, for the fair value
of obligations it has undertaken in issuing the guarantee. The
disclosure requirements of FIN No. 45 are effective for
interim and annual periods ending after December 15, 2002.
The initial recognition and initial measurement requirements of
FIN No. 45 are effective for guarantees issued or modified
after December 31, 2002. The adoption of these provisions
did not have a material effect on our consolidated financial
statements.
In December 2002, the EITF reached a consensus on
EITF No. 00-21,
Revenue Arrangements with Multiple
Deliverables
. EITF Issue No. 00-21 addresses certain
aspects of the accounting by a vendor for arrangements under
which it will perform multiple revenue-generating activities,
including when and how an arrangement involving multiple
deliverables should be divided into separate units of
accounting. The
37
In January 2003, the FASB issued FIN 46,
Consolidation of Variable Interest Entities
and a revised
interpretation of FIN 46 (FIN 46R) in December 2003
(collectively FIN 46). These address consolidation of
variable interest entities. FIN 46 provides guidance for
determining when a primary beneficiary should consolidate a
variable interest entity or equivalent structure that functions
to support the activities of the primary beneficiary. The
provisions of FIN 46 are effective immediately for all
variable interest entities created after January 31, 2003.
For variable interest entities created prior to February 1,
2003, the provisions of FIN 46 are effective for our first
quarter of fiscal 2004. We do not expect the adoption of
FIN 46 to have a material effect on our consolidated
financial statements.
In May 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity
. SFAS
No. 150 establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics
of both liabilities and equity. SFAS No. 150 is effective
for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003.
The adoption of SFAS No. 150 did not have a material effect
on our consolidated financial statements.
In December 2003, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 104,
Revenue Recognition
. SAB 104 updates portions of
existing interpretative guidance in order to make this guidance
consistent with current authoritative accounting and auditing
guidance and SEC rules and regulations. The adoption of
SAB 104 did not have a material effect on our consolidated
financial statements.
Qualitative and Quantitative Disclosure About
Market Risk
Market risk represents the risk of changes in
value of a financial instrument caused by fluctuations in
interest rates. After the application of the net proceeds from
this offering, we will have no indebtedness for borrowed money
and therefore our exposure to market risk related to interest
rates is limited. If and when we do enter into future borrowing
arrangements or borrow under our existing revolving credit
facility, we may seek to manage exposure to interest rate
changes by using a mix of debt maturities and variable- and
fixed-rate debt, together with interest rate swaps where
appropriate, to fix or lower our borrowing costs. We do not make
material sales or have material purchase obligations outside of
the United States and therefore do not generally have exposure
to foreign currency exchange risks.
38
BUSINESS
Overview
We are a developer and supplier of critical
subsystems for the semiconductor capital equipment industry,
focusing on gas delivery systems. Our gas delivery systems
enable the precise delivery of specialty gases used in a
majority of the key steps in the semiconductor manufacturing
process. Our customers are primarily OEMs of semiconductor
capital equipment. These OEMs outsource the manufacturing of
their gas delivery systems in order to improve the efficiency
and reduce the costs of their design and manufacturing
processes. We provide our customers with a full range of
services for the development, design, prototyping, engineering,
manufacturing and testing of gas delivery systems. We use our
engineering and manufacturing expertise, component neutral
platform, supply chain management and comprehensive test
capabilities to offer our customers high quality products at
reduced design-to-delivery cycle times. For the year ended
December 31, 2003, our three largest customers by revenue
were Applied Materials, Inc., Novellus Systems, Inc. and Lam
Research Corporation.
Industry Background
The manufacture of semiconductors is a highly
complex process. Bare silicon wafers undergo a series of
chemical, mechanical and physical process steps resulting in the
formation of hundreds or thousands of integrated circuits on a
single wafer. During the manufacturing process, a wafer may
cycle through each process step up to 30 times before
manufacturing is complete and each integrated circuit is fully
formed.
Semiconductor manufacturers must frequently add
new capital equipment in order to reduce manufacturing costs,
add manufacturing capacity and accommodate more technologically
advanced manufacturing processes for next generation
semiconductor devices. For example, semiconductor manufacturers
are increasingly transitioning fabrication machinery from 200mm
to 300mm wafer size in order to increase the number of
semiconductor devices produced on a single wafer. In addition,
the introduction of new materials and advances in the
manufacturing process, including smaller line width
technologies, have enabled semiconductor manufacturers to
significantly increase the functionality and thereby the
complexity of semiconductor devices. New manufacturing
techniques require absolute precision in the control of the
recipes used in the semiconductor manufacturing process. The
flow of gases and liquids into and out of the process chambers
must be carefully monitored and controlled to ensure proper
timing and duration of gas and chemical reactions within the
chambers. Minor deviations from the prescribed process recipe or
the introduction of contaminants in the process chambers can
result in device defects and manufacturing yield loss.
In order to achieve the required levels of
precision and purity in the manufacture of semiconductor
devices, gases are delivered to process chambers by delivery
systems which have been integrated into a process tool. Gas
delivery systems permit contamination-free handling and delivery
of dangerous gases and chemicals at highly accurate flow rates,
pressures and timing regimens and are used in a majority of the
key semiconductor manufacturing process steps.
A typical gas delivery system consists of one or
more gas lines, comprised of several filters, mass flow
controllers, regulators, pressure transducers and valves,
associated interconnect tubing and an integrated electronic
and/or pneumatic control system. Gas delivery systems are highly
specific and are tailored to each individual step in the
semiconductor manufacturing process as well as to the specific
requirements of OEMs and end-users. Gas delivery systems are one
of the most technologically complex subsystems incorporated into
each process tool and represent a significant portion of the
overall cost of each tool.
The semiconductor capital equipment industry is
highly cyclical. VLSI Research estimates that worldwide sales
for semiconductor manufacturing equipment totaled
$60.3 billion in 2000 and declined to $29.8 billion in
2002. VLSI estimates that this industry will grow 121% between
2002 and 2005 and will experience a cyclical downturn commencing
in 2006.
39
Historically, semiconductor capital equipment
manufacturers have either manufactured the components and
subsystems for their equipment internally or have relied on a
number of small suppliers to provide these products.
Today, however, OEMs are increasingly outsourcing
the development, design, prototyping, engineering,
manufacturing, assembly and testing of components and systems to
subsystem suppliers in order to:
Because gas delivery systems are among the most
technologically complex subsystems, we believe that OEMs need to
establish strong partner relationships with companies that
possess the engineering expertise, design capabilities, quality
control, financial stability and highly flexible manufacturing
operations required to satisfy the cyclical and constantly
changing demands of semiconductor manufacturers.
Our Solution
We are a leading developer and supplier of
critical subsystems for the semiconductor capital equipment
industry, focusing on gas delivery systems. Our products enable
our OEM customers to improve the efficiency and reduce the costs
of their design and manufacturing processes.
We offer our customers:
40
Our Strategy
Our objective is to be the leading supplier of
advanced gas delivery systems that are critical to the
semiconductor manufacturing process. We plan to use our
development, design, prototyping, engineering, manufacturing and
testing expertise and efficiency to allow us to continue to
foster strong relationships with our existing customers and
penetrate more of their product lines, while concurrently
engaging in joint-development projects with new customers. We
believe that these efforts will allow us to grow our market
share of gas delivery systems and expand into other markets.
Our strategy is comprised of the following key
elements:
41
Products
We develop, design, prototype, engineer,
manufacture and test gas delivery systems that enable the
precise delivery of numerous specialty gases used in a majority
of the key steps in the semiconductor manufacturing process,
including deposition, etch, chemical mechanical planarization (a
process used to polish off high spots on wafers or films
deposited on wafers), cleaning and annealing. Our products
control the flow, pressure, sequencing and mixing of specialty
gases into and out of the process chambers of semiconductor
manufacturing tools.
A typical gas delivery system consists of one or
more gas lines, comprised of several filters, mass flow
controllers, regulators, pressure transducers and valves,
associated interconnect tubing and an integrated electronic
and/or pneumatic control system. These systems are mounted on a
pallet and are typically enclosed in a sheet metal encasing.
42
The following diagram depicts a typical gas
delivery system configuration:
Our gas delivery systems minimize surface area
and regions in the flow stream where contaminants may otherwise
collect and stagnate. Our system designs are reconfigurable and
can accommodate different components and additional
functionality with each new generation of semiconductor devices.
Our gas delivery systems are also capable of being upgraded to
accommodate changes to existing processes within the lifecycle
of a process tool.
Our gas delivery system designs are developed in
collaboration with our customers and are customized to meet the
needs of the specific OEM. We do not sell standard systems. Our
customers either specify the particular brands of components
they want incorporated into a particular system or rely on our
design expertise to help them select the appropriate components
for their particular system. Our component neutral position
allows us to recommend components to our customers on the basis
of technology, performance and cost and to optimize our overall
designs based on these criteria.
In addition, we have developed a catalytic steam
generator, or CSGS, which we intend to offer as a stand alone
product or as an add-on feature to our gas delivery systems.
Several semiconductor manufacturing process steps utilize steam
to accelerate growth rates or removal rates on wafers. Our CSGS
produces ultra high purity steam that is suitable for various
manufacturing process steps. Our CSGS can produce steam in a
wide range of concentrations to meet various process
requirements in both 200 mm and 300 mm wafer
applications. Our CSGS features a modular design that is
scalable and can be
43
Design, Engineering and
Manufacturing
We are able to produce reliable, cost-effective
systems as a result of our proven design and engineering,
manufacturing and testing expertise and attention to quality.
Design and
engineering.
We provide our customers
with design, configuration and engineering services for their
gas delivery systems. As of February 23, 2004, we had a
47-person engineering department, consisting of mechanical
engineers, drafters and configuration analysts. We have
engineers working on-site at several of our customers
facilities.
We work with our customers to develop new product
designs and help them to clarify and define their process tool
requirements. Our component neutral position allows us to
recommend components on the basis of technology, performance and
cost and to optimize our overall designs based on these
criteria. Our product designs address our customers needs
in a reliable, cost-effective and highly customized manner. Our
engineers work to quickly identify the appropriate components
for a particular design and release the order for these
components early in the development process so that material
procurement can occur prior to the end of the development cycle.
Our engineering design department also provides configuration
services in which they define and release to our manufacturing
facilities and to the customer a documentation package for each
specific system. Additionally, our design expertise helps to
ensure that new product designs will comply with applicable
safety and environmental regulations and industry standards.
As semiconductor manufacturers continuously
adjust and modify their manufacturing processes to optimize
manufacturing yields and reduce equipment down-time, our
customers are required to make modifications to their process
tools. We partner with our customers to rapidly develop optimal
design, manufacturing and production solutions and implement
appropriate modifications to gas delivery systems to meet
end-users requirements. Our engineers are trained on our
significant customers computer aided design systems in
order to facilitate quick turnaround times.
Manufacturing.
Our
manufacturing capabilities consist of precision machining,
welding and assembly services. The breadth of our capabilities
enables us to rapidly develop manufacturing specifications,
provide precise and repeatable manufacturing and perform final
assembly of complex integrated gas delivery systems. We
manufacture components that adhere to strict design tolerances
and specifications. We operate clean room manufacturing
facilities in Menlo Park, California, Austin, Texas, and
Tualatin, Oregon. We selected these manufacturing locations to
permit us to be near our key customers and to allow us to
interact with these customers on a regular basis. Each of our
manufacturing facilities is ISO 9001:2000 certified and has
been qualified by our customers with respect to the products we
build for them. We generally implement new product and process
technologies in our Menlo Park facility before migrating these
technologies to our other facilities. In January 2004, we
completed the expansion of our clean room manufacturing facility
in Austin, Texas in order to accommodate possible growth in
demand.
Our manufacturing process is highly flexible,
enabling our customers to make alterations to their final
requirements throughout the design, engineering and
manufacturing process. This results in decreased
design-to-delivery cycle times for our customers. We use product
data management software to automate documentation changes
driven by the engineering design and redesign processes to
manage customer requests. This software works directly with our
manufacturing resource planning system to streamline the
procurement, inventory management and manufacturing processes.
Supply-chain
management.
We use a wide range of
component parts and materials in the production of our gas
delivery systems, including filters, mass flow controllers,
regulators, pressure transducers and valves. We obtain
components and other materials from a large number or sources,
including single source and sole source suppliers. We use
consignment material and just-in-time stocking programs to
better manage our component inventories in response to changing
customer requirements. These approaches
44
Testing.
In order to
ensure reliability, key components, such as mass flow
controllers, valves, regulators and pressure transducers, are
qualified prior to being integrated into our systems. These key
components are generally tested to verify conformance with
industry standards and specifications. Mass flow controllers are
tested using a primary calibration test standard prior to
installation in a gas delivery system. During the manufacturing
process, all functions of the system are tested to assure that
the lines are secure and properly connected, components operate
correctly and pneumatic logic is correct as designed and built.
This testing process also serves as a secondary test on the
calibration of the mass flow controllers. Prior to shipping,
each gas delivery system is thoroughly tested and verified to a
zero particle level. Test data is made available to customers.
In addition, every system shipped from our manufacturing
facilities is digitally photographed, providing a permanent
inspection record of the product. We use these photographs to
assist us in answering customers questions about
configuration or revision status while equipment is in the field
and unavailable for direct inspection.
Quality control.
Our
quality management system allows us to access real-time
corrective action reports, nonconformance reports, customer
complaints and controlled documentation. In addition, our senior
management conducts quarterly reviews of our quality control
system to evaluate effectiveness. Our customers also complete
quarterly surveys which allow us to measure satisfaction.
As a result of our commitment to, and strict
compliance with, quality standards, we have received several
service and quality awards from key customers for our
performance and quality business processes. We were awarded the
Novellus Outstanding Services Award in 2001 and 2002, the
Novellus Outstanding Quality Award in 2002 and 2003 and the Lam
Research Supplier Excellence Award in 2003. In addition, our
products and manufacturing processes are designed to comply with
applicable safety and environmental regulations and industry
standards.
Customers
We sell our products to manufacturers of capital
equipment for the production of semiconductor devices. The
semiconductor capital equipment industry is highly concentrated
and we are therefore highly dependent upon a small number of
customers.
The following table sets forth the percentages of
our total net sales to our three largest customers in each
period presented.
We have successfully qualified as a supplier with
each of our customers. This lengthy qualification process
involves the inspection and audit of our facilities and
evaluation by our customers of our engineering, documentation,
manufacturing and quality control processes and procedures
before that customer places orders for our products. Our
customers will generally only place orders with suppliers who
have met and continue to meet their qualification criteria.
45
Sales and Support
We sell our products through our direct sales
force which, as of February 23, 2004, consisted of a total
of 18 sales directors, account managers and sales support
staff. Our sales directors are responsible for establishing
sales strategy and setting the objectives for specific customer
accounts. Each account manager is dedicated to a specific
customer account and is responsible for the day-to-day
management of that customer. Account managers work closely with
customers and in many cases provide on-site support. Account
managers often attend customers internal meetings related
to production, engineering design and quality to ensure that
customer expectations are interpreted and communicated properly
to our operations group. Account managers also work with our
customers to identify and meet their cost and design-to-delivery
cycle time objectives.
We have dedicated account managers responsible
for new business development for gas delivery system products
and related technologies. Our new business development account
managers initiate and develop long-term, multi-level
relationships with customer accounts and work closely with
customers on new business opportunities throughout the
design-to-delivery cycle.
Our sales force includes technical sales support
for order placement, spare parts quotes and production status
updates. We have a technical sales associate located at each of
our manufacturing facilities. In addition, we have developed a
service and support infrastructure to provide our customers with
service and support 24 hours a day, seven days a week. Our
dedicated field service engineers provide customer support
through the performance of on-site installation, servicing and
repair of our gas delivery systems.
Technology Development
We engage in ongoing technology development
efforts in order to remain a technology leader for gas delivery
systems. We have a technology development group which, as of
December 31, 2003, consisted of three persons, two of whom
hold doctoral degrees. In addition, our design engineering and
new product engineering groups support our technology
development activities.
Our technology development group works closely
with our customers to identify and anticipate changes and trends
in next generation semiconductor manufacturing equipment and, in
particular, gas delivery systems. Our technology development
group is involved in customer technology partnership programs
that focus on process application requirements for gas delivery
systems. These development efforts are designed to meet specific
customer requirements in the areas of gas delivery system
design, materials, component selection and functionality. Our
technology development group also works directly with our
suppliers to help them identify new component technologies and
make necessary changes in, and enhancements to, the components
that we integrate into our products. Our analytic and testing
capabilities enable us to evaluate multiple supplier component
technologies and provide customers with a wide range of
appropriate component and design choices for their gas delivery
systems. Our analytic and testing capabilities also enable us to
predict technological changes and the requirements in component
features for next generation gas delivery systems.
Through our technology development efforts, we
are developing additional features to improve the performance
and functionality of our gas delivery systems. Recently, we have
also developed a proprietary catalytic steam generator product
which we intend to offer as a stand alone product or as an
additional feature to our gas delivery systems.
Our self-funded technology development and new
product engineering expenses were approximately $613,000,
$733,000 (excluding our write-off of $889,000 of purchased
in-process research and development) and $1,155,000 for 2001,
2002 and 2003. We perform our technology development activities
principally at our facilities in Menlo Park, California.
Intellectual Property
Our success depends in part on our ability to
maintain and protect our proprietary technology and to conduct
our business without infringing the proprietary rights of
others. Our business is largely dependent
46
We routinely require our employees, suppliers and
potential business partners to enter into confidentiality and
non-disclosure agreements before we disclose to them any
sensitive or proprietary information regarding our products,
technology or business plans. We require employees to assign to
us proprietary information, inventions and other intellectual
property they create, modify or improve.
We may be required to spend significant resources
to monitor and protect our intellectual property rights. We may
not be able to detect infringement of our proprietary rights and
may lose our competitive position in the market if any such
infringement occurs. In addition, competitors may design around
our technology or develop competing technologies and know-how.
In addition, third parties may claim that we are
infringing their intellectual property rights, and although we
do not know of any infringement by our products of the valid
intellectual property rights of third parties, we may be unaware
of intellectual property rights of others that may cover some of
our products. Any litigation regarding patents or other
intellectual property rights could be costly and time-consuming
and divert our management and key personnel from our business
operations. The complexity of the technology involved and the
uncertainty of intellectual property litigation increase these
risks. Claims of intellectual property infringement might also
require us to obtain licenses, which we may not be able to
obtain on terms acceptable to us, or at all. We also may be
subject to significant damages or injunctions against
development and sale of certain of our products if any
infringement claims against us prove successful.
Competition
Our industry is highly fragmented, and we have
numerous competitors. Our principal competitors are Celerity
Group, Inc., Integrated Flow Systems, Matheson Tri-Gas, Inc. and
Wolfe Engineering, Inc. When we compete for new business at
OEMs, we face competition from other suppliers of gas delivery
systems as well as the OEMs internal manufacturing group.
Although we have not faced competition in the past from the
largest subsystem and component manufacturers in the
semiconductor capital equipment industry, these suppliers could
compete with us in the future. In addition, OEMs that have
elected to outsource their gas delivery systems could elect in
the future to develop and manufacture these subsystems
internally, leading to further competition. We expect to face
new competitors as we enter new markets. Some of our competitors
have substantially greater financial, technical, manufacturing
and marketing resources than we do. We expect our competitors to
continue to improve the performance of their current products
and to introduce new products or new technologies that could
adversely affect sales of our current and future products. In
addition, the limited number of potential customers in our
industry further intensifies competition. We anticipate that
increased competitive pressures will cause intensified
price-based competition and we may have to reduce the prices of
our products. The primary competitive factors in our industry
are price, technology, quality, design-to-delivery cycle time,
reliability in meeting product demand, service and historical
customer relationships.
Employees
As of February 23, 3004, we had 288
employees, of which 78 were temporary employees. Of our total
employees, 47 were in engineering, 3 in technology development,
18 in sales and support, 111 in direct manufacturing, 90 in
indirect manufacturing and 19 in executive and administrative
functions. None of our employees are represented by a labor
union and we have not experienced any work stoppages.
47
Facilities
Our headquarters are located in Menlo Park,
California, where we lease approximately 32,000 square feet
of commercial space under a term lease that expires on
July 31, 2004. We expect to be able to renew this lease
prior to its expiration on more favorable terms. We use this
space for our principal administrative, sales and support,
engineering and technology development facilities and for
manufacturing purposes. Approximately 6,500 square feet at
our Menlo Park facility is a clean room manufacturing facility.
We also have manufacturing facilities in Austin, Texas, and
Tualatin, Oregon. In Austin, we lease approximately
12,000 square feet of manufacturing space under a lease
term that expires on August 1, 2005, subject to renewal for
up to five years at our option. Approximately 3,500 square feet
in Austin is a clean room manufacturing facility. In Tualatin,
we lease approximately 15,000 square feet of manufacturing
space under a term lease that expires on October 15, 2007,
subject to renewal for up to five years at our option.
Approximately 4,000 square feet in Tualatin is a clean room
manufacturing facility.
Governmental Regulation and Environmental
Matters
Our operations are subject to federal, state and
local regulatory requirements and foreign laws, relating to
environmental, waste management and health and safety matters,
including measures relating to the release, use, storage,
treatment, transportation, discharge, disposal and remediation
of contaminants, hazardous substances and wastes, as well as
practices and procedures applicable to the construction and
operation of our facilities. Our past or future operations may
result in exposure to injury or claims of injury by employees or
the public which may result in material costs and liabilities to
us. Although some risk of costs and liabilities related to these
matters is inherent in our business, we believe that our
business is operated in substantial compliance with applicable
regulations. However, new, modified or more stringent
requirements or enforcement policies could be adopted, which
could adversely affect us.
Legal Proceedings
We are not currently a party to any material
legal proceedings.
48
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Revolving Credit Facility
Table of Contents
Capital
Operating
Year Ending December 31:
Leases
Leases*
(in thousands)
123
773
92
362
55
293
31
133
$
301
$
1,561
*
Operating lease expense reflects the fact that
(1) the lease for our headquarters facility in Menlo Park,
California expires on July 31, 2004 and (2) the lease
for our manufacturing facility in Austin, Texas expires on
August 1, 2005. We expect to be able to renew our Menlo
Park lease prior to its expiration under more favorable terms.
We have an option to renew the lease on our Austin facility for
an additional five years, which we expect to exercise. Operating
lease expense set forth in the above table will increase upon
renewal of these two leases.
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reduce their investments in inventory, property,
plant and equipment in the face of cyclical demands for their
products;
reduce design-to-delivery cycle times;
take advantage of subsystem suppliers
ability to quickly modify and reconfigure product designs;
take advantage of subsystem suppliers
inventory management capabilities and purchasing power; and
focus on their core competencies in light of
increasing research and development requirements and
industry-wide pricing pressure.
A complete outsourced solution for gas
delivery systems.
We provide our OEM
customers with a complete outsourced solution for the
development, design, prototyping, engineering, manufacturing and
testing of advanced gas delivery systems, one of the most
critical and technologically complex elements of our
customers products. Our engineers work with our customers
to improve the design and performance of their gas delivery
systems while reducing the system size and overall cost. We
combine our highly specialized engineering capabilities and
regulatory compliance expertise to produce high performance
products that are customized to meet the needs of each of our
customers and their respective end-users and to comply with
applicable safety and environmental regulations and industry
standards. In addition, we use our advanced analytical and
automated equipment to perform comprehensive testing and
qualification of final gas delivery systems. We provide our
customers with a consolidated report of the key components
utilized as well as the range of performance features for each
gas delivery system we manufacture. We also manage the supply
chain logistics required to manufacture gas delivery systems.
This reduces the overall number of suppliers and inventory
levels that our customers would otherwise have to manage.
Furthermore, we believe we are often able to negotiate reduced
component prices due to our large volume orders. As a result, we
are able to help our customers improve their manufacturing
efficiencies, design-to-delivery cycle times, capital
utilization and product operating characteristics.
Improved design-to-delivery cycle times.
Our strong relationships with our
customers and familiarity with their products and requirements
help us to reduce design-to-delivery cycle times for gas
delivery systems. Our design teams are highly integrated with
the design teams of our customers and in many instances are
physically located at the OEM sites. In addition, we have
optimized our supply chain management, coordination of design
and manufacturing stages of production, logistics expertise and
manufacturing controls and can rapidly respond to order
requests. This decreases the design-to-delivery cycle times for
our customers and reduces the amount of inventory we must carry,
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thereby lowering our manufacturing costs. In
addition, we are able to quickly modify and reconfigure product
designs in order to meet end-users constantly changing
requirements as they adjust their manufacturing processes to
optimize manufacturing yields and reduce equipment down-time.
Component neutral design and manufacturing.
A typical gas delivery system consists
of one or more gas lines, comprised of several filters, mass
flow controllers, regulators, pressure transducers and valves,
associated interconnect tubing and an integrated electronic
and/or pneumatic control system. We do not manufacture any of
the components ourselves and are therefore component neutral.
This enables us to work with our customers to select the best
available components for incorporation into their gas delivery
systems. Our component neutral position allows us to recommend
components on the basis of technology, performance and cost and
to optimize our overall designs based on these criteria. It also
enables us to maintain close relationships with a wide range of
component suppliers who view us solely as a customer rather than
as a competitor.
Component testing capabilities.
In addition to our system testing
capabilities, we utilize our engineering expertise to test key
components, including mass flow controllers, regulators,
pressure transducers and valves, that we incorporate into our
gas delivery systems. We have made significant investments in
advanced analytic and automated equipment to test and qualify
key components. With our component testing capabilities we can
perform diagnostic tests, design verification and failure
analysis for both our customers and suppliers. Because we are
component neutral, we can objectively test and assess a wide
range of components. We believe that our component testing
capabilities provide us with insight into future technological
trends and provide our customers with an important value-added
service.
Increase our market share at existing
customers.
We believe that a
significant market opportunity exists to grow our business with
sales to our existing customers by both gaining market share
from our competitors and obtaining new business in different
product families as our customers continue to outsource their
gas delivery system requirements. We believe that our continued
focus on our technology development, design, engineering,
manufacturing and testing expertise and efficiency, our
design-to-delivery cycle times and ability to rapidly respond to
non-forecasted demands from our customers will allow us to gain
market share from our competitors and attract additional
business from existing customers. In addition, we are expanding
our manufacturing capacity to meet increased customer demand.
Broaden our customer base by expanding our
resources and geographical presence.
We plan to continue to grow our
business and attract new customers by promoting both the merits
of outsourcing by leading OEMs and our own proven ability to
meet the demands of OEMs. We plan to expand our geographic
footprint in regions that put us in close proximity with both
the manufacturing locations of new product families at existing
customers as well as with new or potential customers. In
addition, we believe significant growth opportunities exist in
Europe and Asia. We are currently evaluating the likely cost and
most suitable location to build a manufacturing facility in a
low cost region, most likely in Asia. As we grow our business,
we plan to increase our sales and support resources, as well as
design, engineering and manufacturing capabilities.
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Drive profitable growth with our flexible cost
structure.
In response to cyclical
changes in the demand for semiconductor capital equipment, we
undertake cost containment initiatives and benefit from our
supply chain efficiencies. We recently completed the expansion
of our manufacturing capacity to meet increased customer demand
and believe that we are well positioned to respond to an upturn
in our business with our current manufacturing capacity. In
addition, we recently added a significant number of
manufacturing personnel and additional test equipment to meet
increased demand. Historically, we have been able to train
assembly technicians in two weeks and weld technicians in four
weeks. Generally, new test equipment takes less than twelve
weeks to design and build.
Expand into new product markets using our
existing expertise.
We are committed
to expanding beyond gas delivery systems into new product
markets such as liquid delivery systems, catalytic steam
generation systems and frame assembly design. We believe the
following attributes will allow us to enter new markets:
our understanding of the semiconductor
manufacturing process;
our expertise in efficient technology
development, design, engineering, manufacturing and testing;
our supply chain management expertise; and
our strong relationships with existing customers.
Selectively pursue strategic acquisitions.
We may choose to accelerate the growth
of our business by selectively pursuing strategic acquisitions.
We will consider strategic opportunistic acquisitions that will
enable us to expand our geographic reach, secure new customers,
diversify into complementary product markets and broaden our
technological capabilities and product offerings.
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Filters
prevent
particle matter from entering the process chambers.
Mass flow controllers
are devices that control the amount of
gas flowing into the process chambers.
Regulators
regulate
gas pressure (usually by means of a pre-loaded spring) in order
to maintain a constant level of downstream pressure.
Pressure transducers
are pressure sensors that display and
transmit an analog signal of gas pressure.
Valves
provide
positive shut-off for the gas stream, either by pneumatic
control or manual operation.
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Year Ended
December 31,
2001
2002
2003
51
%
46
%
47
%
40
%
26
%
24
%
26
%
21
%
91
%
98
%
92
%
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MANAGEMENT
Executive Officers and Directors
Set forth below is information concerning our
executive officers and directors as of March 8, 2004:
Name
Age
Position
55
President, Chief Executive Officer, Chief
Operating Officer and Director
49
Chief Financial Officer
55
Vice President of Engineering
42
Vice President of Sales
35
Vice President of Technology and Chief Technology
Officer
58
Director
53
Director
34
Director
44
Director
32
Director
53
Director
Clarence L. Granger, has served as our Chief Executive Officer since November 2002, as our President and Chief Operating Officer since March 1999 and as a director since May 2002. Mr. Granger served as our Executive Vice President and Chief Operating Officer from January 1998 to March 1999 and as our Executive Vice President of Operations from April 1996 to January 1998. Prior to joining Ultra Clean in April 1996, he served as Vice President of Media Operations for Seagate Technology from 1994 to 1996. Prior to that, Mr. Granger worked for HMT Technology as Chief Executive Officer from 1993 to 1994, as Chief Operating Officer from 1991 to 1993 and as President from 1989 to 1994. Prior to that, Mr. Granger worked for Xidex as Vice President and General Manager, Thin Film Disk Division, from 1988 to 1989, as Vice President, Santa Clara Oxide Disk Operations, from 1987 to 1988, as Vice President, U.S. Tape Operations, from 1986 to 1987 and as Director of Engineering from 1983 to 1986. Mr. Granger holds a master of science degree in industrial engineering from Stanford University and a bachelor of science degree in industrial engineering from the University of California at Berkeley.
Kevin L. Griffin has served as our Chief Financial Officer since February 2000. Mr. Griffin served as our controller from May 1992 to February 2000. Prior to joining Ultra Clean in May 1992, Mr. Griffin served as Manager of Accounting and Finance at Mitsubishi International Corporation from 1989 to 1991. Prior to that, Mr. Griffin was employed by Rudolf & Sletten as a project accountant from 1987 to 1988. Mr. Griffin holds a bachelor of arts degree in economics and history from the University of California at Santa Barbara.
Bruce Wier has served as our Vice President of Engineering since February 2000. Mr. Wier served as our Director of Design Engineering from July 1997 to February 2000. Prior to joining Ultra Clean in July 1997, Mr. Wier was the Engineering Manager for the Oxide Etch Business Unit at Lam Research from April 1993 to June 1997. Prior to that, Mr. Wier was the Senior Project Engineering Manager at Genus from May 1990 to April 1993, the Mechanical Engineering Manager at Varian Associates from November 1985 to May 1990, and the Principal Engineer/ Project Manager at Eaton Corporation from February 1981 to November 1985. Mr. Wier is also on the board of directors of, and is the Chief Financial Officer for, Acorn Travel, a travel company formed by his wife in 1999. Mr. Wier holds a bachelor of science degree cum laude in mechanical engineering from Syracuse University.
Deborah Hayward has served as our Vice President of Sales since October 2002. Ms. Hayward served as our Senior Sales Director from May 2001 to October 2002, as Sales Director from February 1998 to May 2001 and as a major account manager from October 1995 to February 1998. Prior to joining Ultra Clean in 1995, she was a customer service manager and account manager at Brooks Instruments from 1985 to 1995.
49
Sowmya Krishnan, Ph.D., has served as our Vice President of Technology since January 2004 and as our Chief Technology Officer since February 2001. Dr. Krishnan served as our Director of Technology Development from January 1998 to January 2001, as Manager of Technology Development from January 1995 to December 1997 and as manager of a joint evaluation program between Ultra Clean and VLSI Technology from February 1994 to December 1994. Dr. Krishnan holds a master of science degree in chemical engineering and a doctorate degree in chemical engineering from Clarkson University.
Brian R. Bachman has served as a director of Ultra Clean since March 2004. Mr. Bachman was the Chief Executive Officer and Vice Chairman of Axcelis Technologies, Inc. from May 2000 to January 2002. Prior to that, he was Senior Vice President and Group Executive-Hydraulics, Semiconductor Equipment and Specialty Controls of Eaton Corporation from December 1995 to July 2000 and Vice President and general manager for the Standard Products Business Group of Philips Semiconductors B.V. from 1991 to 1995. Prior to that, Mr. Bachman held various positions with FMC Corporation, General Electric Co. and TRW Inc. and was president of General Semiconductor, Inc., a subsidiary of Square D Co., and was a group General Manager with ITT Industries Inc. Mr. Bachman is on the board of directors of Keithley Instruments, Inc. and Kulicke and Soffa Industries, Inc. He is also an adjunct professor at Northwestern Universitys Kellogg McCormick Master of Management in Manufacturing Program.
Sue Billat has served as a director of Ultra Clean since March 2004. Ms. Billat has been a principal at Benchmark Strategies, which she founded in 1990, since 2002. Prior to that, she was a Managing Director and senior research analyst for semiconductor equipment and foundries at Robertson Stephens & Company from 1996 to 2002 and senior vice president of marketing for Utratech Stepper from 1994 to 1996. Ms. Billat is on the board of directors of PDF Solutions. Ms. Billat holds a bachelor of science degree and masters in physics from Georgia Tech and completed further graduate studies in electrical engineering and engineering management at Stanford University.
Dipanjan Deb has served as a director of Ultra Clean since November 2002. Mr. Deb is a founder of Francisco Partners and has been a partner since its formation in August 1999. Prior to joining Francisco Partners, Mr. Deb was a principal with Texas Pacific Group from 1998 to 1999. Earlier in his career, Mr. Deb was director of semiconductor banking at Robertson Stephens & Company and a management consultant at McKinsey & Company. Mr. Deb is also on the board of directors of AMIS Holdings, Inc., Conexant Systems, Inc., Legerity, Inc. and NPTest Holding Corporation. Mr. Deb holds a bachelor of science degree in electrical engineering and computer science from the University of California, Berkeley, where he was a Regents Scholar, and masters in business administration from the Stanford University Graduate School of Business.
Kevin C. Eichler has served as a director of Ultra Clean since March 2004. Mr. Eichler has been the Vice President and Chief Financial Officer of MIPS Technologies, Inc. since June 1998. Prior to that, he was Vice President of Operations and Chief Financial Officer of Visigenic Software Inc. from 1996 to 1998, Executive Vice President of Finance and Chief Financial Officer of National Information Group from 1995 to 1996 and Executive Vice President of Finance and Chief Financial Officer of Mortgage Quality Management, Inc. from 1991 to 1995. Prior to 1991, Mr. Eichler held management positions with NeXT Software and Microsoft. Mr. Eichler is on the board of directors of SupportSoft, Inc. and Magma Design Automation, Inc. Mr. Eichler holds a bachelor of science degree in accounting from St. Johns University.
David T. ibnAle has served as a director of Ultra Clean since November 2002. Mr. ibnAle is a Principal of Francisco Partners and has been an investment professional with Francisco Partners since December 1999, when he joined as a Vice President. Prior to joining Francisco Partners, Mr. ibnAle was an Associate with Summit Partners from 1996 to 1998. Prior to that he worked in the Corporate Finance Department of Morgan Stanley & Co. from 1994 to 1996. Mr. ibnAle also worked in the Fixed Income Division of Goldman Sachs & Co. Mr. ibnAle holds an A.B. in public policy and an A.M. in international development policy from Stanford University and a masters in business administration from the Stanford University Graduate School of Business.
50
Thomas M. Rohrs
has
served as a director of Ultra Clean since January 2003.
Mr. Rohrs has been Vice President, Strategic Development,
of Applied Global Services since October 2003. Prior to that, he
was a senior advisor to Applied Materials, Inc. from May 2002 to
September 2003 and Senior Vice President, Global Operations, at
Applied Materials, Inc. from November 1997 to April 2002. Prior
to that he was Vice President, Worldwide Operations, for Silicon
Graphics from 1992 to 1997 and Senior Vice President,
Manufacturing and Customer Service, at MIPS Computer Systems
from 1989 to 1992. Prior to 1989, Mr. Rohrs was employed by
Hewlett Packard in a number of managerial positions.
Mr. Rohrs is on the board of directors of Magma Design
Automation, Inc., Ion Systems, Inc. and nthOrbit, Inc.
Mr. Rohrs has a bachelor of science in mechanical
engineering from the University of Notre Dame and a masters in
business administration from Harvard Business School. He serves
on the Engineering Advisory Council for the University of Notre
Dame.
Board Structure and Compensation
Pursuant to a stockholders agreement, our
principal stockholder, FP-Ultra Clean, LLC, which is controlled
by Francisco Partners, has the right to nominate for election a
majority of the members of our board of directors as long as it
holds at least 25% of our outstanding common stock. However, as
FP-Ultra Clean, LLCs ownership interest in us decreases,
its right to nominate directors will be reduced as follows:
Percent of nominees for election
Percentage stock ownership
to our board of directors
50%
25%
20%
10%
0%
Our board of directors currently consists of seven directors. All of our directors will stand for election at each annual meeting of stockholders. Non-employee directors will be paid a $20,000 annual fee, a $5,000 annual fee per committee on which a non-employee director serves and a $5,000 annual fee per committee on which a non-employee director serves as the chairperson. In addition, upon joining our board, non-employee directors will be granted options to purchase 15,000 shares of our common stock under our Amended and Restated 2003 Stock Incentive Plan. For the year ended December 31, 2003, Mr. Rohrs was granted options to purchase 32,500 shares of our common stock and earned a one-time fee of $25,000 in connection with services performed as a director. In addition, in March 2004, Mr. Rohrs was granted 62,500 shares of restricted common stock under our Amended and Restated 2003 Stock Incentive Plan which vests over four years.
Our board of directors has the following committees:
Audit Committee. The audit committee of our board of directors reviews our financial statements and accounting practices and makes recommendations to our board of directors regarding the selection of independent auditors. In addition, any transaction in which one of our directors has a conflict of interest must be disclosed to our board of directors and reviewed by the audit committee. Under our corporate governance guidelines, if a director has a conflict of interest, the director must disclose the interest to the audit committee and our board of directors and must recuse himself or herself from participation in the discussion and must not vote on the matter. In addition, the audit committee is authorized to retain special legal, accounting or other advisors in order to seek advice or information with respect to all matters under consideration, including potential conflicts of interest. Our audit committee consists of Messrs. Bachman, Eichler and ibnAle and Ms. Billat. | |
Compensation Committee. The compensation committee of our board of directors makes recommendations to our board of directors concerning salaries and incentive compensation for our officers and employees and administers our employee benefit plans. Our compensation committee consists of Messrs. Bachman, Deb, ibnAle and Rohrs. | |
51
Nominating and Corporate Governance Committee. The nominating and corporate governance committee of our board of directors identifies and recommends nominees to our board of directors, oversees and sets compensation for our directors and oversees compliance with our corporate governance guidelines. Our nominating and corporate governance committee consists of Messrs. Deb, ibnAle and Rohrs. |
Under Exchange Act and Nasdaq rules, each of our
board committees must have at least one independent member as of
the date of this offering, a majority of independent members
within 90 days of the date of this offering and all
independent members within one year of the date of this
offering. As a result of these new rules, we will be required to
change the composition of each of our board committees over time
to satisfy these requirements.
Compensation Committee Interlocks and Insider
Participation
No member of the compensation committee will
serve as a member of the board of directors or compensation
committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation
committee. Additional information concerning transactions
between us and entities affiliated with members of the
compensation committee is included in this prospectus under the
caption Certain Relationships and Related Party
Transactions.
Executive Compensation
The following table sets forth compensation
information for 2003 for our executive officers.
Summary Compensation Table
Annual Compensation
Other
Annual
All Other
Name And Principal Position
Salary
Bonus
Compensation
Compensation (1)
$
233,076
$
34,454
$
10,937
President and Chief Executive Officer
179,663
17,498
665
Chief Financial Officer
180,838
13,707
9,404
Vice President of Engineering
110,298
70,415
(2)
2,956
Vice President of Sales
123,654
6,124
3,700
Vice President of Technology and Chief Technology
Officer
(1) | Amounts shown under All Other Compensation reflect our contributions to our 401(k) plan on behalf of our executive officers. In addition, the amounts shown for Mr. Granger, Mr. Griffin and Mr. Wier also include $2,197, $665 and $1,266, respectively, for life insurance premiums. |
(2) | This amount reflects commissions paid to Ms. Hayward. |
52
Stock Option Grants in 2003
The following table sets forth information
concerning grants of options to acquire shares of our common
stock granted to our executive officers for the year ended
December 31, 2003. All options listed in the table become
vested and exercisable over a four year period from the grant
date, with the first 25% vesting on the first anniversary of the
grant date and 1/48 of the shares vesting monthly
thereafter. The options were granted at an exercise price equal
to the fair market value of our common stock on the grant date,
as determined by our board of directors.
Individual Grants
Potential Realizable Value at
Number of
Percentage of
Assumed Annual Rates of
Securities
Total Options
Stock Price Appreciation for
Underlying
Granted to
Option Term(1)
Options
Employees in
Exercise Price
Name
Granted
2003
($/Share)
Expiration Date
5%
10%
385,000
36.08
%
$
1.00
2/20/2013
$
6,185,000
$
9,601,000
125,000
11.72
1.00
2/20/2013
2,008,000
3,117,000
88,750
8.32
1.00
2/20/2013
1,426,000
2,213,000
46,250
4.33
1.00
2/20/2013
743,000
1,153,000
16,250
1.52
1.00
7/28/2013
267,000
423,000
31,250
2.93
1.00
2/20/2013
502,000
779,000
(1) | This represents hypothetical gains that would exist for the options at the end of their respective terms based on assumed annualized rates of compound stock price appreciation from the date of this prospectus of 5% and 10% based on an assumed initial public offering price of $11.00 per share. The disclosure of 5% and 10% assumed rates is required by the rules of the Securities and Exchange Commission and does not represent our estimate or projection of future common stock prices or stock price growth. |
Aggregate Option Exercises in 2003 and Year-End Option Values
The following table sets forth information regarding unexercised options held as of December 31, 2003 by each of our executive officers. None of our executive officers exercised any stock options in the year ended December 31, 2003.
Number of Securities | Value of Unexercised | |||||||||||||||
Underlying Unexercised Options | In-The-Money Options at | |||||||||||||||
at December 31, 2003 | December 31, 2003(1) | |||||||||||||||
|
|
|||||||||||||||
Name | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||
|
|
|
|
|
||||||||||||
Clarence L. Granger
|
| 385,000 | | $ | 3,850,000 | |||||||||||
Kevin L. Griffin
|
| 125,000 | | 1,250,000 | ||||||||||||
Bruce Wier
|
| 88,750 | | 887,500 | ||||||||||||
Deborah Hayward
|
| 62,500 | | 625,000 | ||||||||||||
Sowmya Krishnan
|
| 31,250 | | 312,500 |
(1) | The value of unexercised in-the-money options is based on an assumed initial public offering price of $11.00 per share, minus the exercise price of the option, multiplied by the number of shares issued upon the exercise of the option. |
Employment Agreements
Employment Agreement with Clarence L. Granger |
We entered into an employment agreement with Clarence L. Granger dated November 15, 2002, as amended on March 2, 2004, pursuant to which he agreed to serve as our President and Chief Executive Officer through March 2006. His employment agreement provides for a base salary of $300,000. He
53
Employment Agreement with Kevin L. Griffin |
We entered into an employment agreement with Kevin L. Griffin dated November 15, 2002, as amended on March 2, 2004, pursuant to which he agreed to serve as our Chief Financial Officer. His employment agreement provides for a base salary of $150,000. He received a signing bonus of $314,000. Under his employment agreement, Mr. Griffin is eligible to receive an annual bonus of up to $95,000, subject to the satisfaction of performance goals as may be set by our board of directors. In the event that Mr. Griffin is terminated by us without cause, he is entitled to continue to receive the amount of his base salary for 12 months (offset by any income earned by him during such 12 months). Mr. Griffin also entered into a non-compete agreement with us which expires on November 15, 2004. During the third quarter of 2003, Mr. Griffin agreed to a voluntary reduction in his base salary as a result of our decreased sales stemming from the continued downturn in the semiconductor capital equipment industry.
Restricted Securities Purchase Agreements
In connection with the Ultra Clean acquisition, we entered into Restricted Securities Purchase Agreements, each dated as of November 26, 2002, with some of our key employees, including Messrs. Granger, Griffin and Wier and Dr. Krishnan. Pursuant to these agreements, we issued and sold an aggregate of 178,975 shares of our common stock at a purchase price of $1.00 per share and $536,900 aggregate principal amount of our Series A Senior Notes to these key employees. We also granted an aggregate of 268,525 shares of our common shares and $805,500 aggregate principal amount of our Series A Senior Notes to these same key employees, which we refer to as bonus securities. The bonus securities vest at a rate of 25% annually over a four year period, subject to continued employment, and become fully vested upon a change in control. A change in control will be deemed to have occurred upon the consummation of a merger or consolidation of us with or into any other entity, the sale or disposition of all or substantially all of our assets or any acquisition by any person or persons of the beneficial ownership of more than 50% of the voting power of our equity securities in a single transaction or series of related transactions; provided that an underwritten public offering of our securities shall not be considered a change in control. The first 25% of the bonus securities vested in November 2003. We expect to repurchase all of the vested and unvested Series A Senior Notes with a portion of the net proceeds of this offering. See Use of Proceeds. Unvested shares of our common stock will continue to vest pursuant to the terms of the Restricted Securities Purchase Agreements.
In addition, on February 20, 2003, we entered into a second Restricted Securities Purchase Agreement with Mr. Granger pursuant to which we issued and sold to him an aggregate of 47,645 shares of our common stock at a purchase price of $1.00 per share, for a total purchase price of $47,645.
54
The following table sets forth the purchase by
and grant of notes and common stock to some of our key employees:
Name
Purchased Shares
Purchased Notes
Bonus Shares
Bonus Notes
153,845
$
318,600
159,300
$
477,900
30,325
91,000
45,500
136,500
21,225
63,700
31,850
95,600
7,575
22,700
11,375
34,100
13,650
40,900
20,500
61,400
226,620
$
536,900
268,525
$
805,500
Benefit Plans
Amended and Restated 2003 Stock Incentive Plan |
Our Amended and Restated 2003 Stock Incentive Plan provides for the grant of stock options and other stock-based awards, such as restricted stock or restricted stock units. Employees and consultants of ours or of our parent or subsidiaries are eligible to receive awards under the plan. Members of our board of directors are also eligible to receive awards under the plan.
As of December 31, 2003, there were outstanding options to purchase 1,055,250 shares of common stock under the plan. Upon completion of this offering, stock awards under the plan may consist of a maximum of 1,889,677 shares of common stock, subject to adjustment in the event of certain corporate events such as stock splits. The number of shares reserved for issuance under our Amended and Restated 2003 Stock Incentive Plan will increase automatically on January 1 of each year beginning in 2005 through 2014 by an amount equal to the lesser of 2.0% of our then outstanding shares or 370,228 shares, or such lesser number of shares as may be approved by our board of directors.
Shares under the plan may consist, in whole or in part, of authorized and unissued shares or treasury shares. If any shares covered by (or related to) an award granted under the plan are forfeited, or if such award is settled for cash, is otherwise terminated, or is canceled without the delivery of shares, then the shares covered by (or related to) such award shall again become shares with respect to which awards may be granted. In addition, shares tendered in satisfaction or partial satisfaction of the exercise price of any award, or any tax withholding obligations, will again become shares with respect to which awards may be granted.
Our board of directors or a committee appointed by our board of directors administers the plan, referred to herein as the Administrator. Subject to the provisions of the plan, the Administrator has the authority to, among other things, make rules and regulations appropriate for the administration of the plan and determine the persons to whom awards may be granted, the number of shares to be covered by each award, the exercise or purchase price of each award, if applicable, the vesting schedule of each award, and whether a stock option will be designated as an incentive stock option or non-statutory stock option.
Both incentive stock options and non-qualified stock options may be granted under the plan. The Administrator determines the exercise price of each stock option; provided, however, the exercise price of a stock option may not be less than 100% of the fair market value at the time the option is granted. Options will be exercisable at such times and subject to such other terms and conditions the Administrator may, in its sole discretion, specify in the applicable option agreement. If other stock-based awards are granted under the plan, the Administrator will determine the terms and conditions of the awards at the time of the grant.
Unless otherwise provided in the optionees option agreement, if the optionees employment is terminated other than due to death or disability or for cause, then the optionee generally has three months from the date of termination to exercise any options that are vested and exercisable on the date of termination. If the optionees termination of employment is due to the optionees death or disability, all
55
Generally, unless the applicable award agreement provides otherwise, an award granted under the plan may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered other than by will or the laws of descent and distribution.
In the event of a change of control, the Administrator may:
| cause any outstanding award under the plan to be continued by us, assumed or substituted with a substantially equivalent award by the successor company (or any parent or subsidiary of the successor company), or canceled in consideration of a cash payment or alternative award, if applicable, made to the holder of such canceled award equal to the fair market value of such canceled award less any exercise price (provided that the Administrator may determine that only holders of vested awards shall receive any such cash payment or the alternative award), or | |
| take any other action or actions with respect to the outstanding awards that it deems appropriate. | |
Any award (or any portion of such award) not continued or assumed by us or any successor company (or any of its parent or subsidiary companies), as applicable, will terminate on such change of control and the holder will be entitled to no consideration for such award.
Subject to certain conditions and stockholder approval as necessary, our board of directors may amend, alter or terminate the plan at any time, but no amendment may impair the rights of any optionee with respect to any outstanding option without that optionees consent. The plan will remain in effect until it is terminated by our board of directors, although no incentive stock options may be granted under the plan later than ten years from the date the plan was adopted by our board of directors.
Employee Stock Purchase Plan |
Our board of directors and stockholders have approved and adopted our Employee Stock Purchase Plan, to be implemented after completion of our initial public offering, as determined by our board of directors. Our Employee Stock Purchase Plan is intended to qualify as an employee stock purchase plan under Section 423 of the Internal Revenue Code. The stock purchase plan is designed to enable eligible employees to purchase shares of our common stock at a discount on a periodic basis through payroll deductions. We have reserved 555,343 shares of our common stock for issuance under our stock purchase plan, subject to adjustment in the event of certain corporate events such as stock splits. The shares will consist, in whole or in part, of authorized but unissued shares or treasury shares, including shares purchased on the open market or otherwise.
Our employees generally will be eligible to participate in the stock purchase plan if they are employed by us or by a subsidiary of ours that we designate. Our employees are not eligible to participate in the stock purchase plan if they are 5% stockholders or would become 5% stockholders as a result of their participation in the stock purchase plan. An employees participation in the stock purchase plan will end automatically upon termination of employment for any reason.
Our board of directors or a committee of our board administers the plan and has full and exclusive authority to interpret the terms of the plan, determine eligibility and amend the plan (subject to stockholder approval where required by applicable law).
Our plan contains consecutive, overlapping offering periods of 12 months. Each offering period includes two six-month purchase periods. The plan permits participants to purchase common stock through payroll deductions of up to 10% of their eligible compensation.
Amounts deducted and accumulated by the participant are used to purchase shares of our common stock at the end of each six-month purchase period (subject to any limitations imposed by the Internal
56
In the event of our merger with or into another corporation, a sale of all or substantially all of our assets, or a change of control (collectively, a Corporate Transaction), a successor corporation may assume or substitute each outstanding option. If the successor corporation does not assume or substitute for each of the outstanding options, the purchase period then in progress will be shortened by setting a new exercise date, which shall be before the communication of the Corporate Transaction, and any offering period then in progress will end on the new exercise date.
Subject to certain conditions and stockholder approval as necessary, our board of directors may amend, alter or discontinue the plan at any time, but generally no amendment may impair the rights of any optionee with respect to any outstanding option without that optionees consent. Our plan will terminate in 2024 unless earlier terminated by our board of directors.
401(k) Plan |
We sponsor a defined contribution plan intended to qualify under Section 401 of the Internal Revenue Code, or a 401(k) plan. Eligible employees may make pre-tax contributions to the plan of a percentage of their eligible compensation, subject to certain limits. We match between 50% and 100% of employee contributions (up to 6% of the employees annual eligible compensation), depending on the years of service of the employee.
57
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial ownership of our common stock outstanding as of December 31, 2003 and on an as adjusted basis to reflect the sale of shares in this offering for:
| each person or group known by us to beneficially own more than 5% of our common stock; | |
| each of our directors and executive officers; | |
| all of our directors and executive officers as a group; and | |
| the selling stockholder, FP-Ultra Clean, LLC, that is offering shares in the over-allotment option granted to the underwriters. |
In accordance with the rules of the Securities and Exchange Commission, beneficial ownership includes voting or investment power with respect to securities and includes the shares issuable pursuant to stock options that are exercisable within 60 days of December 31, 2003. Shares issuable pursuant to stock options are deemed outstanding for computing the ownership percentage of the person holding such options but are not outstanding for computing the ownership percentage of any other person. The number of shares of common stock outstanding after this offering reflects the sale by us of 7,000,000 shares of common stock in this offering. The percentage of beneficial ownership for the following table is based on 10,245,395 shares of common stock outstanding as of December 31, 2003.
Unless otherwise indicated, the address of each
of the named entities or individuals is c/o Ultra Clean
Holdings, Inc., 150 Independence Drive, Menlo Park,
California 94025. To our knowledge, except as indicated in the
footnotes to this table and pursuant to applicable community
property laws, the persons named in the table have sole voting
and investment power with respect to all shares of common stock.
Shares Beneficially
Shares Beneficially
Owned After the
Owned After the
Shares Beneficially
Offering Without
Offering With
Owned Before the
Exercise of Over-
Number of
Exercise of Over-
Offering
Allotment Option
Shares Offered
Allotment Option
Name and Address of
in Over-
Beneficial Owner
Number
Percent
Number
Percent
Allotment
Number
Percent
9,750,250
95.2
%
7,650,250
44.4
%
1,365,000
6,285,250
36.4
%
c/o Francisco Partners, L.P.
2882 Sand Hill Road, Suite 280
Menlo Park, CA 94025
9,750,250
95.2
%
7,650,250
44.4
%
1,365,000
6,285,250
36.4
%
c/o Francisco Partners, L.P.
2882 Sand Hill Road, Suite 280
Menlo Park, CA 94025
409,395
4.0
%
409,395
2.4
%
409,395
2.4
%
107,075
1.0
%
107,075
*
107,075
*
75,262
*
75,262
*
75,262
*
11,562
*
11,562
*
11,562
*
26,762
*
26,762
*
26,762
*
58
Shares Beneficially | Shares Beneficially | |||||||||||||||||||||||||||
Owned After the | Owned After the | |||||||||||||||||||||||||||
Shares Beneficially | Offering Without | Offering With | ||||||||||||||||||||||||||
Owned Before the | Exercise of Over- | Number of | Exercise of Over- | |||||||||||||||||||||||||
Offering | Allotment Option | Shares Offered | Allotment Option | |||||||||||||||||||||||||
Name and Address of |
|
|
in Over- |
|
||||||||||||||||||||||||
Beneficial Owner | Number | Percent | Number | Percent | Allotment | Number | Percent | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||||||||||
Dipanjan Deb(8)
|
9,750,250 | 95.2 | % | 7,650,250 | 44.4 | % | 1,365,000 | 6,285,250 | 36.4 | % | ||||||||||||||||||
Brian R. Bachman(9)
|
| | | | | | | |||||||||||||||||||||
Sue Billat(10)
|
| | | | | | | |||||||||||||||||||||
David T. ibnAle(11)
|
9,750,250 | 95.2 | % | 7,650,250 | 44.4 | % | 1,365,000 | 6,285,250 | 36.4 | % | ||||||||||||||||||
Kevin C. Eichler(12)
|
| | | | | | | |||||||||||||||||||||
Thomas M. Rohrs(13)
|
66,562 | * | 66,562 | * | | 66,562 | * | |||||||||||||||||||||
All executive officers and directors as a group
(11 persons)(14)
|
10,446,868 | 97.9 | % | 8,346,868 | 47.2 | % | 1,365,000 | 6,981,868 | 39.5 | % |
* | Less than 1% of the outstanding shares of common stock. |
(1) | All of the membership interests of FP-Ultra Clean, LLC are beneficially owned by Francisco Partners, L.P. Voting and investment power belongs to a group of managing directors of Francisco Partners, L.P. Francisco Partners, L.P.s managing directors include Dipanjan Deb, David Stanton, Benjamin Ball, Neil Garfinkel, David Golob, Sanford Robertson, Gerald Morgan and Keith Geeslin. The voting and investment power belongs to a group and not to any individual managing director. Each of these managing directors disclaims beneficial ownership of the securities held by Francisco Partners, L.P., except with respect to his pecuniary interest in Francisco Partners, L.P. |
(2) | Francisco Partners, L.P.s managing directors include Dipanjan Deb, David Stanton, Benjamin Ball, Neil Garfinkel, David Golob, Sanford Robertson, Gerald Morgan and Keith Geeslin. |
(3) | Includes 119,475 unvested shares granted in connection with the Ultra Clean acquisition and options to purchase 96,250 shares of common stock exercisable within 60 days of December 31, 2003. See Management Restricted Securities Purchase Agreements. |
(4) | Includes 34,125 unvested shares granted in connection with the Ultra Clean acquisition and options to purchase 31,250 shares of common stock exercisable within 60 days of December 31, 2003. See Management Restricted Securities Purchase Agreements. |
(5) | Includes 23,887 unvested shares granted in connection with the Ultra Clean acquisition and options to purchase 22,187 shares of common stock exercisable within 60 days of December 31, 2003. See Management Restricted Securities Purchase Agreements. |
(6) | Includes options to purchase 11,562 shares of common stock exercisable within 60 days of December 31, 2003. |
(7) | Includes 8,531 unvested shares granted in connection with the Ultra Clean acquisition and options to purchase 7,812 shares of common stock exercisable within 60 days of December 31, 2003. See Management Restricted Securities Purchase Agreements. |
(8) | Includes 9,750,250 shares beneficially owned by Francisco Partners, L.P. Mr. Deb is a managing director of Francisco Partners, L.P. and disclaims beneficial ownership of the shares held by Francisco Partners, L.P., except with respect to his pecuniary interest in Francisco Partners, L.P. |
(9) | Appointed as a director on March 5, 2004. |
(10) | Appointed as a director on March 5, 2004. |
(11) | Includes 9,750,250 shares beneficially owned by Francisco Partners, L.P. Mr. ibnAle is a principal of Francisco Partners, L.P. and disclaims beneficial ownership of the shares held by Francisco Partners, L.P., except with respect to his pecuniary interest in Francisco Partners, L.P. |
(12) | Appointed as a director on March 5, 2004. |
59
(13) | Includes 62,500 shares of restricted common stock granted in March 2004 under our Amended and Restated 2003 Stock Incentive Plan and options to purchase 4,062 shares of common stock exercisable within 60 days of December 31, 2003. |
(14) | Includes 9,750,250 shares beneficially owned by Francisco Partners, L.P., 186,023 unvested shares granted in connection with the Ultra Clean acquisition, options to purchase 173,123 shares of common stock exercisable within 60 days of December 31, 2003 and 62,500 shares of restricted common stock granted in March 2004 under our Amended and Restated 2003 Stock Incentive Plan. |
60
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Relationship with Francisco Partners
On November 15, 2002, Ultra Clean Holdings, Inc., which is owned by FP-Ultra Clean, LLC (95.2%) and by some of our key employees (4.8%), acquired Ultra Clean Technology Systems and Service, Inc. After completion of this offering, FP-Ultra Clean, LLC will own approximately 44.4% of our outstanding common stock, assuming no exercise of the underwriters over-allotment option. Two of our directors, Messrs. Deb and ibnAle, are employees of Francisco Partners. Set forth below is a brief description of the existing relationships and agreements between us and Francisco Partners.
5% Series A Senior Notes due 2009 |
In connection with the Ultra Clean acquisition, we issued and sold to FP-Ultra Clean, LLC, in a series of transactions from November 15, 2002 through December 2, 2002, an aggregate of $29,250,000 of our Series A Senior Notes. The notes bear interest at a rate of 5% per annum which is payable in cash, semi-annually, on June 15 and December 15 and can be repaid, in whole or in part, without penalty. We expect to repurchase these notes with a portion of the net proceeds of this offering. See Use of Proceeds.
Advisory Fees |
In connection with the Ultra Clean acquisition, we paid an advisory fee of $2.0 million to Francisco Partners Management, LLC, an affiliate of Francisco Partners, L.P. In addition, we have agreed to pay Francisco Partners Management, LLC a one-time fee of $2.0 million for advisory services performed during the period leading up to our initial public offering. We are not required to pay any additional advisory services or other similar fees to Francisco Partners or any of its affiliates.
Stockholders Agreement |
We and FP-Ultra Clean, LLC have entered into a stockholders agreement. The stockholders agreement covers matters of corporate governance, restrictions on transfer of our securities and information rights.
Corporate Governance. The stockholders agreement provides that FP-Ultra Clean, LLC has the right to nominate for election members of our board of directors as set forth under Management Board Structure and Compensation.
The stockholders agreement also provides that our board of directors may not take certain significant actions without the approval of FP-Ultra Clean, LLC as long as it owns at least 25% of our outstanding common stock. These actions include:
| mergers, acquisitions or certain sales of assets; | |
| any liquidation, dissolution or bankruptcy; | |
| issuances of securities; | |
| determination of compensation and benefits for our chief executive officer and chief financial officer; | |
| appointment or dismissal of any of the chairman of our board of directors, chief executive officer, chief financial officer or any other executive officer in any similar capacity; | |
| amendments to the stockholders agreement or exercise or waiver of rights under the stockholders agreement; | |
| amendments to our charter or bylaws; | |
| any increase or decrease in the number of directors that comprise our board of directors; |
61
| the declaration of dividends or other distributions; | |
| any incurrence or refinancing of indebtedness in excess of $10 million; | |
| approval of our business plan, budget and strategy; and | |
| modification of our long-term business strategy. |
All of the provisions of the stockholders agreement are expressly subject to any requirements as to governance imposed by rules of the Securities and Exchange Commission, The Nasdaq National Market or any other exchange on which our securities are listed.
Restrictions on Transfer. Generally, FP-Ultra Clean, LLC is prohibited from transferring its securities of Ultra Clean Holdings, Inc. without complying with restrictions relating to the timing of the transfer, the number of securities subject to the transfer and the transferee of such securities.
Information Rights. So long as FP-Ultra Clean, LLC holds any of our securities, it has the right to receive from us financial information, monthly management reports, reports from our independent public accountants and such additional information regarding our financial position or business as it reasonably requests.
Registration Rights Agreement |
FP-Ultra Clean, LLC has registration rights with respect to our common stock pursuant to the registration rights agreement dated December 2, 2002.
Demand Registration. The registration rights agreement provides that, after we have completed this offering and upon the expiration of the lock-up period imposed by the underwriters, we can be required to effect additional registration statements, or demand registrations, registering the securities held by FP-Ultra Clean, LLC. We are required to pay the registration expenses in connection with each demand registration. We may decline to honor any of these demand registrations if the aggregate gross proceeds expected to be received does not equal or exceed $5.0 million or if we have effected a demand registration within the preceding ninety days. If a demand registration is underwritten and the managing underwriter advises us that the number of securities offered to the public needs to be reduced, priority of inclusion in the demand registration shall be such that first priority shall be given to FP-Ultra Clean, LLC and its permitted transferees.
Incidental Registration. In addition to our obligations with respect to demand registrations, if we propose to register any of our securities, other than a registration on Form S-8 or S-4 or successor forms to these forms, whether or not such registration is for our own account, FP-Ultra Clean LLC will have the opportunity to participate in such registration. Expenses relating to these incidental registrations are required to be paid by us.
If an incidental registration is underwritten and the managing underwriter advises us that the number of securities offered to the public needs to be reduced, priority of inclusion shall be such that first priority shall be given to us and second priority shall be given to FP-Ultra Clean, LLC and its permitted transferees. We and the stockholders selling securities under a registration statement are required to enter into customary indemnification and contribution arrangements with respect to each registration statement. FP-Ultra Clean, LLC has agreed not to exercise its registration rights without the prior written consent of Credit Suisse First Boston LLC for a period of 180 days after the date of this prospectus.
Transactions with Management
In connection with the Ultra Clean acquisition, we entered into Restricted Securities Purchase Agreements, each dated as of November 26, 2002, with some of our key employees, including Messrs. Granger, Griffin and Wier and Dr. Krishnan. Pursuant to these agreements, we issued and sold an aggregate of 178,975 shares of our common stock at a purchase price of $1.00 per share and $536,900 aggregate principal amount of our Series A Senior Notes to these key employees. The notes were issued
62
In addition, on February 20, 2003, we entered into a second Restricted Securities Purchase Agreement with Mr. Granger pursuant to which we issued and sold to him an aggregate of 47,645 shares of our common stock at a purchase price of $1.00 per share, for a total purchase price of $47,645.
63
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock. Future sales of substantial amounts of our common stock in the public market could adversely affect market prices prevailing from time to time. Furthermore, because only a limited number of shares will be available for sale shortly after this offering due to existing contractual and legal restrictions on resale as described below, there may be sales of substantial amounts of our common stock in the public market after the restrictions lapse. This may adversely affect the prevailing market price and our ability to raise equity capital in the future.
As of December 31, 2003, after giving effect
to the offering and assuming no exercise of any stock options,
we would have had 17,245,395 shares of common stock
outstanding. Of these shares, the 9,100,000 shares sold in
this offering will be freely transferable without restriction or
registration under the Securities Act, except for any shares
purchased by one of our affiliates, as that term is
defined in Rule 144 under the Securities Act. The remaining
shares of common stock are restricted shares as
defined in Rule 144. Restricted shares may be sold in the
public market only if registered or if they qualify for an
exemption from registration under Rules 144 or 701 of the
Securities Act. As a result of the contractual 180-day lock-up
period described below and the provisions of Rules 144 and
701, these shares will be available for sale in the public
market as follows:
Number of Shares
Date
On the date of this prospectus.
After 180 days from the date of this
prospectus (subject, in some cases, to volume limitations).
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after this offering, a person, or persons whose shares are aggregated, who owns shares that were purchased from us, or any affiliate, at least one year previously, is entitled to sell within any three-month period a number of shares that does not exceed the greater of 1% of our then-outstanding shares of common stock, which will equal approximately 172,450 shares immediately after this offering, assuming no exercise of any stock options outstanding as of December 31, 2003, or the average weekly trading volume of our common stock on The Nasdaq National Market during the four calendar weeks preceding the filing of a notice of the sale on Form 144. Sales under Rule 144 are also subject to manner of sale provisions, notice requirements and the availability of current public information about us. We are unable to estimate the number of shares that will be sold under Rule 144 since this will depend on the market price for our common stock, the personal circumstances of the stockholder and other factors.
Rule 144(k)
Under Rule 144(k), a person who is not deemed to have been one of our affiliates at any time during the three months preceding a sale, and who owns shares within the definition of restricted securities under Rule 144 that were purchased from us, or any affiliate, at least two years previously, would be entitled to sell shares under Rule 144(k) without regard to the volume limitations, manner of sale provisions, public information requirements or notice requirements described above.
Rule 701
In general, under Rule 701, any of our employees, directors, officers, consultants or advisors who purchases shares from us in connection with a compensatory stock or option plan or other written agreement before the effective date of this offering is entitled to resell such shares 90 days after the effective date of this offering in reliance on Rule 144, without having to comply with the holding period requirements or other restrictions contained in Rule 701.
The Securities and Exchange Commission has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Securities
64
Registration Rights
Following this offering and assuming no exercise of the underwriters over-allotment option, FP-Ultra Clean, LLC or its transferees will be entitled to various rights with respect to the registration under the Securities Act of the 7,650,250 shares of common stock that it will hold upon completion of this offering. Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. For further information regarding these registration rights, see Certain Relationships and Related Party Transactions Relationship with Francisco Partners Registration Rights Agreement.
Stock Options
As of December 31, 2003, options to purchase a total of 1,055,250 shares of common stock were outstanding. Since December 31, 2003, we have granted options to purchase an additional 110,000 shares of common stock. All of the shares subject to options are subject to lock-up agreements. An additional 1,889,677 shares of common stock are available for future option grants under our Amended and Restated 2003 Stock Incentive Plan, 100,750 of which we intend to grant to some of our employees upon completion of this offering.
Upon completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act covering all shares of common stock subject to outstanding options or issuable pursuant to our Amended and Restated 2003 Stock Incentive Plan. Subject to Rule 144 volume limitations applicable to affiliates, shares registered under the Form S-8 registration statement will be available for sale in the open market, beginning 90 days after the date of the prospectus, except to the extent that the shares are subject to vesting restrictions with us or the contractual restrictions described below.
Lock-up Agreements
Our officers, directors and substantially all of our security holders have entered into the lock-up agreements described in Underwriting.
65
DESCRIPTION OF CAPITAL STOCK
The following description summarizes the material terms of our capital stock. This information does not purport to be complete and is subject in all respects to the applicable provisions of our amended and restated certificate of incorporation and bylaws.
General
Our authorized capital stock consists of 90,000,000 shares of common stock, $0.001 par value per share, and 10,000,000 shares of undesignated preferred stock, $0.001 par value per share.
Common Stock
As of December 31, 2003, we had 10,245,395 shares of common stock outstanding which were held of record by seven stockholders. As of December 31, 2003, after giving effect to the offering and assuming no exercise of any stock options, we would have had 17,245,395 shares of common stock outstanding. The holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. All shares of our common stock are entitled to share equally in any dividends our board of directors may declare from legally available sources. Our common stock has been approved for quotation on The Nasdaq National Market under the symbol UCTT.
Preferred Stock
Our board of directors is authorized, subject to any limitations imposed by law, without stockholder approval, from time to time to issue up to 10,000,000 shares of preferred stock in one or more series, each series to have rights and preferences, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, as our board of directors may determine. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, a majority of our voting stock outstanding. As of December 31, 2003, we had no shares of preferred stock outstanding, and we have no present plans to issue any shares of preferred stock.
Anti-Takeover Measures
Delaware law and provisions of our charter documents could discourage potential acquisition proposals and could delay, deter or prevent a change in control. The anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of us, even if a change in control would be beneficial to our existing stockholders. However, we have elected not to be governed by Section 203 of Delaware law, which means that we have elected not to take advantage of anti-takeover protection related to transactions with interested stockholders. Additionally, provisions of our amended and restated certificate of incorporation and bylaws to be effective on the completion of this offering could deter, delay or prevent a third party from acquiring us, even if doing so would benefit our stockholders. These provisions include:
| a requirement that special meetings of stockholders may be called only by the chairman of our board of directors or our president or, upon the written request of two directors, our secretary; | |
| advance notice requirements for stockholder proposals and nominations; and | |
| the authority of our board of directors to issue, without stockholder approval, preferred stock with such terms as our board of directors may determine. |
In addition to the anti-takeover measures described above, provisions of our stockholders agreement with FP-Ultra Clean, LLC could deter, delay or prevent a third party from acquiring us. See Certain Relationships and Related Party Transactions Relationship with Francisco Partners Stockholders Agreement.
66
Transfer Agent and Registrar
Wells Fargo Shareowner Services will serve as the
transfer agent and registrar for our common stock. The transfer
agents address is 161 North Concord Exchange, South
St. Paul, Minnesota 55075-1139 and the telephone number is
(800) 468-9716.
67
Table of Contents
MATERIAL U.S. FEDERAL TAX CONSIDERATIONS FOR
The following is a general discussion of the material U.S. federal income and estate tax consequences of the ownership and disposition of common stock by a beneficial owner that is a non-U.S. holder and that does not own, and is not deemed to own, more than 5% of our common stock. A non-U.S. holder is a person or entity that, for U.S. federal income tax purposes, is a:
| non-resident alien individual, other than certain former citizens and residents of the United States subject to tax as expatriates, | |
| foreign corporation or | |
| foreign estate or trust. |
A non-U.S. holder does not include an individual who is present in the United States for 183 days or more in the taxable year of disposition and is not otherwise a resident of the United States for U.S. federal income tax purposes. Such an individual is urged to consult his or her own tax advisor regarding the U.S. federal income tax consequences of the sale, exchange or other disposition of common stock.
This discussion is based on the Internal Revenue Code of 1986, as amended (the Code), and administrative pronouncements, judicial decisions, and final and temporary Treasury Regulations, changes to any of which subsequent to the date of this prospectus may affect the tax consequences described herein. This discussion does not address all aspects of U.S. federal income and estate taxation that may be relevant to non-U.S. holders in light of their particular circumstances and does not address any tax consequences arising under the laws of any state, local or foreign jurisdiction. Prospective holders are urged to consult their tax advisors with respect to the particular tax consequences to them of owning and disposing of common stock, including the consequences under the laws of any state, local or foreign jurisdiction.
Dividends
As discussed under Dividend Policy above, we do not currently expect to pay dividends. In the event that we do make distributions, however, distributions made to a non-U.S. holder of common stock out of our current or accumulated earnings and profits generally will constitute dividends for U.S. tax purposes and generally will be subject to withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty. In order to obtain a reduced rate of withholding, a non-U.S. holder will be required to provide an Internal Revenue Service Form W-8BEN certifying its entitlement to benefits under a treaty. To the extent distributions exceed our current and accumulated earnings and profits, they will constitute a return of capital and will first reduce your basis in our common stock (but not below zero) and then will be treated as gain from the sale of common stock.
The withholding tax does not apply to dividends paid to a non-U.S. holder who provides a Form W-8ECI, certifying that the dividends are effectively connected with the non-U.S. holders conduct of a trade or business within the United States. Instead, the effectively connected dividends will be subject to regular U.S. income tax as if the non-U.S. holder were a U.S. resident. A non-U.S. corporation receiving effectively connected dividends may also be subject to an additional branch profits tax imposed at a rate of 30% (or a lower treaty rate).
Gain on Disposition of Common Stock
A non-U.S. holder generally will not be subject to U.S. federal income tax on gain realized on a sale or other disposition of common stock unless:
| the gain is effectively connected with a trade or business of the non-U.S. holder in the United States, subject to an applicable treaty providing otherwise, or |
68
| we are or have been a U.S. real property holding corporation, as defined in the Code, at any time within the five-year period preceding the disposition or the non-U.S. holders holding period, whichever period is shorter, and our common stock has ceased to be traded on an established securities market prior to the beginning of the calendar year in which the sale or disposition occurs. |
We believe that we are not, and do not anticipate becoming, a U.S. real property holding corporation.
Information Reporting Requirements and Backup Withholding
Information returns will be filed with the Internal Revenue Service in connection with payments of dividends. Unless you comply with certification procedures to establish that you are not a United States person, information returns may be filed with the Internal Revenue Service in connection with the proceeds from a sale or other disposition of common stock and you may be subject to backup withholding tax on payments of dividends or on the proceeds from a sale or other disposition of common stock. The certification procedures required to claim a reduced rate of withholding under a treaty will satisfy the certification requirements necessary to avoid the backup withholding tax as well. The amount of any backup withholding from a payment to you will be allowed as a credit against your United States federal income tax liability and may entitle you to a refund, provided that the required information is furnished to the Internal Revenue Service.
Federal Estate Tax
An individual non-U.S. holder who is treated as the owner of, or has made certain lifetime transfers of, an interest in the common stock will be required to include the value of the stock in his gross estate for U.S. federal estate tax purposes, and may be subject to U.S. federal estate tax, unless an applicable estate tax treaty provides otherwise.
69
UNDERWRITING
Under the terms and subject to the conditions
contained in an underwriting agreement
dated ,
2004, we and the selling stockholder have agreed to sell to the
underwriters named below, for whom Credit Suisse First Boston
LLC, J.P. Morgan Securities Inc., Banc of America
Securities LLC and Piper Jaffray & Co. are acting as
representatives, the following respective numbers of shares of
common stock:
Number of
Underwriter
Shares
9,100,000
The underwriting agreement provides that the underwriters are obligated to purchase all the shares of common stock in the offering if any are purchased, other than those shares covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults the purchase commitments of non-defaulting underwriters may be increased or the offering may be terminated.
The selling stockholder has granted to the underwriters a 30-day option to purchase on a pro rata basis up to an aggregate of 1,365,000 additional outstanding shares at the initial public offering price less the underwriting discounts and commissions. The option may be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a selling concession of $ per share. The underwriters and selling group members may allow a discount of $ per share on sales to other broker/ dealers. After the initial public offering, the representatives may change the public offering price and concession and discount to broker/ dealers.
The following table summarizes the compensation
and estimated expenses we and the selling stockholder will pay:
Per Share
Total
Without
With
Without
With
Over-allotment
Over-allotment
Over-allotment
Over-allotment
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
The representatives have informed us that they do not expect discretionary sales to exceed 5% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of Credit Suisse First Boston LLC for a period of 180 days after the date of this prospectus; provided that we may issue up to $15,000,000 in
70
Our officers, directors, the selling stockholder and holders of substantially all of our outstanding securities have agreed that they will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, enter into a transaction that would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of our common stock, whether any of these transactions are to be settled by delivery of our common stock or other securities, in cash or otherwise, or publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of Credit Suisse First Boston LLC for a period of 180 days after the date of this prospectus. Notwithstanding the foregoing, our officers, directors and security holders subject to lock-up agreements may transfer shares of our common stock or securities convertible into or exchangeable or exercisable for shares of our common stock as a bona fide gift or to family trusts, provided that the transferee agrees to the lock-up terms applicable to the transferor.
We and the selling stockholder have agreed to indemnify the underwriters against liabilities under the Securities Act, or contribute to payments that the underwriters may be required to make in that respect.
Our common stock has been approved for quotation on The Nasdaq National Market under the symbol UCTT.
Some of the underwriters have provided investment banking and advisory services for us from time to time for which they have received customary fees and expenses. The underwriters may, from time to time, engage in transactions with and perform services for us in the ordinary course of their business.
Prior to this offering, there has been no public market for our common stock. The initial public offering price was determined by negotiation between us and the underwriters and does not necessarily reflect the market price for the common stock following the offering. The principal factors that were considered in determining the public offering price included:
| the history of and prospects for our industry and for semiconductor companies generally; | |
| an assessment of our management; | |
| our present operations; | |
| our historical results of operations; | |
| our earnings prospects; | |
| the general condition of the securities markets at the time of this offering; and | |
| recent market prices of, and the demand for, publicly traded common stock of generally comparable companies. |
We cannot be sure that the initial public offering price will correspond to the price at which the common stock will trade in the public market following this offering or that an active trading market for the common stock will develop and continue after this offering.
In connection with the offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Exchange Act.
| Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. | |
| Over-allotment transactions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short |
71
position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option and/or purchasing shares in the open market. | ||
| Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over- allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. | |
| Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. |
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on The Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time.
A prospectus in electronic format may be made available on the web sites maintained by one or more of the underwriters or selling group members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The representatives may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members on the same basis as other allocations.
72
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of our common stock in Canada is being made only on a private placement basis exempt from the requirement that we and the selling stockholder prepare and file a prospectus with the securities regulatory authorities in each province where trades of common stock are made. Any resale of our common stock in Canada must be made under applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made under available statutory exemptions or under a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of our common stock.
Representations of Purchasers
By purchasing our common stock in Canada and accepting a purchase confirmation a purchaser is representing to us, the selling stockholder and the dealer from whom the purchase confirmation is received that
| the purchaser is entitled under applicable provincial securities laws to purchase our common stock without the benefit of a prospectus qualified under those securities laws, | |
| where required by law, that the purchaser is purchasing as principal and not as agent, and | |
| the purchaser has reviewed the text above under Resale Restrictions. |
Rights of Action Ontario Purchasers Only
Under Ontario securities legislation, a purchaser who purchases our common stock offered by this prospectus during the period of distribution will have a statutory right of action for damages, or while still the owner of the shares, for rescission against us and the selling stockholder in the event that this prospectus contains a misrepresentation. A purchaser will be deemed to have relied on the misrepresentation. The right of action for damages is exercisable not later than the earlier of 180 days from the date the purchaser first had knowledge of the facts giving rise to the cause of action and three years from the date on which payment is made for the shares. The right of action for rescission is exercisable not later than 180 days from the date on which payment is made for the shares. If a purchaser elects to exercise the right of action for rescission, the purchaser will have no right of action for damages against us or the selling stockholder. In no case will the amount recoverable in any action exceed the price at which our common stock was offered to the purchaser and if the purchaser is shown to have purchased our common stock with knowledge of the misrepresentation, we and the selling stockholder will have no liability. In the case of an action for damages, we and the selling stockholder will not be liable for all or any portion of the damages that are proven to not represent the depreciation in value of our common stock as a result of the misrepresentation relied upon. These rights are in addition to, and without derogation from, any other rights or remedies available at law to an Ontario purchaser. The foregoing is a summary of the rights available to an Ontario purchaser. Ontario purchasers should refer to the complete text of the relevant statutory provisions.
Enforcement of Legal Rights
All of our directors and officers as well as the experts named herein and the selling stockholder may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon us or those persons. All or a substantial portion of our assets and the assets of those persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against us or those persons in Canada or to enforce a judgment obtained in Canadian courts against us or those persons outside of Canada.
73
Taxation and Eligibility for Investment
Canadian purchasers of our common stock should consult their own legal and tax advisors with respect to the tax consequences of an investment in our common stock in their particular circumstances and about the eligibility of our common stock for investment by the purchaser under relevant Canadian legislation.
LEGAL MATTERS
The validity of the shares of common stock being offered will be passed upon for us by Davis Polk & Wardwell, Menlo Park, California. Selected legal matters in connection with this offering will be passed on for the underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements as of December 31, 2002 and 2003, and for the years ended December 31, 2001 and 2003, and the periods from January 1, 2002 through November 15, 2002 and November 16, 2002 through December 31, 2002, included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed a registration statement regarding this offering on Form S-1, including all amendments and supplements thereto, with the Securities and Exchange Commission under the Securities Act of 1933, as amended. This prospectus, which constitutes a part of the registration statement, does not contain all of the information included in the registration statement, certain items of which are contained in schedules and exhibits to the registration statement as permitted by the rules and regulations of the Securities and Exchange Commission. You should refer to the registration statement and its exhibits to read that information. Statements made in this prospectus as to any of our contracts, agreements or other documents referred to are not necessarily complete and you should refer to the exhibits attached to the registration statement for copies of the actual contract, agreement or other document. You may read and copy information omitted from this prospectus but contained in the registration statement at the public reference facilities maintained by the Securities and Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may also request copies of all or any portion of such material from the Public Reference Section of the Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the operation of the public reference room. In addition, materials filed electronically with the Securities and Exchange Commission are available at the Securities and Exchange Commissions web site at http://www.sec.gov. You may also request a copy of these filings, at no cost, by writing or telephoning us at: Ultra Clean Technology, 150 Independence Drive, Menlo Park, California 94025, (650) 323-4100.
We intend to furnish to our stockholders annual reports containing audited financial statements and quarterly reports for the first three quarters of each fiscal year containing unaudited interim financial information, in each case prepared in accordance with generally accepted accounting principles.
74
INDEX TO FINANCIAL STATEMENTS
ULTRA CLEAN HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors Report
|
F-2 | |
Consolidated Balance Sheets
|
F-3 | |
Consolidated Statements of Operations
|
F-4 | |
Consolidated Statements of Stockholders
Equity
|
F-5 | |
Consolidated Statements of Cash Flows
|
F-6 | |
Notes to Consolidated Financial Statements
|
F-7 |
F-1
INDEPENDENT AUDITORS REPORT
To the Stockholders of Ultra Clean
We have audited the accompanying statements of
operations, stockholders equity and cash flows of Ultra
Clean Technology Systems and Service, Inc.
(Predecessor) for the year ended December 31,
2001 and the period from January 1, 2002 through
November 15, 2002 (date of disposition) and the
accompanying consolidated balance sheets of Ultra Clean
Holdings, Inc. and its subsidiary (Ultra Clean)
(together with Predecessor, the Company), successor
company, as of December 31, 2002 and 2003, and the related
statements of operations, stockholders equity and cash
flows for the period from November 16, 2002 (date of
acquisition) through December 31, 2002 and year ended
December 31, 2003. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. 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 audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements present
fairly, in all material respects, the results of operations and
cash flows of the Predecessor for the year ended
December 31, 2001 and for the period from January 1,
2002 through November 15, 2002 and the consolidated
financial position of Ultra Clean, as of December 31, 2002
and 2003, and the results of its operations and cash flows for
the period from November 16, 2002 through December 31,
2002 and the year ended December 31, 2003 in conformity
with accounting principles generally accepted in the United
States of America.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
F-2
Table of Contents
ULTRA CLEAN HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
2002
2003
ASSETS
$
6,237
$
6,035
8,362
11,724
1,357
8,229
9,123
2,004
1,802
201
210
26,390
28,894
722
954
175
165
1,410
1,514
2,603
2,599
4,910
5,232
(230
)
(1,659
)
4,680
3,573
6,608
6,617
8,987
8,987
429
353
1,742
1,731
$
48,836
$
50,155
LIABILITIES AND STOCKHOLDERS
EQUITY
$
7,113
$
9,805
3,160
1,459
50
111
10,323
11,375
612
447
29,812
30,013
40,747
41,835
10,198
10,377
(260
)
(316
)
(1,849
)
(1,741
)
8,089
8,320
$
48,836
$
50,155
See notes to consolidated financial statements.
F-3
ULTRA CLEAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
Predecessor
January 1,
November 16,
2002
2002
Year Ended
Through
Through
Year Ended
December 31,
November 15,
December 31,
December 31,
2001
2002
2002
2003
$
76,486
$
76,338
$
7,916
$
77,520
66,129
66,986
7,972
67,313
10,357
9,352
(56
)
10,207
613
634
99
1,155
1,302
1,586
332
2,276
3,127
6,626
962
4,978
889
5,042
8,846
2,282
8,409
5,315
506
(2,338
)
1,798
(436
)
(170
)
(182
)
(1,458
)
(4
)
(6
)
4
(440
)
(176
)
(178
)
(1,458
)
4,875
330
(2,516
)
340
(1,981
)
(642
)
667
(232
)
$
2,894
$
(312
)
$
(1,849
)
$
108
$
0.79
$
(0.08
)
$
(0.21
)
$
0.01
$
0.64
$
(0.08
)
$
(0.21
)
$
0.01
3,680
3,680
8,668
9,976
4,535
3,680
8,668
10,711
See notes to consolidated financial statements.
F-4
ULTRA CLEAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS
EQUITY
Retained
Common Stock
Deferred
Earnings
Total
Stock-based
(Accumulated
Stockholders
Shares
Amount
Compensation
Deficit)
Equity
3,680,000
$
6,440
$
(664
)
$
5,776
2,894
2,894
3,680,000
6,440
2,230
8,670
1,330
1,330
(312
)
(312
)
3,680,000
$
7,770
$
1,918
$
9,688
$
$
$
$
250
9,928,975
9,930
9,930
268,525
268
(268
)
8
8
(1,849
)
(1,849
)
10,197,750
10,198
(260
)
(1,849
)
8,089
47,645
47
47
132
(132
)
76
76
108
108
10,245,395
$
10,377
$
(316
)
$
(1,741
)
$
8,320
See notes to consolidated financial statements.
F-5
ULTRA CLEAN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
Predecessor
January 1,
November 16,
2002
2002
Year Ended
Through
Through
Year Ended
December 31,
November 15,
December 31,
December 31,
2001
2002
2002
2003
$
2,894
$
(312
)
$
(1,849
)
$
108
1,766
1,477
231
1,483
3
105
457
(543
)
(103
)
213
33
325
889
1,330
5,126
(1,612
)
(2,380
)
(3,362
)
5,950
(1,665
)
152
(894
)
(1,044
)
767
134
(9
)
19
78
6
76
(12,189
)
2,789
2,502
2,568
(1,236
)
(793
)
(565
)
1,357
(2,364
)
2,752
(579
)
(1,541
)
(618
)
4,268
(1,529
)
429
(250
)
(26,285
)
(624
)
(1,700
)
(71
)
(491
)
(624
)
(1,950
)
(26,356
)
(491
)
(320
)
(248
)
(24
)
(140
)
(1,400
)
600
9,930
(9,000
)
29,786
(1,720
)
352
30,692
(140
)
(2,962
)
2,670
2,807
(202
)
3,722
760
3,430
6,237
$
760
$
3,430
$
6,237
$
6,035
$
3,217
$
2,030
$
$
15
$
551
$
194
$
$
2,092
$
348
$
19
$
143
$
246
$
$
$
268
$
47
$
$
$
25
$
201
See notes to consolidated financial statements.
F-6
ULTRA CLEAN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
1. Organization
and Significant Accounting Policies
Organization
Ultra Clean Technology Systems and Service, Inc. (the
Predecessor) was incorporated in 1991 in California.
The Predecessor was formed to manufacture and sell gas delivery
systems to the U.S. semiconductor capital equipment industry.
The Predecessor was acquired on November 15, 2002 in a
transaction accounted for under the purchase method of
accounting (see Note 2) by Ultra Clean Holdings, Inc.
(Ultra Clean) (together with Predecessor, the
Company). Ultra Clean was incorporated in 2002 in
Delaware and is headquartered in Menlo Park, California with
additional manufacturing facilities in Austin, Texas and
Tualatin, Oregon. Ultra Clean had no significant operations
prior to the purchase of Predecessor.
Principles of
Consolidation
The
accompanying financial statements include the accounts of the
predecessor company, Ultra Clean Technology Service and Systems,
Inc. for the year ended December 31, 2001 and for the
period from January 1, 2002 through November 15, 2002
and the accounts of the successor company, Ultra Clean Holdings,
Inc. and its subsidiary, since inception including the period
from November 16, 2002 through December 31, 2002 and
for the year ended December 31, 2003. All intercompany
accounts and transactions are eliminated in consolidation.
Certain Significant Risks and
Uncertainties
The Company
operates in a dynamic industry and, accordingly, can be affected
by a variety of factors. For example, any of the following areas
could have a negative effect on the Company in terms of its
future financial position, results of operations or cash flows:
the highly cyclical nature of the semiconductor industry;
reliance on a small number of customers; ability to obtain
additional financing; regulatory changes; fundamental changes in
the technology underlying semiconductor manufacturing processes
or semiconductor manufacturing equipment; the hiring, training
and retention of key employees; successful and timely completion
of product design efforts; and new product design introductions
by competitors.
Concentration of Credit
Risk
Financial instruments
which subject the Company to concentrations of credit risk
consist principally of cash and accounts receivable. The Company
sells its products to semiconductor capital equipment
manufacturers in the United States. The Company performs credit
evaluations of its customers financial condition and
generally requires no collateral.
Sales to significant customers as a percentage of
total sales are as follows:
When combined, these same significant customers
represented 98% and 89% of trade accounts receivable at
December 31, 2002 and 2003.
Use of Accounting
Estimates
The presentation
of financial statements in conformity with generally accepted
accounting principles in the United States of America requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, and disclosures of
contingent liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. The Company bases its estimates and judgments
on historical experience and on various other assumptions that
it believes are reasonable under the circumstances. However,
future events
F-7
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
are subject to change and the best estimates and
judgments routinely require adjustment. Actual amounts may
differ from those estimates.
Fiscal
Year
Effective
January 1, 2003, Ultra Clean adopted a 52-53 week
fiscal year ending on the Friday nearest to December 31.
This change did not have a significant effect on the
Companys consolidated financial statements. For
presentation purposes, the Company presents each fiscal year as
if it ended on December 31. Using the 52-53 year end,
fiscal year 2003 would have ended on December 26, 2003. All
references to years refer to fiscal years.
Inventories
are
stated at the lower of standard cost (which approximates actual
cost on a first-in, first-out basis) or market. The Company
evaluates the valuation of all inventories, including raw
materials, work-in-process, finished goods and spare parts on a
periodic basis. Obsolete inventory or inventory in excess of
managements estimated usage is written-down to its
estimated market value less costs to sell, if less than its
cost. Inherent in the estimates of market value are
managements estimates related to economic trends, future
demand for products, and technological obsolescence of the
Companys products.
At December 31, 2002 and 2003, inventory
balances of $8,229,000 and $9,123,000 were net of write-downs of
$1,582,000 and $1,601,000. The inventory write-downs are
recorded as an inventory valuation allowance established on the
basis of obsolete inventory or specific identified inventory in
excess of estimated usage.
Equipment and leasehold improvements
are stated at cost, or, in the case of
equipment under capital leases, the present value of future
minimum lease payments at inception of the related lease.
Depreciation and amortization are computed using the
straight-line method over the lesser of the estimated useful
lives of the assets or the terms of the leases. Useful lives
range from three to seven years.
Product
Warranty
The Company
provides a warranty on its products for a period of up to two
years, and provides for warranty costs at the time of sale based
on historical activity. The determination of such provisions
requires the Company to make estimates of product return rates
and expected costs to repair or replace the products under
warranty. If actual return rates and/or repair and replacement
costs differ significantly from these estimates, adjustments to
recognize additional cost of sales may be required in future
periods. Components of the reserve for warranty costs consisted
of the following (in thousands):
Income
Taxes
Income taxes are
provided using an asset and liability approach which requires
recognition of deferred tax liabilities and assets, net of
valuation allowances, for the expected future tax consequences
of temporary differences between the financial statement
carrying amounts and the tax basis of assets and liabilities and
net operating loss and tax credit carryforwards.
Stock-Based
Compensation
The Company
accounts for its employee stock option plan in accordance with
the provisions of Accounting Principles Board (APB)
Opinion No. 25,
Accounting for Stock Issued to
Employees
, and Financial Accounting Standards Board
(FASB) Interpretation (FIN) No. 44,
Accounting for Certain Transactions Involving Stock
Compensation
. Accordingly, no compensation is recognized for
employee stock options granted with exercise prices greater than
or equal to the fair value of the underlying common stock at the
date of grant. The Company complies with the disclosure
provisions of FASB Statement of Financial Accounting Standards
(SFAS) No. 123,
Accounting for
F-8
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock-Based
Compensation
, as amended by SFAS
No. 148,
Accounting for Stock-Based
Compensation Transition and Disclosure
.
The Company amortizes deferred stock-based
compensation on the straight-line method over the vesting
periods of the stock options, generally four years. Had
compensation expense been determined based on the fair value at
the grant date for all employee awards, consistent with the
provisions of SFAS No. 123, the Companys pro forma
net income (loss) and net income (loss) per share would have
been as follows (in thousands):
SFAS No. 123,
Accounting for Stock-Based
Compensation
, requires the disclosure of pro forma net
income as though the Company had adopted the fair value method
since the inception of the Company. Under SFAS No. 123, the
fair value of stock-based awards to employees is calculated
through the use of option pricing models, even though such
models were developed to estimate the fair value of freely
tradable, fully transferable options without vesting
restrictions, which differ significantly from the Companys
stock option awards. These models also require the use of
subjective assumptions, including expected time to exercise,
which greatly affect the calculated values. The Companys
calculations were made using the minimum value method with the
following assumptions: expected life of five years and no
dividends during the expected term. The risk free interest rate
assumption used was 4.7% in 2001, 3.9% in 2002 and 2.8% in 2003.
The Companys calculations are based on a single option
valuation approach, and forfeitures are recognized as they occur.
Goodwill and
Tradename
As part of the
Ultra Clean acquisition in November 2002, the Company allocated
the purchase price to the tangible and intangible assets
acquired, liabilities assumed, and in-process research and
development based on their estimated fair values (see
Note 2). A third-party appraisal firm assisted management
in determining the fair values of the assets acquired and the
liabilities assumed. Such valuations required management to make
significant estimates and assumptions, especially with respect
to intangible assets. Estimates associated with accounting for
the acquisition may change as
F-9
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
additional information becomes available
regarding the assets acquired and liabilities assumed. In
particular, a claim by the Company for a refund of approximately
$470,000 of the purchase price remains unresolved. Any payment
of this unresolved amount will decrease the recorded goodwill.
Critical estimates in valuing certain intangible
assets include, but are not limited to: future expected cash
flows from customer contracts; acquired developed technologies
and patents; expected costs to develop the in-process research
and development into commercially viable products and estimated
cash flows from the projects when completed; the market position
of the acquired products; and assumptions about the period of
time the trade name will continue to be used in Ultra
Cleans product portfolio. Managements estimates of
fair value are based upon assumptions believed to be reasonable,
but which are inherently uncertain.
In June 2001, the FASB issued SFAS No. 141,
Business Combinations
, and SFAS No. 142,
Goodwill
and Other Intangible Assets
. SFAS No. 141 requires that
all business combinations initiated after June 30, 2001 be
accounted for under the purchase method and addresses the
initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination. The
provisions of SFAS No. 142 also require an annual goodwill
impairment test or more frequently if impairment indicators
arise. In testing for a potential impairment of goodwill, the
provisions of SFAS 142 require the application of a fair value
based test at the reporting unit level. The Company operates in
one reporting segment which has one reporting unit. Therefore,
all goodwill is considered enterprise goodwill and the first
step of the impairment test prescribed by SFAS 142 requires a
comparison of fair value to book value of the Company. If the
estimated fair value of the Company is less than the book value,
SFAS 142 requires an estimate of the fair value of all
identifiable assets and liabilities of the business, in a manner
similar to a purchase price allocation for an acquired business.
This estimate requires valuations of certain internally
generated and unrecognized intangible assets such as in-process
research and development and developed technology. Potential
goodwill impairment is measured based upon this two-step
process. Management performed the annual goodwill impairment
test as of December 31, 2002 and 2003 and determined that
goodwill was not impaired.
During the year ended December 31, 2003, the
goodwill balance increased by $9,000 as a result of finalizing
transaction costs related to the acquisition of the Predecessor.
Long-Lived
Assets
In accordance with
SFAS No. 144,
Accounting for the Impairment or Disposal
of Long-Lived Assets
, the Company evaluates the impairment
of long-lived assets, based on the projection of undiscounted
cash flows whenever events or changes in circumstances indicate
that the carrying amounts of such assets may not be recoverable.
In the event such cash flows are not expected to be sufficient
to recover the recorded value of the assets, the assets are
written down to their estimated fair values
Revenue
Recognition
Revenue from
the sale of gas delivery systems is generally recorded upon
shipment. In arrangements which specify title transfer upon
delivery, revenue is not recognized until the product is
delivered. The Company recognizes revenue when persuasive
evidence of an arrangement exists, shipment has occurred, price
is fixed or determinable and collectability is reasonably
assured. If the Company has not substantially completed a
product or fulfilled the terms of a sales agreement at the time
of shipment, revenue recognition is deferred until completion.
Our standard arrangement for our customers includes a signed
purchase order or contract, no right of return of delivered
products and no customer acceptance provisions.
The Company assesses collectibility based on the
credit worthiness of the customer and past transaction history.
The Company performs on-going credit evaluations of customers
and does not require collateral from customers.
Research and development
expenses are charged to operations as
incurred.
F-10
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Reclassifications
Certain reclassifications have been made to the prior year
consolidated financial statements to conform to the 2003
presentation. Such reclassifications had no effect on previously
reported results of operations or retained earnings.
Net Income (Loss) per
Share
Basic net income
(loss) per share is computed by dividing net income (loss)
by the weighted average number of shares outstanding for the
period. Diluted net income (loss) per share earnings is
calculated by dividing net income (loss) by the weighted average
number of common shares outstanding and common equivalent shares
from dilutive stock options and restricted stock using the
treasury stock method, except when antidilutive (see
Note 8).
Comprehensive
Income
In accordance with
SFAS No. 130,
Reporting Comprehensive Income
, the
Company reports by major components and as a single total, the
change in its net assets during the period from nonowner
sources. Comprehensive income for the year ended
December 31, 2001, and the period from January 1, 2002
through November 15, 2002, and the period from
November 16, 2002 through December 31, 2002 and the
year ended December 31, 2003 was the same as net income.
Recently Issued Accounting
Standards
In June 2002,
the FASB issued SFAS No. 146,
Accounting for Costs
Associated with Exit or Disposal Activities
. SFAS
No. 146 supersedes previous accounting guidance,
principally Emerging Issues Task Force (EITF) Issue
No. 94-3. The provisions of SFAS No. 146 are
applicable for restructuring activities initiated after
December 28, 2002. SFAS No. 146 requires that a
liability for costs associated with an exit or disposal activity
be recognized when the liability is incurred. Under Issue
No. 94-3, a liability for an exit cost was recognized at
the date of the commitment to an exit plan. SFAS No. 146
also establishes that the liability should initially be measured
and recorded at fair value. The adoption of SFAS No. 146 on
January 1, 2003 did not have a material effect on the
Companys consolidated financial statements.
In November 2002, the FASB issued FIN
No. 45,
Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others
. This interpretation specifies the
disclosures to be made by a guarantor in its interim and annual
financial statements concerning its obligations under certain
guarantees that it has issued. FIN No. 45 also requires a
guarantor to recognize a liability, at the inception of the
guarantee, for the fair value of obligations it has undertaken
in issuing the guarantee. The disclosure requirements of FIN
No. 45 are effective for interim and annual periods ending
after December 15, 2002. The initial recognition and
initial measurement requirements of FIN No. 45 are
effective for guarantees issued or modified after
December 31, 2002. The adoption of these provisions did not
have a material effect on the Companys consolidated
financial statements.
In December 2002, the EITF reached a consensus on
EITF Issue No. 00-21,
Revenue Arrangements with Multiple
Deliverables
. This Issue addresses certain aspects of the
accounting by a vendor for arrangements under which it will
perform multiple revenue-generating activities. This Issue
addresses when and how an arrangement involving multiple
deliverables should be divided into separate units of
accounting. The guidance in this Issue is effective for revenue
arrangements entered into in fiscal periods beginning after
June 15, 2003. The adoption of EITF Issue No. 00-21
did not have a material effect on the Companys
consolidated financial statements.
In January 2003, the FASB issued FIN 46,
Consolidation of Variable Interest Entities
, and a
revised interpretation of FIN 46 (FIN 46R) in December
2003 (collectively FIN 46). These address consolidation of
variable interest entities. FIN 46 provides guidance for
determining when a primary beneficiary should consolidate a
variable interest entity or equivalent structure that functions
to support the activities of the primary beneficiary. The
provisions of FIN 46 are effective immediately for all
variable interest entities created after January 31, 2003.
For variable interest entities created prior to February 1,
2003, the provisions of FIN 46 are effective for our first
quarter of fiscal 2004. The Company does not expect the adoption
of FIN 46 to have a material effect on the Companys
consolidated financial statements.
F-11
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In May 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity
. SFAS
No. 150 establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics
of both liabilities and equity. SFAS No. 150 is effective
for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003.
The adoption of SFAS No. 150 did not have a material effect
on the Companys consolidated financial statements.
In December 2003 the SEC issued Staff Accounting
Bulletin No. 104,
Revenue Recognition
. SAB 104
updates portions of existing interpretative guidance in order to
make this guidance consistent with current authoritative
accounting and auditing guidance and SEC rules and regulations.
The adoption of SAB 104 did not have a material effect on
the Companys consolidated financial statements.
2. Acquisition
At the close of business on November 15,
2002, the Company acquired all of the outstanding shares of
Predecessor, Ultra Clean Technology Systems and Service, Inc.,
in a transaction accounted for using the purchase method of
accounting. Ultra Clean incurred approximately $3,121,000 in
acquisition expenses, including financial advisory and legal
fees and other direct transaction costs, which were included as
a component of the purchase price. Approximately $2,000,000 of
such acquisition costs were paid to Francisco Partners
Management, LLC, a related party.
The purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair
values as follows (in thousands):
Accounting principles generally accepted in the
United States of America require purchased in-process research
and development with no alternative future use to be recorded
and charged to expense in the period acquired. Accordingly, the
results of operations for the period from November 16, 2002
through December 31, 2002, include the write-off of
$889,000 of purchased in-process research and development that
had not yet reached technological feasibility and had no
alternative future use. The $889,000 of purchased in-process
research and development resulted from one project for the
development of a catalytic steam generator. This project related
to the development of technology and a related product that
simplified the generation of steam for use in the semiconductor
manufacturing process. The development effort was completed in
December 2003. Actual costs incurred to complete this project
were not significantly different from the initial estimate.
Value ascribed to the project was based on the cost method and
represented the cost of personnel, material, equipment and
finance charges that would have been incurred to replicate the
project to its development stage at the date of acquisition.
In accordance with EITF Issue No. 85-45,
Business Combinations: Settlement of Stock Options and
Awards
, the buyout of $2,547,000 of stock options prior to
the effective date of the acquisition was
F-12
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
recorded by Predecessor as an expense in the
period from January 1, 2002 through November 15, 2002.
The buyout is included within general and administrative
expenses in that period. In addition, an officer of Predecessor
did not exercise options with a value of $1,330,000.
Accordingly, the $1,330,000 was recorded as an expense in the
period from January 1, 2002 through November 15, 2002
within general and administrative expenses with a corresponding
credit to contributed capital.
Certain executives of the Predecessor signed
employment agreements with Ultra Clean. Under the terms of these
arrangements, Ultra Clean recorded $741,000 for executive
bonuses within general and administrative expenses for the
period from November 16, 2002 through December 31,
2002. Certain payments under these arrangements were deferred
(see Note 9).
In connection with the purchase accounting
transaction, the Company recorded a step-up in the inventory
value of $113,000.
The operating results of the Company have been
included in the statements of operations from the date of
acquisition.
3. Inventories
Inventories consisted of the following (in
thousands):
4. Notes Payable
and Borrowing Arrangements
Notes payable consist of the following (in
thousands):
The Company had two revolving line of credit
arrangements with Mitsubishi International Corporation. The
arrangements permitted borrowings of up to $14,000 and $1,500
and expired on December 31, 2002 and November 27,
2002, respectively. Interest is payable monthly at various
rates. There were no amounts outstanding under the lines at
December 31, 2002 and 2003.
The Company issued Series A Senior Notes for
the principal sums of $24,130,000, $2,730,000 and $3,733,000 on
November 15, 2002, November 26, 2002 and
December 2, 2002, respectively. These notes are not
redeemable by the holder and can be repaid, in whole or in part,
with outstanding accrued interest at any time without penalty.
As of December 31, 2002 and 2003, all Series A Senior
Notes were held by related parties and employees of the Company.
Employee Debt
Of the Series A Senior Notes issued on
November 26, 2002, $1,342,000 was granted to employees of
the Company for cash received from employees of $536,000 and
$806,000 in deferred compensation. The
F-13
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
deferred compensation amount vests, in equal
annual installments, over four years from the grant date.
Compensation expense is recognized and the corresponding debt
amounts are accreted on a straight line basis over four years
from the grant date. In the period from November 16, 2002
to December 31, 2002 and the year ended December 31,
2003, $25,000 and $201,000, respectively, was charged to
compensation expenses related to the accretion of such debt
amounts. At December 31, 2002 and 2003, $781,000 and
$580,000 of deferred compensation was recorded as a reduction of
the principal amount of debt outstanding of $30,593,000. At
December 31, 2003, $604,000 of the employees debt was
unvested. The unvested portion of this debt instrument is
subject to forfeiture.
Bank Line of Credit
In July 2003, Ultra Clean Technology Systems and
Service, Inc. entered into a secured line of credit arrangement
which permits borrowing of up to $10,000,000 based upon a
defined borrowing base and bearing interest, at its option, at a
rate equal to 2% per annum plus LIBOR or 0.25% per annum plus
the reference rate established from time to time by the lender.
Interest is payable monthly and the line expires on
June 15, 2004. The arrangement contains financial covenants
requiring the maintenance of minimum specified working capital,
no successive quarterly net losses and tangible net worth ratios
as well as a restriction on payment of any cash dividends. In
addition, the arrangement requires that Francisco Partners, LLP
retain at least 50% ownership of Ultra Clean. The Series A
Senior Notes are subordinated to any borrowings under this
credit arrangement. There were no amounts outstanding under the
line of credit at December 31, 2003.
5. Income
Taxes
The benefit (provision) for taxes on income
consisted of the following (in thousands):
F-14
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Significant components of net deferred tax assets
for federal and state income taxes were as follows (in
thousands):
The effective tax rate differs from the federal
statutory tax rate as follows:
The Company leases certain equipment under
capital lease arrangements. In addition, the Company leases its
corporate and regional offices as well as some of its office
equipment under noncancelable
F-15
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
operating leases. The Company has a renewal
option for its leased facilities in Austin, Texas and Tualatin,
Oregon. Future minimum lease payments under these leases are as
follows (in thousands):
The cost of equipment under the capital leases
included in property and equipment at December 31, 2002 and
2003 was approximately $551,000 and $796,000, respectively.
Accumulated amortization of leased equipment at
December 31, 2002 and 2003 was approximately $180,000 and
$407,000, respectively.
Rental expense for the year ended
December 31, 2001, the period from January 1, 2002
through November 15, 2002, the period from
November 16, 2002 through December 31, 2002 and the
year ended December 31, 2003 was $918,000, $840,000,
$137,000 and $1,113,000, respectively. Included within capital
lease obligations and other liabilities in 2002 and 2003 was
$227,000 and $17,000 of deferred rent, respectively.
In connection with letters of credit required for
the leases of certain facilities, the Company held $310,000 on
deposit in restricted cash accounts as of December 31, 2002
and 2003. The restricted cash balance is included in other long
term assets.
The Company had commitments to purchase inventory
totaling $13,416,000 at December 31, 2003.
7. Stockholders
Equity
Under the 1999 Stock Option Plan (the 1999
Option Plan), the Predecessor had reserved
425,000 common shares for issuance under options granted to
employees. Options were generally granted at fair value at the
date of grant as determined by the Board of Directors, had terms
up to ten years and generally vested over four years. At
November 15, 2002, prior to the sale of Predecessor,
Predecessor had 148,625 shares available for future grants under
the 1999 Option Plan and options exercisable for
194,406 shares were vested at a weighted average exercise
price of $9.76. Outstanding options were settled in connection
with the sale of Predecessor and the 1999 Option Plan was
terminated.
On February 20, 2003, Ultra Clean adopted
the 2003 Stock Incentive Plan (the 2003 Option Plan)
and reserved 1,266,284 shares of its common stock for
issuance under the 2003 Option Plan. Options are generally
granted at fair value at the date of grant as determined by the
Board of Directors, have terms up to ten years and generally
vest over four years. At December 31, 2003,
211,034 shares were available for future grants under the
2003 Option Plan.
F-16
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Option activity under the 1999 Option Plan and
the 2003 Option Plan is as follows:
During the year ended December 31, 2003,
options to purchase 1,020,000 common shares of the Company were
granted at an exercise price of $1.00 per share, which was equal
to the estimated fair market value of the Companys common
shares on the grant date. These options had a weighted average
fair value of $0.16. In addition, during the year ended
December 31, 2003, options to purchase 5,000, 22,500 and
19,500 common shares of the Company were granted at an exercise
price of $1.00 per share when the fair estimated market value of
the Companys common shares were $1.82, $3.24 and $4.97,
respectively. These options had weighted average fair values of
$0.96, $2.40 and $4.12, respectively.
Common Stock
On November 15, 2002, all outstanding shares
of Predecessor were purchased by Ultra Clean.
In February 2003, the Company issued
47,645 shares of common stock to an employee. In connection
with this grant, approximately $47,000 was recognized as
compensation charge in general and administrative expenses.
Restricted Stock
On November 26, 2002, Ultra Clean granted
268,525 shares of common stock to certain key employees.
These shares vest, in equal installments, over a four year
period from the date of grant, and any unvested shares are
subject to repurchase at fair market value by Ultra Clean upon
termination of the employees service to Ultra Clean. For
the period from November 16, 2002 to December 31, 2002
and the year ended December 31, 2003, Ultra Clean charged
$8,000 and $67,000, respectively, to compensation expense
related to the vesting of such restricted stock. The unvested
amount is subject to forfeiture, until the common stock is fully
vested. At December 31, 2003, 67,131 shares were
vested and 201,393 shares were subject to repurchase.
F-17
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
8. Net Income
(Loss) Per Share
The following is a reconciliation of the
numerators and denominators used in computing basic and diluted
net income (loss) per share (in thousands):
For the periods from January 1, 2002 through
November 15, 2002 and November 16, 2002 through
December 31, 2002, the Company had securities outstanding
which could potentially dilute basic earnings per share in the
future, but the incremental shares from the assumed exercise of
these securities were excluded in the computation of diluted net
loss per share, as their effect would have been anti-dilutive.
Such outstanding securities consist of the following:
Deferred Stock Compensation
During the year ended December 31, 2003, the
Company issued 1,067,000 common stock options to employees
at a weighted average exercise price of $1.00 per share.
The weighted average exercise price was below the weighted
average deemed fair value of the Companys common stock
which ranged from $1.00 to $4.97 per share. In connection
with these options, the Company recorded deferred stock based
F-18
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
compensation of approximately $132,000 and
amortized approximately $9,000 as an expense during the year
ended December 31, 2003.
9. Employee
Benefit Plan
The Company sponsors a 401(k) savings and profit
sharing plan (the 401(k) Plan) for all employees who
meet certain eligibility requirements. Participants could elect
to contribute to the 401(k) Plan, on a pre-tax basis, from
2-19% of their salary up to a maximum of $11,000. The Company
may make matching contributions up to 6% of employee
contributions based upon eligibility. The Company made
approximately $147,000, $145,000, $23,000 and $186,000 in
discretionary employer contributions to the 401(k) Plan in the
year ended December 31, 2001, the period January 1,
2002 through November 15, 2002, the period from
November 16, 2002 through December 31, 2002 and the
year ended December 31, 2003, respectively.
10. Related Party
Transaction
In addition to the related party transactions
previously described, Ultra Clean entered into an agreement with
a key executive of Ultra Clean on November 15, 2002 to
defer payment of $265,000 in compensation until
November 15, 2009. Under this arrangement Ultra Clean pays
interest of 2.7% per annum, payable on June 30 and
December 31 of each year. The amounts owed under this
arrangement may be prepaid by Ultra Clean at the discretion of
the board of directors. The principal amount owed under this
arrangement is contained within capital lease obligations and
other liabilities on the balance sheet of Ultra Clean.
11. Subsequent
Events
On March 5, 2004, the Company amended its
bank credit arrangement to remove the requirement that Francisco
Partners, L.P. retain at least 50% ownership of Ultra Clean.
On March 2, 2004, Ultra Clean effected a
one for four reverse stock split of its common stock.
All share and per share data of Ultra Clean included in the
accompanying consolidated financial statements has been adjusted
to give effect to the reverse stock split.
On March 1, 2004, contingent upon the
closing of the initial public offering, the Companys board
of directors approved the redemption of $30,593,000 in aggregate
principal amount of its Series A Senior Notes held by
related parties and employees, which includes the accelerated
vesting of $604,000 aggregate principal amount of previously
unvested Series A Senior Notes held by employees. The
charge for the vesting acceleration will be recorded in the
period the registration statement is declared effective by the
Securities and Exchange Commission.
In addition, the Companys board of
directors adopted the Employee Stock Purchase Plan (Stock
Purchase Plan). Under this Stock Purchase Plan, eligible
employees may authorize salary withholdings of up to 10% of
their base compensation to purchase shares of common stock at a
price of 85% of the fair market value at certain specified dates
within a defined purchase period. The initial purchase period
commences upon the effective date of the registration statement.
Ultra Clean has initially reserved 555,343 shares of common
stock for issuance under this Stock Purchase Plan.
The Companys board of directors also
authorized an additional 1,851,143 shares of common stock
for future grants under the 2003 Option Plan plus an annual
increase equal to the lesser of 2.0% of the Companys then
outstanding shares or 370,288 shares, or a lesser number of
shares approved by the Companys board of directors. The
Companys board of directors increased the authorized
common shares to 90,000,000 and authorized preferred shares of
10,000,000. In addition, the board of directors granted
62,500 shares of restricted stock to a board member. The
shares vest over four years.
F-19
Predecessor
January 1,
November 16,
2002
2002
Year Ended
Through
Through
Year Ended
December 31,
November 15,
December 31,
December 31,
2001
2002
2002
2003
51
%
46
%
50
%
47
%
40
%
26
%
27
%
24
%
27
%
22
%
21
%
Table of Contents
December 31,
2002
2003
$
117
$
89
36
74
(64
)
(75
)
$
89
$
88
Table of Contents
Predecessor
January 1,
November 16,
2002
2002
Year Ended
Through
Through
Year Ended
December 31,
November 15,
December 31,
December 31,
2001
2002
2002
2003
$
2,894
$
(312
)
$
(1,849
)
$
108
8
76
(180
)
(161
)
(32
)
(121
)
$
2,714
$
(473
)
$
(1,873
)
$
63
$
0.79
$
(0.08
)
$
(0.21
)
$
0.01
$
0.64
$
(0.08
)
$
(0.21
)
$
0.01
$
0.74
$
(0.13
)
$
(0.22
)
$
0.01
$
0.60
$
(0.13
)
$
(0.22
)
$
0.01
Table of Contents
Table of Contents
Table of Contents
$
23,164
2,547
3,121
$
28,832
$
27,694
8,987
889
(15,346
)
$
6,608
Table of Contents
December 31,
2002
2003
$
5,693
$
5,746
2,452
3,282
84
95
$
8,229
$
9,123
December 31,
2002
2003
$
29,812
$
30,013
Table of Contents
Predecessor
January 1,
November 16,
2002
2002
Year Ended
Through
Through
Year Ended
December 31,
November 15,
December 31,
December 31,
2001
2002
2002
2003
$
(1,256
)
$
(928
)
$
479
$
58
(268
)
(257
)
85
(77
)
(1,524
)
(1,185
)
564
(19
)
(396
)
471
32
(152
)
(61
)
72
71
(61
)
(457
)
543
103
(213
)
$
(1,981
)
$
(642
)
$
667
$
(232
)
Table of Contents
December 31,
2002
2003
$
1,609
$
1,512
319
250
75
1
40
2,004
1,802
87
7
130
1,946
1,897
(33
)
(291
)
(270
)
1,742
1,731
$
3,746
$
3,533
Predecessor
January 1,
November 16,
2002
2002
Year Ended
Through
Through
Year Ended
December 31,
November 15,
December 31,
December 31,
2001
2002
2002
2003
35.0
%
35.0
%
(35.0
)%
35.0
%
4.4
7.7
(4.2
)
23.7
12.8
5.9
0.7
3.6
40.1
%
42.7
%
(26.4
)%
68.2
%
6.
Commitments
Table of Contents
Capital
Operating
Leases
Leases
$
123
$
773
92
362
55
293
31
133
301
$
1,561
25
276
111
$
165
Table of Contents
Weighted
Average
Number of
Exercise
Shares
Price
1,035,000
$
2.29
75,500
9.50
(5,000
)
9.50
1,105,500
2.75
21,500
13.40
(21,500
)
3.03
(1,105,500
)
2.98
1,067,000
1.00
(11,750
)
1.00
1,055,250
$
1.00
Table of Contents
Predecessor
January 1,
November 16,
2002
2002
Year Ended
Through
Through
Year Ended
December 31,
November 15,
December 31,
December 31,
2001
2002
2002
2003
$
2,894
$
(312
)
$
(1,849
)
$
108
3,680
3,680
8,937
10,239
(268
)
(263
)
3,680
3,680
8,668
9,976
3,680
10,239
855
472
4,535
3,680
8,668
10,711
$
0.79
$
(0.08
)
$
(0.21
)
$
0.01
$
0.64
$
(0.08
)
$
(0.21
)
$
0.01
Predecessor
January 1,
November 16,
2002
2002
Through
Through
November 15,
December 31,
2002
2002
269
1,106
1,106
269
Table of Contents
Table of Contents
Table of Contents
PART II
INFORMATION NOT REQUIRED IN
PROSPECTUS
The following table indicates the expenses to be
incurred in connection with the offering described in this
registration statement. All amounts are estimates, other than
the registration fee, the NASD fee, the Nasdaq National Market
application fee and the advisory fee payable to Francisco
Partners.
Section 145 of the Delaware General
Corporation Law provides that a corporation may indemnify
directors and officers as well as other employees and
individuals against expenses (including attorneys fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with any
threatened, pending or completed actions, suits or proceedings
in which such person is made a party by reason of such person
being or having been a director, officer, employee or agent to
Ultra Clean Holdings, Inc. The Delaware General Corporation Law
provides that Section 145 is not exclusive of other rights
to which those seeking indemnification may be entitled under any
bylaw, agreement, vote of stockholders or disinterested
directors or otherwise.
Section 102(b)(7) of the Delaware General
Corporation Law permits a corporation to provide in its
certificate of incorporation that a director of the corporation
shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty
as a director, except for liability for any breach of the
directors duty of loyalty to the corporation or its
stockholders, for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law,
for unlawful payments of dividends or unlawful stock
repurchases, redemptions or other distributions, or for any
transaction from which the director derived an improper personal
benefit.
Article 8 of Ultra Clean Holdings,
Inc.s amended and restated certificate of incorporation
provides that a director of Ultra Clean Holdings, Inc. shall not
be liable to Ultra Clean Holdings, Inc. or its stockholders for
monetary damages for breach of fiduciary duty as a director to
the fullest extent permitted by Delaware law. In addition,
Article 8 of Ultra Clean Holdings, Inc.s amended and
restated certificate of incorporation provides that each person
(and the heirs, executors or administrators of such person) who
was or is a party or is threatened to be made a party to, or is
involved in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person is or was
a director of Ultra Clean Holdings, Inc. or is or was serving at
the request of Ultra Clean Holdings, Inc. as a director of
another corporation, partnership, joint venture, trust
II-1
Article 8 of Ultra Clean Holdings,
Inc.s amended and restated certificate of incorporation
provides that Ultra Clean Holdings, Inc. may, by action of its
board of directors, provide indemnification to such of the
officers, employees and agents of Ultra Clean Holdings, Inc. to
such extent and to such effect as its board of directors shall
determine to be appropriate and authorized by Delaware law.
Article 8 also provides that Ultra Clean Holdings, Inc.
shall have power to purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent
of Ultra Clean Holdings, Inc. or is or was serving at the
request of Ultra Clean Holdings, Inc. as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any expense,
liability or loss incurred by such person in any such capacity
or arising out of his status as such, whether or not Ultra Clean
Holdings, Inc. would have the power to indemnify him against
such liability under Delaware law.
The Registrant has entered into indemnification
agreements with its directors and officers. The indemnification
agreements provide indemnification to such directors and
officers under certain circumstances for acts or omissions which
may not be covered by directors and officers
liability insurance. The Registrant also intends to obtain
directors and officers liability insurance, which
insures against liabilities that its directors or officers may
incur in such capacities.
Section 2.04 of the Registration Rights
Agreement dated as of December 2, 2002 between Ultra Clean
Holdings, Inc. and FP-Ultra Clean, LLC, the Registrants
majority shareholder (the Registration Rights
Agreement), provides that Ultra Clean Holdings, Inc. will
indemnify and hold harmless FP-Ultra Clean, LLC and certain
other persons (together, the Shareholders) holding
securities covered by a registration statement
(Registrable Securities), its officers, directors,
employees, partners and agents, and each person, if any, who
controls such Shareholder within the meaning of Section 15
of the Securities Act of 1933, as amended, or Section 20 of
the Securities Exchange Act of 1934, as amended, from and
against any and all losses, claims, damages, liabilities and
expenses (including reasonable expenses of investigation and
reasonable attorneys fees and expenses)
(Damages) caused by or relating to any untrue
statement or alleged untrue statement of a material fact
contained in any registration statement or prospectus relating
to the Registrable Securities (as amended or supplemented if
Ultra Clean Holdings, Inc. shall have furnished any amendments
or supplements thereto) or any preliminary prospectus, or caused
by or relating to any omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except
insofar as such Damages are caused by or related to any such
untrue statement or omission or alleged untrue statement or
omission so made based upon information furnished in writing to
Ultra Clean Holdings, Inc. by such Shareholder or on such
Shareholders behalf expressly for use therein,
provided
that, with respect to any untrue statement or omission or
alleged untrue statement or omission made in any preliminary
prospectus, or in any prospectus, as the case may be, the
indemnity agreement contained in this paragraph shall not apply
to the extent that any Damages result from the fact that a
current copy of the prospectus (or such amended or supplemented
prospectus, as the case may be) was not sent or given to the
person asserting any such Damages at or prior to the written
confirmation of the sale of the Registrable Securities concerned
to such person if it is determined that Ultra Clean Holdings,
Inc. has provided such prospectus to such Shareholder and it was
the responsibility of such Shareholder to provide such person
with a current copy of the prospectus (or such amended or
supplemented prospectus, as the case may be) and such current
copy of the prospectus (or such amended or supplemented
prospectus, as the case may be) would have cured the defect
giving rise to such Damages. Ultra Clean Holdings, Inc. also
agreed to indemnify any underwriters of the Registrable
Securities, their officers and directors and each person who
controls such
II-2
The Registrant has not issued and sold any
unregistered securities other than:
The sales of these securities were exempt from
registration under the Securities Act pursuant to
Section 4(2).
The Registrant has issued, and plans to continue
issuing from time to time, stock options pursuant to its Amended
and Restated 2003 Stock Incentive Plan, as amended immediately
prior to the completion of this offering. None of these stock
options have been exercised, and none of the common stock
issuable upon exercise of these options has been issued to date.
The options were issued in transactions exempt from the
registration requirements of the Securities Act of 1933, as
amended, in reliance on Rule 701 of that Act. The
Registrants Amended and Restated 2003 Stock Incentive Plan
is a written compensatory benefit plan for the benefit of its
employees and directors.
Item 16.
Exhibits
and Financial Statement Schedules
II-3
Item 17.
Undertakings
(a) The undersigned Registrant hereby
undertakes to provide to the underwriters at the closing
specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to
directors, officers and controlling persons of the Registrant
pursuant to the provisions described under
Item 14 Indemnification of Directors and
Officers above, 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 Securities 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,
II-4
(c) The undersigned Registrant hereby
undertakes that:
II-5
Item 13.
Other Expenses of Issuance and
Distribution
$
11,961
13,058
100,000
2,000,000
500,000
900,000
170,000
50,000
30,000
24,981
$
3,800,000
Item 14.
Indemnification of Directors and
Officers
Delaware General Corporation
Law
Amended and Restated Certificate of
Incorporation and Bylaws
Table of Contents
Indemnification Agreements and
Directors and Officers Liability
Insurance
Registration Rights Agreement
Table of Contents
Item 15.
Recent Sales of Unregistered
Securities
(1) On October 28, 2002, the Registrant
issued to FP-Ultra Clean, LLC 250 shares of common stock for a
purchase price of $4.00.
(2) On November 15, 2002, the
Registrant issued to FP-Ultra Clean, LLC 8,043,275 shares of
common stock for a purchase price of $8,043,275 and $24,129,810
principal amount of 5.0% Series A Senior Notes for a
purchase price of $24,129,810.
(3) On November 26, 2002, the
Registrant issued to FP-Ultra Clean, LLC 462,500 shares of
common stock for a purchase price of $462,500 and $1,387,500
principal amount of 5.0% Series A Senior Notes for a
purchase price of $1,387,500. Also on November 26, 2002,
the Registrant issued to members of its management an aggregate
of 178,975 shares of common stock for an aggregate purchase
price of $178,975 and $536,900 aggregate principal amount of
5.0% Series A Senior Notes for an aggregate purchase price
of $536,900.
(4) On December 2, 2002, the Registrant
issued to FP-Ultra Clean, LLC 1,244,225 shares of common stock
for a purchase price of $1,244,225 and $3,732,690 principal
amount of 5.0% Series A Senior Notes for a purchase price
of $3,732,690.
(5) On February 20, 2003, the
Registrant issued to Clarence L. Granger, its Chief Executive
Officer, 47,645 shares of common stock for a purchase price of
$47,645.
Stock Options and Shares Issuable Upon
Exercise of Stock Options
Exhibit
Description
1.1
Underwriting Agreement
2.1
Agreement and Plan of Merger dated
October 30, 2002, among Ultra Clean Holdings, Inc., Ultra
Clean Technology Systems and Service, Inc., Mitsubishi
Corporation, Mitsubishi International Corporation and Clean
Merger Company**
3.1
Amended and Restated Certificate of Incorporation
of Ultra Clean Holdings, Inc.**
3.2
Amended and Restated Bylaws of Ultra Clean
Holdings, Inc.**
4.1
Specimen Stock Certificate
4.2
Form of Stockholders Agreement between
Ultra Clean Holdings, Inc. and FP-Ultra Clean, LLC to be
effective upon closing of the offering**
4.3
Form of Restricted Securities Purchase Agreement
dated November 26, 2002 with Ultra Clean Holdings, Inc.**
Table of Contents
Exhibit
Description
4.4
Registration Rights Agreement dated
December 2, 2002 between Ultra Clean Holdings, Inc. and
FP-Ultra Clean, LLC**
4.5
Restricted Securities Purchase Agreement dated
February 20, 2003 between Ultra Clean Holdings, Inc. and
Clarence L. Granger**
5.1
Opinion of Davis Polk & Wardwell
10.1
Employment Agreement dated November 15, 2002
between Clarence L. Granger and Ultra Clean Holdings, Inc.**
10.2
Agreement to Preserve Corporate Opportunity dated
November 15, 2002 between Clarence L. Granger and Ultra
Clean Holdings, Inc.**
10.3
Employment Agreement dated November 15, 2002
between Kevin L. Griffin and Ultra Clean Holdings, Inc.**
10.4
Agreement to Preserve Corporate Opportunity dated
November 15, 2002 between Kevin L. Griffin and Ultra Clean
Holdings, Inc.**
10.5
Amended and Restated 2003 Stock Incentive Plan**
10.6
Form of Stock Option Agreement
10.7
Revolving Credit Facility Agreement with Union
Bank of California, N.A. dated as of July 9, 2003**
10.8
Advisory Agreement dated as of February 15,
2004 by and among Ultra Clean Holdings, Inc. and Francisco
Partners Management, LLC**
10.9
Employee Stock Purchase Plan**
10.10
Form of Indemnification Agreement between Ultra
Clean Holdings, Inc. and each of its directors and executive
officers**
10.11
Amendment No. 1 to Employment Agreement
between Clarence L. Granger and Ultra Clean Holdings, Inc. dated
March 2, 2004**
10.12
Amendment No. 1 to Employment Agreement
between Kevin L. Griffin and Ultra Clean Holding, Inc. dated
March 2, 2004**
10.13
Form of Restricted Stock Agreement
10.14
First Amendment to Revolving Credit Facility
Agreement with Union Bank of California, N.A. dated
March 5, 2004
21.1
Subsidiaries of Ultra Clean Holdings, Inc.**
23.1
Consent of Deloitte & Touche LLP, independent
auditors
23.2
Consent of Davis Polk & Wardwell (contained
in their opinion filed as Exhibit 5.1)
24.1
Power of Attorney (included on signature page)
*
To be filed by subsequent amendment.
**
Previously filed.
Table of Contents
(1) For purposes of determining any
liability under the Securities Act, 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 purposes of determining any
liability under the Securities Act, 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.
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Amendment No. 3 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Menlo Park, State of California, on March 8, 2004.
ULTRA CLEAN HOLDINGS, INC. |
By: | /s/ CLARENCE L. GRANGER |
|
|
Name: Clarence L. Granger | |
Title: Chief Executive Officer and Director |
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Clarence L. Granger and Kevin L. Griffin, and each of them, his true and lawful attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this registration statement, including post-effective amendments or any abbreviated registration statement and any amendments thereto filed pursuant to Rule 462(b) increasing the number of securities for which registration is sought, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 3 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Name | Title | Date | ||||
|
|
|
||||
/s/ CLARENCE L. GRANGER
Clarence L. Granger |
Chief Executive Officer and Director | March 8, 2004 | ||||
*
Kevin L. Griffin |
Chief Financial Officer
(Principal Accounting Officer) |
March 8, 2004 | ||||
/s/ BRIAN R. BACHMAN
Brian R. Bachman |
Director | March 8, 2004 | ||||
/s/ SUSAN H. BILLAT
Susan H. Billat |
Director | March 8, 2004 | ||||
*
Dipanjan Deb |
Director | March 8, 2004 | ||||
/s/ KEVIN C. EICHLER
Kevin C. Eichler |
Director | March 8, 2004 | ||||
*
David ibnAle |
Director | March 8, 2004 | ||||
*
Thomas M. Rohrs |
Director | March 8, 2004 | ||||
*By: |
/s/ CLARENCE L. GRANGER
Clarence L. Granger Attorney-in-fact |
March 8, 2004 |
II-6
EXHIBIT INDEX
Exhibit | Description | |||
|
|
|||
1.1 | Underwriting Agreement | |||
2.1 | Agreement and Plan of Merger dated October 30, 2002, among Ultra Clean Holdings, Inc., Ultra Clean Technology Systems and Service, Inc., Mitsubishi Corporation, Mitsubishi International Corporation and Clean Merger Company** | |||
3.1 | Amended and Restated Certificate of Incorporation of Ultra Clean Holdings, Inc.** | |||
3.2 | Amended and Restated Bylaws of Ultra Clean Holdings, Inc.** | |||
4.1 | Specimen Stock Certificate | |||
4.2 | Form of Stockholders Agreement between Ultra Clean Holdings, Inc. and FP-Ultra Clean, LLC to be effective upon closing of the offering** | |||
4.3 | Form of Restricted Securities Purchase Agreement dated November 26, 2002 with Ultra Clean Holdings, Inc.** | |||
4.4 | Registration Rights Agreement dated December 2, 2002 between Ultra Clean Holdings, Inc. and FP-Ultra Clean, LLC** | |||
4.5 | Restricted Securities Purchase Agreement dated February 20, 2003 between Ultra Clean Holdings, Inc. and Clarence L. Granger** | |||
5.1 | Opinion of Davis Polk & Wardwell | |||
10.1 | Employment Agreement dated November 15, 2002 between Clarence L. Granger and Ultra Clean Holdings, Inc.** | |||
10.2 | Agreement to Preserve Corporate Opportunity dated November 15, 2002 between Clarence L. Granger and Ultra Clean Holdings, Inc.** | |||
10.3 | Employment Agreement dated November 15, 2002 between Kevin L. Griffin and Ultra Clean Holdings, Inc.** | |||
10.4 | Agreement to Preserve Corporate Opportunity dated November 15, 2002 between Kevin L. Griffin and Ultra Clean Holdings, Inc.** | |||
10.5 | Amended and Restated 2003 Stock Incentive Plan** | |||
10.6 | Form of Stock Option Agreement | |||
10.7 | Revolving Credit Facility Agreement with Union Bank of California, N.A. dated as of July 9, 2003** | |||
10.8 | Advisory Agreement dated as of February 15, 2004 by and among Ultra Clean Holdings, Inc. and Francisco Partners Management, LLC** | |||
10.9 | Employee Stock Purchase Plan** | |||
10.10 | Form of Indemnification Agreement between Ultra Clean Holdings, Inc. and each of its directors and executive officers** | |||
10.11 | Amendment No. 1 to Employment Agreement between Clarence L. Granger and Ultra Clean Holdings, Inc. dated March 2, 2004** | |||
10.12 | Amendment No. 1 to Employment Agreement between Kevin L. Griffin and Ultra Clean Holdings, Inc. dated March 2, 2004** | |||
10.13 | Form of Restricted Stock Agreement | |||
10.14 | First Amendment to Revolving Credit Facility Agreement with Union Bank, N.A. dated March 5, 2004 | |||
21.1 | Subsidiaries of Ultra Clean Holdings, Inc.** | |||
23.1 | Consent of Deloitte & Touche LLP, independent auditors | |||
23.2 | Consent of Davis Polk & Wardwell (contained in their opinion filed as Exhibit 5.1) | |||
24.1 | Power of Attorney (included on signature page) |
* | To be filed by amendment |
** | Previously filed. |
EXHIBIT 1.1
9,100,000 SHARES
ULTRA CLEAN HOLDINGS, INC.
COMMON STOCK, PAR VALUE $0.001 PER SHARE
UNDERWRITING AGREEMENT
_____________, 2004
CREDIT SUISSE FIRST BOSTON LLC
J.P. MORGAN SECURITIES INC.
BANC OF AMERICA SECURITIES LLC
PIPER JAFFRAY & CO.
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston LLC,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. Ultra Clean Holdings, Inc., a Delaware corporation ("COMPANY"), proposes to issue and sell to the several Underwriters named in Schedule A hereto ("UNDERWRITERS") 7,000,000 shares of its common stock, par value $0.001 per share ("SECURITIES") and FP-Ultra Clean, LLC, a Delaware limited liability company (the "SELLING STOCKHOLDER"), proposes to sell to the several Underwriters 2,100,000 outstanding shares of the Securities (such 9,100,000 shares of Securities being hereinafter referred to as the "FIRM SECURITIES"). The Selling Stockholder also proposes to sell to the Underwriters, at the option of the Underwriters, not more than 1,365,000 additional outstanding shares of the Securities as set forth below (such 1,365,000 shares of Securities being hereinafter referred to as the "OPTIONAL SECURITIES"). The Firm Securities and the Optional Securities are herein collectively called the "OFFERED SECURITIES". The Company and the Selling Stockholder hereby agree with the several Underwriters as follows:
2. Representations and Warranties of the Company and the Selling Stockholder. (a) The Company represents and warrants to, and agrees with, the several Underwriters that:
(i) A registration statement (No. 333-111904) relating to the Offered Securities, including a form of prospectus, has been filed with the Securities and Exchange Commission ("COMMISSION") and either (A) has been declared effective under the Securities Act of 1933 ("ACT") and is not proposed to be amended or (B) is proposed to be amended by amendment or post-effective amendment. If such registration statement ("INITIAL REGISTRATION STATEMENT") has been declared effective, either (A) an additional registration statement ("ADDITIONAL REGISTRATION STATEMENT") relating to the Offered Securities may have been filed with the Commission pursuant to Rule 462(b) ("RULE 462(B)") under the Act and, if so filed, has become effective upon filing pursuant to such Rule and the Offered Securities all have been duly registered under the Act pursuant to the initial registration statement and, if applicable, the additional registration statement or (B) such an additional registration statement is proposed to be filed with the Commission pursuant to Rule 462(b) and will become effective upon filing pursuant to such Rule and upon such filing the Offered Securities will all have been duly registered under the Act pursuant to the initial registration statement and such additional registration statement.
If the Company does not propose to amend the initial registration statement or the additional registration statement (if any), or if any post-effective amendment to either such registration statement has been filed with the Commission prior to the execution and delivery of this Agreement, the most recent amendment (if any) to each such registration statement has been declared effective by the Commission or has become effective upon filing pursuant to Rule 462(c) ("RULE 462(C)") under the Act or, in the case of the additional registration statement, Rule 462(b). For purposes of this Agreement, "EFFECTIVE TIME" with respect to the initial registration statement or, if filed prior to the execution and delivery of this Agreement, the additional registration statement means (A) if the Company has advised the Representatives that it does not propose to amend such registration statement, the date and time as of which such registration statement, or the most recent post-effective amendment thereto (if any) filed prior to the execution and delivery of this Agreement, was declared effective by the Commission or has become effective upon filing pursuant to Rule 462(c) or, in the case of the additional registration statement, Rule 462(b), or (B) if the Company has advised the Representatives that it proposes to file an amendment or post-effective amendment to such registration statement, the date and time as of which such registration statement, as amended by such amendment or post-effective amendment, as the case may be, is declared effective by the Commission. If an additional registration statement has not been filed prior to the execution and delivery of this Agreement but the Company has advised the Representatives that it proposes to file one, "EFFECTIVE TIME" with respect to such additional registration statement means the date and time as of which such registration statement is filed and becomes effective pursuant to Rule 462(b). "EFFECTIVE DATE" with respect to the initial registration statement or the additional registration statement (if any) means the date of the Effective Time thereof. The initial registration statement, as amended at its Effective Time, including all information contained in the additional registration statement (if any) and deemed to be a part of the initial registration statement as of the Effective Time of the additional registration statement pursuant to the General Instructions of the Form on which it is filed and including all information (if any) deemed to be a part of the initial registration statement as of its Effective Time pursuant to Rule 430A(b) ("RULE 430A(B)") under the Act, is hereinafter referred to as the "INITIAL REGISTRATION STATEMENT". The additional registration statement, as amended at its Effective Time, including the contents of the Initial Registration Statement incorporated by reference therein and including all information (if any) deemed to be a part of the additional registration statement as of its Effective Time pursuant to Rule 430A(b), is hereinafter referred to as the "ADDITIONAL REGISTRATION STATEMENT". The Initial Registration Statement and the Additional Registration Statement are hereinafter referred to collectively as the "REGISTRATION STATEMENTS" and individually as a "REGISTRATION STATEMENT". The form of prospectus relating to the Offered Securities, as first filed with the Commission pursuant to and in accordance with Rule 424(b) ("RULE 424(B)") under the Act or (if no such filing is required) as included in a Registration Statement, is hereinafter referred to as the "PROSPECTUS". No document has been or will be prepared or distributed in reliance on Rule 434 under the Act.
(ii) If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement: (A) on the Effective Date of the Initial Registration Statement, the Initial Registration Statement conformed in all material respects to the requirements of the Act and the rules and regulations of the Commission ("RULES AND REGULATIONS") and did not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, (B) on the Effective Date of the Additional Registration Statement (if any), each Registration Statement conformed, or will conform, in all material respects to the requirements of the Act and the Rules and Regulations and did not include, or will not include, any untrue statement of a material fact and did not omit, or will not omit, to state any material fact required to be stated therein or necessary to make the statements therein not misleading, (C) on the date of this Agreement, the Initial Registration Statement and, if the Effective Time of the Additional Registration Statement (if any) is prior to the execution and delivery of this Agreement, the Additional Registration Statement each conforms, and at the time of filing of the Prospectus pursuant to Rule 424(b) or (if no such filing is required) at the Effective Date of the Additional Registration Statement (if any) in which the Prospectus is included, each Registration Statement will conform, in all material respects to the requirements of the Act and the Rules and Regulations, and neither such Registration Statement includes, nor will it include, any untrue statement of a material fact or omits, or will omit, to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (D) at the time of the filing of the Prospectus pursuant to Rule 424(b), or if no such filing is required, at the Effective Time of the Registration Statement in which the Prospectus is included, the Prospectus will conform in all material respects with the requirements of the Act and the Rules and Regulations and will not include any untrue
statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Effective Time of the Initial Registration Statement is subsequent to the execution and delivery of this Agreement: (A) on the Effective Date of the Initial Registration Statement, the Initial Registration Statement will conform in all material respects to the requirements of the Act and the Rules and Regulations and will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; (B) at the time of the filing of the Prospectus pursuant to Rule 424(b), or if no such filing is required, at the Effective Time of the Registration Statement in which the Prospectus is included, the Prospectus will conform in all material respects with the requirements of the Act and the Rules and Regulations and will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (C) no Additional Registration Statement has been or will be filed. The two preceding sentences do not apply to statements in or omissions from a Registration Statement or the Prospectus based upon written information furnished to the Company by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information is that described as such in Section 7(c) hereof.
(iii) The Company has been duly incorporated and is an existing corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own its properties and conduct its business as described in the Prospectus, and is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification except where the failure to so qualify or to be in good standing would not reasonably be expected, individually or in the aggregate, to have a material adverse effect on the condition (financial or other), business, properties or results of operations of the Company and the Subsidiary (as hereinafter defined) taken as a whole ("MATERIAL ADVERSE EFFECT"). The only state in which the Company owns or leases property or conducts its business is California.
(iv) Ultra Clean Technology Systems and Service, Inc., a California corporation ("SUBSIDIARY"), is the only subsidiary of the Company. The Subsidiary has been duly incorporated and is an existing corporation in good standing under the laws of the jurisdiction of its incorporation, with corporate power and authority to own its properties and conduct its business as described in the Prospectus, and is duly qualified to do business as a foreign corporation in good standing in all other jurisdictions in which its ownership or lease of property or the conduct of its business requires such qualification except where the failure to so qualify or to be in good standing would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; all of the issued and outstanding capital stock of the Subsidiary has been duly authorized and validly issued and is fully paid and nonassessable; and the capital stock of the Subsidiary owned by the Company is owned free from liens, encumbrances and defects in title. The only states in which the Subsidiary owns or leases property or conducts its business are Oregon and Texas.
(v) The Offered Securities and all other outstanding shares of capital stock of the Company have been duly authorized; all outstanding shares of capital stock of the Company are, and, when the Offered Securities have been delivered and paid for in accordance with this Agreement on each Closing Date (as defined below), such Offered Securities will have been, validly issued, fully paid and nonassessable and will conform to the description thereof contained in the Prospectus; and the stockholders of the Company have no preemptive rights with respect to the Securities.
(vi) Except as disclosed in the Prospectus, there are no contracts, agreements or understandings between the Company and any person that would give rise to a valid claim against the Company or any Underwriter for a brokerage commission, finder's fee or other like payment in connection with this offering.
(vii) There are no contracts, agreements or understandings between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to a Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the Company under the Act that have not been validly waived or satisfied prior to the date hereof.
(viii) The Offered Securities have been approved for listing on The Nasdaq Stock Market's National Market subject to notice of issuance.
(ix) No consent, approval, authorization, or order of, or filing with, any governmental agency or body or any court is required for the consummation of the transactions contemplated by this Agreement in connection with the issuance and sale of the Offered Securities by the Company, except such as have been obtained and made under the Act and such as may be required under state securities or Blue Sky laws.
(x) The execution, delivery and performance of this Agreement, and the issuance and sale of the Offered Securities will not result in a breach or violation of any of the terms and provisions of, or constitute a default under (A) any statute, rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company or the Subsidiary or any of their properties, (B) any agreement or instrument to which the Company or the Subsidiary is a party or by which the Company or the Subsidiary is bound or to which any of the properties of the Company or the Subsidiary is subject, or (C) the charter or by-laws of the Company or the Subsidiary, except, in the case of (A) or (B), where such breach, violation or default would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; and the Company has full power and authority to authorize, issue and sell the Offered Securities as contemplated by this Agreement.
(xi) This Agreement has been duly authorized, executed and delivered by the Company.
(xii) Except as disclosed in the Prospectus, the Company and the Subsidiary have good and marketable title to all real properties and all other properties and assets owned by them, in each case free from liens, encumbrances and defects in title that would materially affect the value thereof or materially interfere with the use made or to be made thereof by them; and except as disclosed in the Prospectus, the Company and the Subsidiary hold any leased real or personal property under valid and enforceable leases with no exceptions that would materially interfere with the use made or to be made thereof by them.
(xiii) The Company and the Subsidiary possess adequate certificates, authorities or permits issued by appropriate governmental agencies or bodies necessary to conduct the business now operated by them, except where the lack thereof would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, and have not received any notice of proceedings relating to the revocation or modification of any such certificate, authority or permit that, if determined adversely to the Company or the Subsidiary, would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.
(xiv) No labor dispute with the employees of the Company or the Subsidiary exists or, to the knowledge of the Company, is imminent except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.
(xv) The Company and the Subsidiary own, possess or can acquire on reasonable terms, adequate trademarks, trade names and other rights to inventions, know-how, patents, copyrights, confidential information and other intellectual property (collectively, "intellectual property rights") necessary to conduct the business now operated by them, or presently employed by them, except where the failure to own, possess or acquire such intellectual property rights would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, and have not received any notice of infringement of or conflict with asserted rights of others with respect to any intellectual property rights that, if determined adversely to the Company or the Subsidiary, would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.
(xvi) Except as disclosed in the Prospectus, neither the Company nor the Subsidiary is in violation of any statute, rule, regulation, decision or order of any governmental agency or body or any court, domestic or foreign, relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or
restoration of the environment or human exposure to hazardous or toxic substances (collectively, "environmental laws"), owns or operates any real property contaminated with any substance that is subject to any environmental laws, is liable for any off-site disposal or contamination pursuant to any environmental laws, or is subject to any claim relating to any environmental laws, which violation, contamination, liability or claim would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; and the Company is not aware of any pending investigation which might lead to such a claim.
(xvii) Except as disclosed in the Prospectus, there are no pending actions, suits or proceedings against or affecting the Company or the Subsidiary or any of their respective properties that, if determined adversely to the Company or the Subsidiary, would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, or would materially and adversely affect the ability of the Company to perform its obligations under this Agreement, or which are otherwise material in the context of the sale of the Offered Securities; and no such actions, suits or proceedings are, to the Company's knowledge, threatened or contemplated.
(xviii) The financial statements included in each Registration Statement and the Prospectus present fairly in all material respects the financial position of the Company and the Subsidiary on a consolidated basis as of the dates shown and their results of operations and cash flows for the periods shown, and such financial statements have been prepared in conformity with the generally accepted accounting principles in the United States applied on a consistent basis.
(xix) Except as disclosed in the Prospectus, since the date of the latest audited financial statements included in the Prospectus there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and the Subsidiary taken as a whole, and, except as disclosed in or contemplated by the Prospectus, there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock.
(xx) The Company is, or if the Effective Time of the Initial
Registration Statement is after the date hereof, as of such Effective Time
the Company will be, subject to the reporting requirements of either
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 and
will file reports with the Commission on the Electronic Data Gathering,
Analysis, and Retrieval (EDGAR) system.
(xxi) The Company is not and, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Prospectus, will not be an "investment company" as defined in the Investment Company Act of 1940.
(xxii) The Company and the Subsidiary maintain systems of internal accounting controls sufficient to provide reasonable assurances that (A) transactions are executed in accordance with management's general or specific authorizations; (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability; (C) access to assets is permitted only in accordance with management's general or specific authorization; and (D) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any difference.
(xxiii) The Company (A) has notified each holder of a currently outstanding option or share of capital stock, as the case may be, issued under the Company's Amended and Restated 2003 Stock Incentive Plan (the "PLAN"), and each person who has acquired Securities pursuant to the exercise of any option granted under the Plan that pursuant to the terms of the Plan, that none of such options or shares may be sold or otherwise transferred or disposed of for a period of 180 days after the date of the initial public offering of the Offered Securities and (B) has imposed a stop-transfer instruction with the Company's transfer agent in order to enforce the foregoing lock-up provision imposed pursuant to the Plan.
(xxiv) Except as disclosed in the Prospectus, all outstanding Securities, and securities convertible into or exercisable or exchangeable for Securities, are subject to valid and binding agreements (collectively, "Lock-up Agreements") that restrict the holders thereof from offering to sell, selling, contracting to sell, pledging or otherwise disposing of, directly or indirectly, any shares of Securities or securities convertible into or exchangeable or exercisable for any shares of Securities, entering into a transaction which would have the same effect, or entering into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of the Securities, whether any such aforementioned transaction is to be settled by delivery of the Securities or such other securities, in cash or otherwise, or publicly disclosing the intention to make any such offer, sale, pledge or disposition, or entering into any such transaction, swap, hedge or other arrangement for a period of 180 days after the date of the Prospectus without the prior written consent of Credit Suisse First Boston LLC ("CSFB").
(xxv) No forward-looking statement (within the meaning of Section 27A of the Act and Section 21E of the Exchange Act) contained in the Prospectus has been made or reaffirmed without a reasonable basis or has been disclosed other than in good faith.
(xxvi) The Company is, or if the Effective Time of the Initial Registration Statement is after the date hereof, as of such Effective Time the Company will be, in compliance with the currently effective applicable provisions of the Sarbanes-Oxley Act of 2002 and all rules and regulations promulgated thereunder or in connection therewith.
(b) The Selling Stockholder represents and warrants to, and agrees with, the several Underwriters that:
(i) The Selling Stockholder has and on each Closing Date hereinafter mentioned will have valid and unencumbered title to the Offered Securities to be delivered by the Selling Stockholder on such Closing Date and full right, power and authority to enter into this Agreement and to sell, assign, transfer and deliver the Offered Securities to be delivered by the Selling Stockholder on such Closing Date hereunder; and upon the delivery of and payment for the Offered Securities on each Closing Date hereunder the several Underwriters will acquire valid and unencumbered title to the Offered Securities to be delivered by the Selling Stockholder on such Closing Date.
(ii) If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement: (A) on the Effective Date of the Initial Registration Statement, the Initial Registration Statement did not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, (B) on the Effective Date of the Additional Registration Statement (if any), each Registration Statement did not include, or will not include, any untrue statement of a material fact and did not omit, or will not omit, to state any material fact required to be stated therein or necessary to make the statements therein not misleading, (C) on the date of this Agreement, the Initial Registration Statement and, if the Effective Time of the Additional Registration Statement is prior to the execution and delivery of this Agreement, the Additional Registration Statement, and at the time of filing of the Prospectus pursuant to Rule 424(b) or (if no such filing is required) at the Effective Date of the Additional Registration Statement in which the Prospectus is included, neither such Registration Statement includes, nor will it include, any untrue statement of a material fact or omits, or will omit, to state any material fact required to be stated therein or necessary to make the statements therein not misleading and (D) at the time of the filing of the Prospectus pursuant to Rule 424(b), or if no such filing is required, at the Effective Time of the Registration Statement in which the Prospectus is included, the Prospectus will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. If the Effective Time of the Initial Registration Statement is subsequent to the execution and delivery of this Agreement: (A) on the Effective Date of the Initial Registration Statement, the Initial Registration Statement will not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading; and (B) at the time of the filing of the Prospectus pursuant to Rule 424(b), or if no such filing is required, at the Effective Time of the Registration Statement in which the Prospectus is included, the Prospectus will not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The two preceding sentences do not apply to statements in or omissions from a Registration Statement or the Prospectus based upon written information furnished to the Company by any Underwriter through the Representatives specifically for use therein, it being understood and agreed that the only such information is that described as such in Section 7(c).
(iii) Except as disclosed in the Prospectus, there are no contracts, agreements or understandings between the Selling Stockholder and any person that would give rise to a valid claim against the Selling Stockholder or any Underwriter for a brokerage commission, finder's fee or other like payment in connection with this offering.
3. Purchase, Sale and Delivery of Offered Securities. On the basis of the representations, warranties and agreements herein contained, but subject to the terms and conditions herein set forth, the Company and the Selling Stockholder agree, severally and not jointly, to sell to each Underwriter, and each Underwriter agrees, severally and not jointly, to purchase from the Company and the Selling Stockholder, at a purchase price of $ per share, the number of Firm Securities set forth below the caption "Company" or "Selling Stockholder", as the case may be, and opposite the name of such Underwriter in Schedule A hereto.
The Company and the Selling Stockholder will deliver the Firm Securities
to the Representatives for the accounts of the Underwriters, against payment of
the purchase price in Federal (same day) funds by wire transfer to an account
acceptable to each of the Company and CSFB drawn to the order of the Company, in
the case of payment to the Company for 7,000,000 shares of Firm Securities, and
to an account acceptable to each of the Selling Stockholder and CSFB drawn to
the order of the Selling Stockholder, in the case of payment to the Selling
Stockholder for 2,100,000 shares of Firm Securities, in each case at the office
of Davis Polk & Wardwell, 1600 El Camino Real, Menlo Park, California, at 10:00
A.M., New York time, on , 2004, or at such other time not later than seven full
business days thereafter as CSFB and the Company determine, such time being
herein referred to as the "FIRST CLOSING DATE". For purposes of Rule 15c6-1
under the Securities Exchange Act of 1934, the First Closing Date (if later than
the otherwise applicable settlement date) shall be the settlement date for
payment of funds and delivery of securities for all the Offered Securities sold
pursuant to the offering. The Firm Securities will be in such denominations and
registered in such names as CSFB requests.
In addition, upon written notice from CSFB given to the Company and the Selling Stockholder from time to time not more than 30 days subsequent to the date of the Prospectus, the Underwriters may purchase all or less than all of the Optional Securities at the purchase price per Security to be paid for the Firm Securities. The Selling Stockholder agrees to sell to the Underwriters the number of shares of Optional Securities specified in such notice and the Underwriters agree, severally and not jointly, to purchase such Optional Securities. Such Optional Securities shall be purchased for the account of each Underwriter in the same proportion as the number of shares of Firm Securities set forth opposite such Underwriter's name bears to the total number of shares of Firm Securities (subject to adjustment by CSFB to eliminate fractions) and may be purchased by the Underwriters only for the purpose of covering over-allotments made in connection with the sale of the Firm Securities. No Optional Securities shall be sold or delivered unless the Firm Securities previously have been, or simultaneously are, sold and delivered. The right to purchase the Optional Securities or any portion thereof may be exercised from time to time and to the extent not previously exercised may be surrendered and terminated at any time upon notice by CSFB to the Company and the Selling Stockholder.
Each time for the delivery of and payment for the Optional Securities, being herein referred to as an "OPTIONAL CLOSING DATE", which may be the First Closing Date (the First Closing Date and each Optional Closing Date, if any, being sometimes referred to as a "CLOSING DATE"), shall be determined by CSFB but shall be not later than five full business days after written notice of election to purchase Optional Securities is given. The Selling Stockholder will deliver the Optional Securities being purchased on each Optional Closing Date to the Representatives for the accounts of the several Underwriters, against payment of the purchase price therefor in Federal (same day) funds by wire transfer to an account acceptable to each of the Selling Stockholder and CSFB drawn to the order of the Selling Stockholder, at the office of Davis Polk & Wardwell, 1600 El Camino Real, Menlo Park, California. The Optional Securities being purchased on each Optional Closing Date will be in such denominations and registered in such names as CSFB requests.
4. Offering by Underwriters. It is understood that the several Underwriters propose to offer the Offered Securities for sale to the public as set forth in the Prospectus.
5. Certain Agreements of the Company and the Selling Stockholder. The Company agrees with the several Underwriters and the Selling Stockholder that:
(a) If the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement, the Company will file the Prospectus with the Commission pursuant to and in accordance with subparagraph (1) (or, if applicable and if consented to by CSFB, subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the second business day following the execution and delivery of this Agreement or (B) the fifteenth business day after the Effective Date of the Initial Registration Statement.
The Company will advise CSFB promptly of any such filing pursuant to Rule
424(b). If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement and an additional
registration statement is necessary to register a portion of the Offered
Securities under the Act but the Effective Time thereof has not occurred
as of such execution and delivery, the Company will file the additional
registration statement or, if filed, will file a post-effective amendment
thereto with the Commission pursuant to and in accordance with Rule 462(b)
on or prior to 10:00 P.M., New York time, on the date of this Agreement
or, if earlier, on or prior to the time the Prospectus is printed and
distributed to any Underwriter, or will make such filing at such later
date as shall have been consented to by CSFB.
(b) The Company will advise CSFB promptly of any proposal to amend or supplement the initial or any additional registration statement as filed or the related prospectus or the Initial Registration Statement, the Additional Registration Statement (if any) or the Prospectus and will not effect such amendment or supplementation without CSFB's consent, which consent shall not be unreasonably withheld; and the Company will also advise CSFB promptly of the effectiveness of each Registration Statement (if its Effective Time is subsequent to the execution and delivery of this Agreement) and of any amendment of or supplement to a Registration Statement or the Prospectus and of the institution by the Commission of any stop order proceedings in respect of a Registration Statement and will use its best efforts to prevent the issuance of any such stop order and to obtain as soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered Securities is required to be delivered under the Act in connection with sales by any Underwriter or dealer, any event occurs as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus to comply with the Act, the Company will promptly notify CSFB of such event and will promptly prepare and file with the Commission, at its own expense, an amendment or supplement which will correct such statement or omission or an amendment which will effect such compliance. Neither CSFB's consent to, nor the Underwriters' delivery of, any such amendment or supplement shall constitute a waiver of any of the conditions set forth in Section 6.
(d) As soon as practicable, but not later than the Availability Date (as defined below), the Company will make generally available to its securityholders an earnings statement covering a period of at least 12 months beginning after the Effective Date of the Initial Registration Statement (or, if later, the Effective Date of the Additional Registration Statement) which will satisfy the provisions of Section 11(a) of the Act. For the purpose of the preceding sentence, "AVAILABILITY DATE" means the 45th day after the end of the fourth fiscal quarter following the fiscal quarter that includes such Effective Date, except that, if such fourth fiscal quarter is the last quarter of the Company's fiscal year, "AVAILABILITY DATE" means the 90th day after the end of such fourth fiscal quarter.
(e) The Company will furnish to the Representatives copies of each Registration Statement (five (5) of which will be signed and will include all exhibits), each related preliminary prospectus, and, so long as a prospectus relating to the Offered Securities is required to be delivered under the Act in connection with sales by any Underwriter or dealer, the Prospectus and all amendments and supplements to such documents, in each
case in such quantities as CSFB reasonably requests. The Prospectus shall be so furnished on or prior to 3:00 P.M., New York time, on the business day following the later of the execution and delivery of this Agreement or the Effective Time of the Initial Registration Statement. All other documents shall be so furnished as soon as available. The Company will pay the expenses of printing and distributing to the Underwriters all such documents.
(f) The Company will arrange for the qualification of the Offered Securities for sale under the laws of such jurisdictions as CSFB designates and will continue such qualifications in effect so long as required for the distribution.
(g) The Company and the Selling Stockholder agree with the several Underwriters that the Company and the Selling Stockholder will pay all expenses incident to the performance of the obligations of the Company or the Selling Stockholder, as the case may be, under this Agreement, for any filing fees and other expenses (including fees and disbursements of counsel) incurred in connection with qualification of the Offered Securities for sale under the laws of such jurisdictions as CSFB designates and the printing of memoranda relating thereto, for the filing fee incident to the review by the National Association of Securities Dealers, Inc. of the Offered Securities, for any travel expenses of the Company's officers and employees and any other expenses of the Company in connection with attending or hosting meetings, including the cost of any aircraft chartered in connection with attending or hosting such meetings, for any transfer taxes on the sale by the Selling Stockholder of the Offered Securities to the Underwriters with prospective purchasers of the Offered Securities, and for expenses incurred in distributing preliminary prospectuses and the Prospectus (including any amendments and supplements thereto) to the Underwriters.
(h) For a period of 180 days after the date of the Prospectus, the Company will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Commission a registration statement under the Act relating to, any additional shares of its Securities or securities convertible into or exchangeable or exercisable for any shares of its Securities, or publicly disclose the intention to make any such offer, sale, pledge, disposition or filing, without the prior written consent of CSFB; provided that the foregoing shall not apply to (i) issuances of Securities pursuant to the conversion or exchange of convertible or exchangeable securities or the exercise of options, in each case outstanding on the date hereof, (ii) grants of employee stock options pursuant to the terms of a plan in effect on the date hereof and disclosed in the Prospectus, (iii) issuances of Securities pursuant to an employee stock purchase plan in effect on the date hereof and disclosed in the Prospectus, (iv) the filing of a registration statement on Form S-8, or (v) issuances of up to $15,000,000 in shares of Securities in connection with an acquisition or acquisitions and the registration thereof under the Act provided that the recipients of any such Securities issued pursuant to this clause (v) agree to be bound by the foregoing terms.
(i) For a period of 180 days after the date of the Prospectus, the Selling Stockholder will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, any additional shares of the Securities or securities convertible into or exchangeable or exercisable for any shares of Securities, enter into a transaction which would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of the Securities, whether any such aforementioned transaction is to be settled by delivery of the Securities or such other securities, in cash or otherwise, or publicly disclose the intention to make any such offer, sale, pledge or disposition, or enter into any such transaction, swap, hedge or other arrangement, without, in each case, the prior written consent of CSFB; provided that the foregoing shall not apply to any sale of Optional Securities to the Underwriters in accordance with Section 3 hereof. In addition, the Selling Stockholder agrees that, without the prior written consent of CSFB, it will not, for a period of 180 days after the date of the Prospectus, make any demand for or exercise any right with respect to, the registration of any Securities or any security convertible into or exercisable or exchangeable for the Securities.
(j) Unless otherwise instructed by CSFB, the Company will (i) enforce the terms of each Lock-up Agreement, and (ii) issue stop-transfer instructions to the transfer agent for the Securities with respect to any transaction or contemplated transaction that would constitute a breach of or default under the applicable Lock-
up Agreement. In addition, except with the prior written consent of CSFB, the Company agrees (i) not to amend or terminate, or waive any right under, any Lock-up Agreement, or take any other action that would directly or indirectly have the same effect as an amendment or termination, or waiver of any right under any Lock-up Agreement, that would permit any holder of Securities, or any securities convertible into, or exercisable or exchangeable for, Securities, to make any short sale of, grant any option for the purchase of, or otherwise transfer or dispose of, any such Securities or other securities, prior to the expiration of the 180 days after the date of the Prospectus and (ii) not to consent to any sale, short sale, grant of an option for the purchase of, or other disposition or transfer of shares of Securities, or securities convertible into or exercisable or exchangeable for Securities, subject to a Lock-up Agreement.
6. Conditions of the Obligations of the Underwriters. The obligations of the several Underwriters to purchase and pay for the Firm Securities on the First Closing Date and the Optional Securities to be purchased on each Optional Closing Date will be subject to the accuracy of the representations and warranties on the part of the Company and the Selling Stockholder herein, to the accuracy of the statements of officers of the Company made pursuant to the provisions hereof, to the performance by the Company and the Selling Stockholder of their obligations hereunder and to the following additional conditions precedent:
(a) The Representatives shall have received a letter, dated the date of delivery thereof (which, if the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement, shall be on or prior to the date of this Agreement or, if the Effective Time of the Initial Registration Statement is subsequent to the execution and delivery of this Agreement, shall be prior to the filing of the amendment or post-effective amendment to the registration statement to be filed shortly prior to such Effective Time), of Deloitte Touche LLP confirming that they are independent public accountants within the meaning of the Act and the applicable published Rules and Regulations thereunder and stating to the effect that:
(i) [in their opinion the financial statements examined by them and included in the Registration Statements comply as to form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations;
(ii) they have performed the procedures specified by the American Institute of Certified Public Accountants for a review of interim financial information as described in Statement of Auditing Standards No. 100, Interim Financial Information, on the unaudited financial statements included in the Registration Statements;
(iii) on the basis of the review referred to in clause (ii) above, a reading of the latest available interim financial statements of the Company, inquiries of officials of the Company who have responsibility for financial and accounting matters and other specified procedures, nothing came to their attention that caused them to believe that:
(A) the unaudited financial statements included in the Registration Statements do not comply as to form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations or any material modifications should be made to such unaudited financial statements for them to be in conformity with generally accepted accounting principles;
(B) at the date of the latest available balance sheet read by such accountants, or at a subsequent specified date not more than three business days prior to the date of this Agreement, there was any change in the capital stock or any increase in short-term or long-term debt of the Company and the Subsidiary or, at the date of the latest available balance sheet read by such accountants, there was any decrease in consolidated net current assets (working capital) or total assets or stockholders' equity at the Company and the Subsidiary, as compared with amounts shown on the latest balance sheet included in the Prospectus; or
(C) for the period from the closing date of the latest income statement included in the Prospectus to the closing date of the latest available income statement read by such accountants there were any decreases, as compared with the corresponding period of the previous year and with the period of corresponding length ended the date of the latest income statement included in the Prospectus, in consolidated net sales, net operating income in the total or per share amounts of consolidated income before extraordinary items or net income,
except in all cases set forth in clauses (B) and (C) above for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and
(iv) they have compared specified dollar amounts (or percentages derived from such dollar amounts) and other financial information contained in the Registration Statements (in each case to the extent that such dollar amounts, percentages and other financial information are derived from the general accounting records of the Company and the Subsidiary subject to the internal controls of the Company's accounting system or are derived directly from such records by analysis or computation) with the results obtained from inquiries, a reading of such general accounting records and other procedures specified in such letter and have found such dollar amounts, percentages and other financial information to be in agreement with such results, except as otherwise specified in such letter. ]
For purposes of this subsection, (i) if the Effective Time of the Initial Registration Statement is subsequent to the execution and delivery of this Agreement, "REGISTRATION STATEMENTS" shall mean the initial registration statement as proposed to be amended by the amendment or post-effective amendment to be filed shortly prior to its Effective Time, (ii) if the Effective Time of the Initial Registration Statement is prior to the execution and delivery of this Agreement but the Effective Time of the Additional Registration Statement is subsequent to such execution and delivery, "REGISTRATION STATEMENTS" shall mean the Initial Registration Statement and the additional registration statement as proposed to be filed or as proposed to be amended by the post-effective amendment to be filed shortly prior to its Effective Time, and (iii) "PROSPECTUS" shall mean the prospectus included in the Registration Statements.
(b) If the Effective Time of the Initial Registration Statement is
not prior to the execution and delivery of this Agreement, such Effective
Time shall have occurred not later than 10:00 P.M., New York time, on the
date of this Agreement or such later date as shall have been consented to
by CSFB. If the Effective Time of the Additional Registration Statement
(if any) is not prior to the execution and delivery of this Agreement,
such Effective Time shall have occurred not later than 10:00 P.M., New
York time, on the date of this Agreement or, if earlier, the time the
Prospectus is printed and distributed to any Underwriter, or shall have
occurred at such later date as shall have been consented to by CSFB. If
the Effective Time of the Initial Registration Statement is prior to the
execution and delivery of this Agreement, the Prospectus shall have been
filed with the Commission in accordance with the Rules and Regulations and
Section 5(a) of this Agreement. Prior to such Closing Date, no stop order
suspending the effectiveness of a Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or,
to the knowledge of the Selling Stockholder, the Company or the
Representatives, shall be contemplated by the Commission.
(c) Subsequent to the execution and delivery of this Agreement,
there shall not have occurred (i) any change, or any development or event
involving a prospective change, in the condition (financial or other),
business, properties or results of operations of the Company and the
Subsidiary taken as one enterprise which, in the judgment of a majority in
interest of the Underwriters including CSFB, is material and adverse and
makes it impractical or inadvisable to proceed with completion of the
public offering or the sale of and payment for the Offered Securities;
(ii) any downgrading in the rating of any debt securities of the Company
by any "nationally recognized statistical rating organization" (as defined
for purposes of Rule 436(g) under the Act), or any public announcement
that any such organization has under surveillance or review its rating of
any debt securities of the Company (other than an announcement with
positive implications of a possible upgrading,
and no implication of a possible downgrading, of such rating); (iii) any change in U.S. or international financial, political or economic conditions or currency exchange rates or exchange controls as would, in the judgment of a majority in interest of the Underwriters including CSFB, be likely to prejudice materially the success of the proposed issue, sale or distribution of the Offered Securities, whether in the primary market or in respect of dealings in the secondary market; (iv) any material suspension or material limitation of trading in securities generally on the New York Stock Exchange or The Nasdaq National Market, or any setting of minimum prices for trading on such exchange; (v) or any suspension of trading of any securities of the Company on any exchange or in the over-the-counter market; (vi) any banking moratorium declared by U.S. Federal or New York authorities; (vii) any major disruption of settlements of securities or clearance services in the United States; or (viii) any attack on, outbreak or escalation of hostilities or act of terrorism involving the United States, any declaration of war by Congress or any other national or international calamity or emergency if, in the judgment of a majority in interest of the Underwriters including CSFB, the effect of any such attack, outbreak, escalation, act, declaration, calamity or emergency makes it impractical or inadvisable to proceed with completion of the public offering or the sale of and payment for the Offered Securities.
(d) The Representatives shall have received an opinion, dated such Closing Date, of Davis Polk & Wardwell, counsel for the Company, to the effect that:
(i) The Company is validly existing as a corporation in good standing under the laws of the State of Delaware, with corporate power and authority to own its properties and conduct its business as described in the Prospectus; and the Company is duly qualified to do business as a foreign corporation and is in good standing in the State of California;
(ii) The Subsidiary is validly existing as a corporation in good standing under the laws of the State of California, with corporate power and authority to own its properties and conduct its business as described in the Prospectus; and the Subsidiary is duly qualified to do business as a foreign corporation and is in good standing in the States of Oregon and Texas; all of the issued and outstanding capital stock of the Subsidiary has been duly authorized and validly issued and is fully paid and nonassessable; and the capital stock of the Subsidiary is owned by the Company free and clear of all perfected security interests and, to the knowledge of such counsel, any other security interests, liens, encumbrances and defects in title;
(iii) The outstanding shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and nonassessable; the Offered Securities have been duly and validly authorized and when issued and delivered to and paid for by the Underwriters under this Agreement will be fully paid and nonassessable; the capital stock of the Company conforms in all material respects to the description thereof contained in the Prospectus; and the holders of outstanding shares of capital stock of the Company are not entitled to preemptive or other rights to subscribe for the Offered Securities under (A) the Company's certificate of incorporation or bylaws, or (B) the contracts or agreements filed as exhibits to the Registration Statement [and such other contracts or agreements as are listed on a schedule to the opinion];
(iv) Except as described in the Prospectus, there are no contracts, agreements or understandings known to such counsel between the Company and any person granting such person the right to require the Company to file a registration statement under the Act with respect to any securities of the Company or to require the Company to include such securities with the Offered Securities registered pursuant to the Registration Statement;
(v) The Company is not and, after giving effect to the offering and sale of the Offered Securities and the application of the proceeds thereof as described in the Prospectus, will not be required to register as an "investment company" as defined in the Investment Company Act of 1940;
(vi) No consent, approval, authorization or order of, or qualification with, any governmental agency or body or any court under the United States federal or New York state law that in the experience of such counsel is normally applicable to general business corporations in relation to transactions of the type contemplated under this Agreement is required to be obtained or made by the Company for the performance of its obligations under this Agreement, except such as have been obtained and made under the Act and such as may be required under state securities and Blue Sky laws;
(vii) To such counsel's knowledge, there are no pending actions, suits or proceedings against or affecting the Company, the Subsidiary or any of their respective properties that, if determined adversely to the Company or the Subsidiary, would individually or in the aggregate have a Material Adverse Effect, or would materially and adversely affect the ability of the Company to perform its obligations under this Agreement, or which are otherwise material in the context of the sale of the Offered Securities; and no such actions, suits or proceedings are, to such counsel's knowledge, threatened or contemplated;
(viii) The execution and delivery by the Company of, and the performance by the Company of its obligations under, this Agreement and the consummation of the transactions contemplated herein will not contravene any provision of applicable United States federal or New York state law that in the experience of such counsel is normally applicable to general business corporations in relation to transactions of the type contemplated under this Agreement, or the certificate of incorporation or bylaws of the Company or the Subsidiary, or any agreement filed as an exhibit to the Registration Statement [or any agreement listed on a schedule to the opinion]; and the Company has full power and authority to authorize, issue and sell the Offered Securities as contemplated by this Agreement;
(ix) The Initial Registration Statement was declared effective under the Act, the Additional Registration Statement (if any) was filed and became effective under the Act under, any filing of the Prospectus and any supplement(s) thereto, pursuant to Rule 424(b) under the Act, has been made in the manner and within the time period required and, to the knowledge of such counsel, no stop order suspending the effectiveness of a Registration Statement or any part thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Act, and each Registration Statement and the Prospectus, and each amendment or supplement thereto, as of their respective effective or issue dates, complied as to form in all material respects with the requirements of the Act and the Rules and Regulations;
(x) The statements set forth under the heading "Description of Capital Stock," "Related Party Transactions -- Relationship with Francisco Partners," and "Material U.S. Federal Tax Considerations for Non-U.S. Holders of Common Stock" in the Prospectus, insofar as such statements constitute a summary of the statutes, rules, regulations, legal matters, documents or proceedings referred to therein, have been reviewed by such counsel and fairly present the information called for with respect to such statutes, rules, regulations, legal matters, documents and proceedings in all material respects as required by the Act and the rules and regulations thereunder; and
(xi) This Agreement has been duly authorized, executed and delivered by the Company.
In addition to the matters set forth above, counsel rendering the foregoing opinion shall also include a statement to the effect that such counsel has participated in conferences with representatives of the Company
and with representatives of the Company's independent accountants at which conferences the contents of the Registration Statements and the Prospectus and any amendments and supplements thereto and related matters were discussed, and, such counsel has no reason to believe that any part of a Registration Statement or any amendment thereto (except for the financial statements or other financial data contained therein, as to which such counsel need express no belief), as of its effective date or as of such Closing Date, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein not misleading or that the Prospectus or any amendment or supplement thereto (except for the financial statements or other financial data contained therein, as to which such counsel need express no belief), as of its issue date or as of such Closing Date, contained any untrue statement of a material fact or omitted to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(e) The Representatives shall have received an opinion, dated such Closing Date, from Davis Polk & Wardwell, counsel for the Selling Stockholder, to the effect that:
(i) The Selling Stockholder has valid title to, or a valid security entitlement in respect of, the Securities to be sold by it free and clear of all perfected security interests and, to the knowledge of such counsel, any other security interests, liens, encumbrances and defects in title; delivery of stock certificates representing the Securities, endorsed to the Underwriters and payment therefor pursuant to this Agreement will pass valid title to such Securities, free and clear of any adverse claim within the meaning of Section 8-102 of the New York Uniform Commercial Code, to each Underwriter who has purchased such Securities without notice of an adverse claim;
(ii) No consent, approval, authorization or order of, or qualification with, any governmental agency or body or any court under the United States federal or New York state law that in the experience of such counsel is normally applicable to general business corporations or limited liability companies in relation to transactions of the type contemplated under this Agreement is required to be obtained or made by the Selling Stockholder for the performance of its obligations under this Agreement, except such as have been obtained and made under the Act and such as may be required under state securities and Blue Sky laws;
(iii) The execution and delivery by the Selling Stockholder of, and the performance by the Selling Stockholder of its obligations under, this Agreement and the consummation of the transactions contemplated herein, have been duly authorized on the part of the Selling Stockholder and will not result in a breach or violation of any of the terms and provisions of, or constitute a default under, the limited liability company agreement of the Selling Stockholder; and
(iv) This Agreement has been duly authorized, executed and delivered by the Selling Stockholder.
(f) The Representatives shall have received from Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the Underwriters, such opinion or opinions, dated such Closing Date, with respect to the incorporation of the Company, the validity of the Offered Securities delivered on such Closing Date, the Registration Statements, the Prospectus and other related matters as the Representatives may require, and the Selling Stockholder and the Company shall have furnished to such counsel such documents as they may reasonably request for the purpose of enabling them to pass upon such matters.
(g) The Representatives shall have received a certificate, dated such Closing Date, of the Chief Executive Officer and Chief Financial Officer of the Company in which such officers, to the best of their knowledge after reasonable investigation, shall state that: the representations and warranties of the Company in this Agreement are true and correct; the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to such Closing Date; no stop order suspending the
effectiveness of any Registration Statement has been issued and no proceedings for that purpose have been instituted or are contemplated by the Commission; the Additional Registration Statement (if any) satisfying the requirements of subparagraphs (1) and (3) of Rule 462(b) was filed pursuant to Rule 462(b), including payment of the applicable filing fee in accordance with Rule 111(a) or (b) under the Act, prior to the time the Prospectus was printed and distributed to any Underwriter; and, subsequent to the date of the most recent financial statements in the Prospectus, there has been no material adverse change, nor any development or event involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and the Subsidiary taken as a whole except as set forth in the Prospectus or as described in such certificate.
(h) The Representatives shall have received a letter, dated such Closing Date, of Deloitte Touche LLP which meets the requirements of subsection (a) of this Section, except that the specified date referred to in such subsection will be a date not more than three days prior to such Closing Date for the purposes of this subsection.
(i) On or prior to the date of this Agreement, the Representatives shall have received lockup letters from each of the executive officers and directors of the Company and the holders of all of the outstanding Securities and securities convertible into or exercisable or exchangeable for Securities.
(j) The Selling Stockholder will deliver to CSFB a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof).
(k) No Underwriter shall have notice of an adverse claim on the Offered Securities within the meaning of Section 8-102 of the New York Uniform Commercial Code.
The Selling Stockholder and the Company will furnish the Representatives with such conformed copies of such opinions, certificates, letters and documents as the Representatives reasonably request. CSFB may in its sole discretion waive on behalf of the Underwriters compliance with any conditions to the obligations of the Underwriters hereunder, whether in respect of an Optional Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter, its partners, members, directors and officers
and each person, if any, who controls such Underwriter within the meaning of
Section 15 of the Act, against any losses, claims, damages or liabilities, joint
or several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter consists of the
information described as such in subsection (c) below; and provided, further,
that with respect to any untrue statement or alleged untrue statement in or
omission or alleged omission from any preliminary prospectus the indemnity
agreement contained in this subsection (a) shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages or
liabilities purchased the Offered Securities concerned, to the extent that a
prospectus relating to such Offered Securities was required to be delivered by
such Underwriter under the Act in connection with such purchase and any such
loss, claim, damage or liability of such Underwriter results from the fact that
there was not sent or given to such person, at or prior to the written
confirmation of the sale of such Offered Securities to such person, a copy of
the Prospectus if the Company had previously furnished copies thereof to such
Underwriter.
(b) The Selling Stockholder will indemnify and hold harmless each
Underwriter, its partners, members, directors and officers and each person
who controls such Underwriter within the meaning of Section 15 of the Act,
against any losses, claims, damages or liabilities, joint or several, to
which such Underwriter may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any
Registration Statement, the Prospectus, or any amendment or supplement
thereto, or any related preliminary prospectus, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal
or other expenses reasonably incurred by such Underwriter in connection
with investigating or defending any such loss, claim, damage, liability or
action as such expenses are incurred; provided, however, that the Selling
Stockholder will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement in or omission or alleged
omission from any of such documents in reliance upon and in conformity
with written information furnished to the Company by an Underwriter
through the Representatives specifically for use therein, it being
understood and agreed that the only such information furnished by any
Underwriter consists of the information described as such in subsection
(c) below; and provided further that the liability of FP-Ultra Clean, LLC
under this subsection (b) shall be limited to an amount equal to the gross
proceeds after deducting underwriting discounts and commissions but before
deducting expenses, to the Selling Stockholder from the sale of the
Offered Securities hereunder.
(c) Each Underwriter will severally and not jointly indemnify and hold harmless the Company, its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the Act, and the Selling Stockholder and each person, if any, who controls the Selling Stockholder within the meaning of Section 15 of the Act, against any losses, claims, damages or liabilities to which the Company or the Selling Stockholder may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, the Prospectus, or any amendment or supplement thereto, or any related preliminary prospectus, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Underwriter through the Representatives specifically for use therein, and will reimburse any legal or other expenses reasonably incurred by the Company and the Selling Stockholder in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred, it being understood and agreed that the only such information furnished by any Underwriter consists of the following information in the Prospectus furnished on behalf of each Underwriter: the concession and reallowance figures appearing in the fourth paragraph under the caption "Underwriting" and the information contained in the sixth, fourteenth and fifteenth paragraphs under the caption "Underwriting."
(d) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against an
indemnifying party under subsection (a), (b) or (c) above, notify the
indemnifying party of the commencement thereof; but the failure to notify
the indemnifying party shall not relieve it from any liability that it may
have under subsection (a), (b) or (c) above except to the extent that it
has been materially prejudiced (through the forfeiture of substantive
rights or defenses) by such failure; and provided further that the failure
to notify the indemnifying party shall not relieve it from any liability
that it may have to an indemnified party otherwise than under subsection
(a), (b) or (c) above. In case any such action is brought against any
indemnified party and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party
(who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party), and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified
party under this Section, as the case may be, for any legal or other
expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation. In
no event shall the indemnifying party be liable for the
fees and expenses of more than one counsel, except for any local counsel,
to the indemnified parties in connection with any one action or separate
but similar or related actions in the same jurisdiction arising out of the
same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened action in respect of which any
indemnified party is or could have been a party and indemnity could have
been sought hereunder by such indemnified party unless such settlement (i)
includes an unconditional release of such indemnified party from all
liability on any claims that are the subject matter of such action and
(ii) does not include a statement as to, or an admission of, fault,
culpability or a failure to act by or on behalf of an indemnified party.
(e) If the indemnification provided for in this Section is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a
result of the losses, claims, damages or liabilities referred to in
subsection (a), (b) or (c) above (i) in such proportion as is appropriate
to reflect the relative benefits received by the Company and the Selling
Stockholder on the one hand and the Underwriters on the other from the
offering of the Securities or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the Company and the
Selling Stockholder on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities as well as any other relevant equitable
considerations. The relative benefits received by the Company and the
Selling Stockholder on the one hand and the Underwriters on the other
shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company and
the Selling Stockholder bear to the total underwriting discounts and
commissions received by the Underwriters. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company, the Selling Stockholder or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The amount paid by
an indemnified party as a result of the losses, claims, damages or
liabilities referred to in the first sentence of this subsection (e) shall
be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any
action or claim which is the subject of this subsection (e).
Notwithstanding the provisions of this subsection (e), (i) no Underwriter
shall be required to contribute any amount in excess of the amount by
which the total price at which the Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission and (ii) the Selling Stockholder shall not be required to
contribute any amount in excess of the gross proceeds after deducting
underwriting discounts and commissions but before deducting expenses, to
the Selling Stockholder from the sale of the Offered Securities hereunder.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations in this subsection (e) to contribute are several
in proportion to their respective underwriting obligations and not joint.
(f) The obligations of the Company and the Selling Stockholder under this Section shall be in addition to any liability which the Company and the Selling Stockholder may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each director of the Company, to each officer of the Company who has signed a Registration Statement and to each person, if any, who controls the Company or the Selling Stockholder within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default in their obligations to purchase Offered Securities hereunder on either the First or any Optional Closing Date and the aggregate number of shares of Offered Securities that such defaulting Underwriter or Underwriters agreed but failed to purchase does not exceed 10% of the total number of shares of Offered Securities that the Underwriters are obligated to purchase on such Closing Date, CSFB may make arrangements satisfactory to the Company and the Selling Stockholder for the purchase of such Offered
Securities by other persons, including any of the Underwriters, but if no such arrangements are made by such Closing Date, the non-defaulting Underwriters shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Offered Securities that such defaulting Underwriters agreed but failed to purchase on such Closing Date. If any Underwriter or Underwriters so default and the aggregate number of shares of Offered Securities with respect to which such default or defaults occur exceeds 10% of the total number of shares of Offered Securities that the Underwriters are obligated to purchase on such Closing Date and arrangements satisfactory to CSFB, the Company and the Selling Stockholder for the purchase of such Offered Securities by other persons are not made within 36 hours after such default, this Agreement will terminate without liability on the part of any non-defaulting Underwriter, the Company or the Selling Stockholder, except as provided in Section 10 (provided that if such default occurs with respect to Optional Securities after the First Closing Date, this Agreement will not terminate as to the Firm Securities or any Optional Securities purchased prior to such termination). As used in this Agreement, the term "Underwriter" includes any person substituted for an Underwriter under this Section. Nothing herein will relieve a defaulting Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Selling Stockholder, of the Company or its officers and of the several
Underwriters set forth in or made pursuant to this Agreement will remain in full
force and effect, regardless of any investigation, or statement as to the
results thereof, made by or on behalf of any Underwriter, the Selling
Stockholder, the Company or any of their respective representatives, officers or
directors or any controlling person, and will survive delivery of and payment
for the Offered Securities. If this Agreement is terminated pursuant to Section
8 or if for any reason the purchase of the Offered Securities by the
Underwriters is not consummated, the Company and the Selling Stockholder shall
remain responsible for the expenses to be paid or reimbursed by them pursuant to
Section 5 and the respective obligations of the Company, the Selling Stockholder
and the Underwriters pursuant to Section 7 shall remain in effect, and if any
Offered Securities have been purchased hereunder the representations and
warranties in Section 2 and all obligations under Section 5 shall also remain in
effect. If the purchase of the Offered Securities by the Underwriters is not
consummated for any reason other than solely because of the termination of this
Agreement pursuant to Section 8 or the occurrence of any event specified in
clause (iii), (iv), (vi), (vii) or (viii) of Section 6(c), the Company and the
Selling Stockholder will, jointly and severally, reimburse the Underwriters for
all out-of-pocket expenses (including fees and disbursements of counsel)
reasonably incurred by them in connection with the offering of the Offered
Securities.
10. Notices. All communications hereunder will be in writing and, if sent
to the Underwriters, will be mailed, delivered or faxed and confirmed to the
Representatives, c/o Credit Suisse First Boston LLC, Eleven Madison Avenue, New
York, N.Y. 10010-3629, Attention: Transactions Advisory Group, fax: (212)
325-4296 or, if sent to the Company, will be mailed, delivered or faxed and
confirmed to it at 150 Independence Drive, Menlo Park, CA 94025, Attention:
Clarence L. Granger, fax: (650) 326-0929, with a copy to Davis Polk & Wardwell,
1600 El Camino Real, Menlo Park, CA 94025, Attention: Alan F. Denenberg, Esq.,
fax: (650) 752-2011; or if sent to the Selling Stockholder, will be mailed,
delivered or faxed and confirmed to it at 2882 Sand Hill Road, Suite 280, Menlo
Park, CA 94025, fax: (650) 233-2999; provided, however, that any notice to an
Underwriter pursuant to Section 7 will be mailed, delivered or faxed and
confirmed to such Underwriter.
11. Successors. This Agreement will inure to the benefit of and be binding upon the parties hereto and their respective successors and the officers and directors and controlling persons referred to in Section 7, and no other person will have any right or obligation hereunder.
12. Representation of Underwriters. The Representatives will act for the several Underwriters in connection with the transactions contemplated by this Agreement, and any action under this Agreement taken by the Representatives jointly or by CSFB will be binding upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement.
14. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
The Company hereby submits to the non-exclusive jurisdiction of the Federal and state courts in the Borough of Manhattan in The City of New York in any suit or proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
[The remainder of this page is intentionally left blank]
If the foregoing is in accordance with the Representatives' understanding of our agreement, kindly sign and return to the Company one of the counterparts hereof, whereupon it will become a binding agreement among the Company, the Selling Stockholder and the several Underwriters in accordance with its terms.
Very truly yours,
ULTRA CLEAN HOLDINGS, INC.
By: _______________________________
Name: _____________________________
Title: ____________________________
FP-ULTRA CLEAN, LLC
By: _______________________________
Name: _____________________________
Title: ____________________________
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written.
CREDIT SUISSE FIRST BOSTON LLC
J.P. MORGAN SECURITIES INC.
BANC OF AMERICA SECURITIES LLC
PIPER JAFFRAY & CO.
Acting on behalf of themselves and as the
Representatives of the several
Underwriters
By CREDIT SUISSE FIRST BOSTON LLC
By: ______________________________________________________ Name: ______________________________________________________ Title: ______________________________________________________ |
SCHEDULE A |
NUMBER OF FIRM SECURITIES TO BE SOLD BY TOTAL NUMBER OF FIRM ----------------------------- SECURITIES SELLING TO BE UNDERWRITER COMPANY STOCKHOLDER PURCHASED ----------- ------- ----------- --------- Credit Suisse First Boston LLC............................ J.P. Morgan Securities Inc. .............................. Banc of America Securities LLC............................ Piper Jaffray & Co. ...................................... ------- ----------- --------- Total.......................................... ======= =========== ========= |
EXHIBIT 4.1
ULTRA CLEAN TECHNOLOGY (TM)
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE COMMON SHARES, $0.001 PAR VALUE, OF
ULTRA CLEAN HOLDINGS, INC.
TRANSFERABLE ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR BY ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE IS NOT VALID UNLESS COUNTERSIGNED BY THE TRANSFER AGENT AND REGISTRAR.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE
SIGNED BY FACSIMILE SIGNATURES OF ITS DULY AUTHORIZED OFFICERS.
DATED:
Secretary President
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws and regulations:
TEN COM - as tenants in common
TEN END - as tenants by entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in common
UTMA - (Cust) Custodian (Minor) under Uniform Transfer to Minors Act (State)
Additional abbreviations may also be used though not in the above list.
Shares of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint Attorney to transfer the said stock on books of the within-named Corporation with full power of substitution in the premises.
Dated
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED
ALL GUARANTEES MUST BE MADE BY A FINANCIAL INSTITUTION (SUCH AS A BANK OR
BROKER) WHICH IS A PARTICIPANT IN THE SECURITIES TRANSFER AGENTS MEDALLION
PROGRAM ("STAMP"), THE NEW YORK STOCK EXCHANGE, INC. MEDALLION SIGNATURE PROGRAM
("MSP"), OR THE STOCK EXCHANGES MEDALLION PROGRAM ("SEMP") AND MUST NOT BE
DATED. GUARANTEES BY A NOTARY PUBLIC ARE NOT ACCEPTABLE.
Exhibit 5.1
[Letterhead of Davis Polk & Wardwell]
March 8, 2004
Ultra Clean Holdings, Inc.
150 Independence Drive
Menlo Park, California 94025
Ladies and Gentlemen:
Ultra Clean Holdings, Inc., a Delaware corporation (the "COMPANY"), is filing with the Securities and Exchange Commission a Registration Statement on Form S-1 (the "REGISTRATION STATEMENT") for the purpose of registering under the Securities Act of 1933, as amended (the "SECURITIES ACT"), 9,100,000 shares of common stock, par value $0.001 per share (the "FIRM SECURITIES"), which includes 2,100,000 shares to be sold by the selling stockholder (the "SELLING STOCKHOLDER"), as well as 1,365,000 shares which may be sold by the Selling Stockholder subject to the underwriters' over-allotment option (the "OPTION SECURITIES" and, together with the Firm Securities, the "SECURITIES"), as described in the Registration Statement.
We have examined such documents and such matters of fact and law that we have deemed necessary for the purpose of rendering the opinion expressed herein. Based on the foregoing, we are of the opinion that:
(i) When the price at which the Securities to be sold by the Company has been approved by or on behalf of the Board of Directors of the Company and when the Securities to be sold by the Company have been duly issued in the manner described in the Registration Statement and delivered against payment therefor in accordance with the terms of the Underwriting Agreement referred to in the Registration Statement, the Securities to be sold by the Company will be duly authorized, validly issued, fully paid and non-assessable.
(ii) The Securities to be sold by the Selling Stockholder have been duly authorized and validly issued and are fully paid and non-assessable.
We hereby consent to the filing of this opinion as an Exhibit to the Registration Statement referred to above, and further consent to the reference to our name under the caption "Legal Matters" in the Prospectus which is a part of the Registration Statement, without admitting that we are experts within the meaning of the Securities Act.
Very truly yours,
/s/ Davis Polk & Wardwell |
EXHIBIT 10.6
Option Agreement under the Ultra Clean Corporation Stock Incentive Plan Date of Grant: _____________ Name of Optionee: _____________ Number of Shares Subject to the Option: _____________ Exercise Price: $____per share |
Ultra Clean Holdings, Inc., a Delaware corporation (the "COMPANY"), hereby grants as of the date of grant set forth above (the "GRANT DATE") to the above-named optionee ("OPTIONEE") an option (the "OPTION") to purchase from the Company, for the price per share set forth above, the number of shares of common stock of the Company ("SHARES") set forth above pursuant to the Ultra Clean Holdings, Inc. Stock Incentive Plan (the "PLAN").
Capitalized terms not otherwise defined herein shall have the same meanings as in the Plan. The terms and conditions of the Option granted hereby, to the extent not controlled by the terms and conditions contained in the Plan, are as follows:
1. Exercise Price. The price at which each Share subject to this Option may be purchased shall be the price set forth above.
2. Number of Shares, Exercise. The number of Shares for which the Option may be exercised are set forth above. To the extent the Option has become vested or exercisable in accordance with Section 3 hereof, the Option may be exercised at any time through the date of expiration of the Option, as set forth in Section 4 hereof.
3. Vesting. The Option shall vest and become exercisable on the following schedule:(1)
(a) The Option shall become vested and exercisable as to 25% of the Shares constituting the Option on the first anniversary of the Grant Date, subject to Optionee's continued employment or service with the Company on such date.
(b) Thereafter, the Option shall become vested and exercisable at a rate of 1/48 of the Shares constituting the Option per month, subject to Optionee's continued employment or service with the Company on each such date.
4. Term of Option. The term of the Option commences on the Grant Date and expires upon the earliest of the following:
(i) immediately upon termination of Optionee's employment or service with the Company and its Affiliates for any reason, to the extent such Option is not yet vested or does not become vested as a result of such termination;
(ii) three months after termination of Optionee's employment or service with the Company and its Affiliates by Participant or by the Company or any of its Affiliates (other than as a result of death or Disability or termination by the Company for Cause);
(iii) one year after Optionee's employment or service with the Company and its Affiliates is terminated by reason of Optionee's death or Disability;
(iv) immediately upon termination of Optionee's employment or service with the Company and its Affiliates by the Company or any of its Affiliates for Cause;
(v) the day before the tenth (10th) anniversary of the Grant Date;
(vi) in the event of a Change of Control, to the extent not continued or assumed in accordance with Section 10(a) of the Plan; or
(vii) in accordance with Section 10(b) of the Plan.
5. Exercise.
(a) Manner of Exercise. During the term of the Option set
forth in Section 4 above, Optionee (or his representative, devisee or
heir, as applicable) may exercise any portion of this Option which has
become exercisable in accordance with the terms hereof as to all or any
of the Shares then available for purchase by delivering to the Company
written notice in the form specified by the Company. Payment shall be
(i) in cash, by certified or bank cashier check payable to the order of
the Company, free from all collection charges, (ii) in the discretion
of the Committee, in Shares (provided such shares shall have been held
by Optionee for at least six months unless the Committee determines in
its sole discretion that such six-month holding period is not necessary
to comply with any accounting, legal or regulatory requirement) having
a Fair Market Value on the date of exercise equal to the full amount of
the Exercise Price therefor, (iii) if approved by the Committee, in
accordance with a cashless exercise program; or (iv) in such other form
as may be permitted by the Committee. Only one stock certificate will
be issued unless Optionee otherwise requests in writing. Shares
purchased upon exercise of the Option will be issued in the name of
Optionee or
Optionee's permitted transferee. Optionee shall not be entitled to any rights as a stockholder of the Company in respect of any Shares covered by this Option until such shares of Stock shall have been paid for in full and issued to Optionee.
(b) Tax Withholding. By exercising the Option, Optionee agrees that, as a condition to any exercise of the Option, the Company may require Optionee to enter into an arrangement providing for the payment by Optionee to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of the Option, (2) the lapse of any substantial risk of forfeiture to which the Shares are subject at the time of exercise, or (3) the disposition of Shares acquired upon such exercise. At any time Optionee exercises the Option, in whole or in part, or at any time as requested by the Company, Optionee hereby authorizes withholding from payroll and any other amounts payable to Optionee, any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company, if any, which arise in connection with the Option.
(c) Lock-up Period. By exercising the Option, Optionee agrees that the Company (or a representative of the underwriter(s)) may, in connection with any underwritten registration of the offering of any securities of the Company under the Securities Act (including the Company's Initial Public Offering), require that Optionee not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any Shares or other securities of the Company held by Optionee, for a period of time specified by the underwriter(s) (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Securities Act. Optionee further agrees to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to Optionee's Shares until the end of such period. The underwriters of the Company's stock are intended third party beneficiaries of this Subsection and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto.
6. Certificates. Certificates issued in respect of Shares acquired upon exercise of the Option shall, unless the Committee otherwise determines, be registered in the name of Optionee or Optionee's permitted transferee. So long as Optionee is not bound by any transfer restrictions herein or in the Plan, the Company shall deliver such certificates to Optionee or Optionee's permitted transferee upon request. Such stock certificate shall carry such appropriate legends, and such written instructions shall be given to the Company transfer agent, as may be deemed necessary or advisable by counsel to the Company in order to comply with the requirements of the Securities Act of 1933, any state securities laws or any other applicable laws.
7. Nontransferability of Option. This Option is personal to Optionee and may be exercised only by Optionee or his or her representative in the event of Optionee's
Disability or death. Any Option shall not be transferable other than by will or the laws of descent and distribution. Following transfer, any such Option shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer. The events of termination of employment or service or death of Optionee set forth in the Plan shall continue to be applied with respect to Optionee, following which the transferred Options shall be exercisable by the transferee only to the extent and for the periods specified in the Plan.
8. Employment Rights. This Option does not confer on Optionee any right to continue in the employ or service of the Company or any Subsidiary or interfere in any way with the right of the Company or any Subsidiary to determine the terms of Optionee's employment or service.
9. Proprietary Information and Inventions Agreement. Optionee shall, as a condition precedent to the exercise or settlement of an Award, have executed and be in compliance with the Company's (or its subsidiary's) standard form of confidentiality and non-disclosure agreement.
10. Terms of Plan, Interpretations. This Option and the terms and conditions herein set forth are subject in all respects to the terms and conditions of the Plan, which shall be controlling. All interpretations or determinations of the Committee and/or the Board shall be binding and conclusive upon Optionee and his legal representatives on any question arising hereunder. Optionee acknowledges that he has received and reviewed a copy of the Plan.
11. Delegation. Optionee acknowledges that any powers, rights or responsibilities of the Board and/or the Committee set forth herein may be delegated to and exercised by any subcommittee thereof as permitted under the Plan.
12. Notices. All notices hereunder to the party shall be delivered or mailed to the following addresses:
If to the Company:
Ultra Clean Holdings, Inc.
150 Independence Drive
Menlo Park, CA 94025
Attn: Controller
If to Optionee:
To the person and at the address specified on the signature page.
Such addresses for the service of notices may be changed at any time provided notice of such change is furnished in advance to the other party.
13. Entire Agreement. This Agreement contains the entire understanding of the parties hereto in respect of the subject matter contained herein. This Agreement and the Plan supersedes all prior agreements and understandings between the parties hereto with respect to the subject matter hereof.
14. Governing Law. This Option Agreement shall be governed by and construed in accordance with the laws of the State of California, without application of the conflict of laws principles thereof.
15. Counterparts. This Option Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the undersigned have caused this Option Agreement to be duly executed as of the date first above written.
Ultra Clean Holdings, Inc.
Title:
OPTIONEE:
Address:
Exhibit 10.13 Award Agreement under the Ultra Clean Corporation Stock Incentive Plan Date of Grant: _____________ Name of Participant: _____________ Number of Shares: _____________ |
Ultra Clean Holdings, Inc., a Delaware corporation (the "COMPANY"),
hereby grants the number of shares of common stock of the company set forth
above (the "RESTRICTED SHARES"), as of the date of grant set forth above (the
"GRANT DATE"), to the above-named participant ("PARTICIPANT") pursuant to
Section 7 of the Ultra Clean Holdings, Inc. Stock Incentive Plan (the "PLAN"),
in consideration for your past services to the Company.
Capitalized terms not otherwise defined herein shall have the same meanings as in the Plan. The terms and conditions of this Award, to the extent not controlled by the terms and conditions contained in the Plan, are as follows:
1. Vesting. The Restricted Shares shall vest on the following schedule:
(a) [25% of the Restricted Shares shall vest on the first anniversary of the Grant Date, subject to Participant's continued employment or service with the Company on such date.
(b) Thereafter, the Restricted Shares shall become vested and exercisable at a rate of 1/48 of the Restricted Shares per month, subject to Participant's continued employment or service with the Company on each such date.](1)
2. Forfeiture of Unvested Shares. Immediately upon termination of Participant's employment or service with the Company and its Affiliates, any unvested Restricted Shares shall be forfeited to the Company, and you shall receive no payment for Restricted Shares that are forfeited.(2)
(2)Any accelerated vesting on certain events? Involuntarily, death, disability, for example? Change of control?
3. Tax Withholding. By accepting this Award, Participant agrees that the Company may require Participant to enter into an arrangement providing for the payment by Participant to the Company of any tax withholding obligation of the Company arising by reason of the lapse of any substantial risk of forfeiture to which the Restricted Shares are subject. Participant hereby authorizes withholding from payroll and any other amounts payable to Participant, any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company, if any, which arise in connection with the vesting of the Award. The Company may withhold any Shares that would otherwise become vested in satisfaction of such withholding obligations.(3)
4. Lock-up Period. Participant agrees that the Company (or a representative of the underwriter(s)) may, in connection with any underwritten registration of the offering of any securities of the Company under the Securities Act (including the Company's Initial Public Offering), require that Participant not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any Shares or other securities of the Company held by Participant, for a period of time specified by the underwriter(s) (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Securities Act. Participant further agrees to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to Participant's Shares until the end of such period. The underwriters of the Company's stock are intended third party beneficiaries of this Subsection and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto.
5. Restrictions on Transfer of Shares. Participant understands and agrees that any unvested Restricted Shares may not be sold, given, transferred, assigned, or otherwise hypothecated by the holder thereof .4 In addition, Participant understands and agrees that any vested Shares acquired hereunder may not be sold, given, transferred, assigned, or otherwise hypothecated by the holder thereof prior to the Initial Transferability Date, except to such holder's Permitted Transferees. Any attempted transfer in violation of this subsection will be void ab initio. Shares held by Permitted Transferees who receive such vested Shares in accordance with this subsection shall be subject to the restrictions herein as if such Permitted Transferee were the original holder of the Shares transferred to the Permitted Transferee.
6. Certificates. Certificates issued in respect of Shares shall, unless the Committee otherwise determines, be registered in the name of Participant. When Participant ceases to be bound by any transfer restrictions herein or in the Plan, the Company shall deliver such certificates to Participant upon request. Such stock
(4) Could allow transfer to family members.
certificate shall carry such appropriate legends, and such written instructions shall be given to the Company transfer agent, as may be deemed necessary or advisable by counsel to the Company in order to comply with the requirements of the Securities Act of 1933, any state securities laws or any other applicable laws.
7. Employment Rights. This Award does not confer on Participant any right to continue in the employ or service of the Company or any Subsidiary or interfere in any way with the right of the Company or any Subsidiary to determine the terms of Participant's employment or service.
8. Terms of Plan, Interpretations. This Award and the terms and conditions herein set forth are subject in all respects to the terms and conditions of the Plan, which shall be controlling. All interpretations or determinations of the Committee and/or the Board shall be binding and conclusive upon Participant and his legal representatives on any question arising hereunder. Participant acknowledges that he has received and reviewed a copy of the Plan.
9. Delegation. Participant acknowledges that any powers, rights or responsibilities of the Board and/or the Committee set forth herein may be delegated to and exercised by any subcommittee thereof as permitted under the Plan.
10. Notices. All notices hereunder to the party shall be delivered or mailed to the following addresses:
If to the Company:
Ultra Clean Holdings, Inc.
150 Independence Drive
Menlo Park,CA 94025
Attn: Controller
If to Participant:
To the person and at the address specified on the signature page.
Such addresses for the service of notices may be changed at any time provided notice of such change is furnished in advance to the other party.
11. Entire Agreement. This Agreement contains the entire understanding of the parties hereto in respect of the subject matter contained herein. This Agreement and the Plan supersedes all prior agreements and understandings between the parties hereto with respect to the subject matter hereof.
12. Governing Law. This Award Agreement shall be governed by and construed in accordance with the laws of the State of California, without application of the conflict of laws principles thereof.
13. Counterparts. This Award Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the undersigned have caused this Award Agreement to be duly executed as of the date first above written.
Ultra Clean Holdings, Inc.
By:____________________________________
Name:
Title:
Address:
EXHIBIT 10.14
[UNION BANK OF CALIFORNIA LOGO] (R)
AMENDMENT AND CONSENT LETTER
NORTHERN CALIFORNIA
COMMERCIAL BANKING OFFICE
39305 Paseo Padre Parkway
Fremont, CA 94537
(510) 494-5792
March 5, 2004
Ultra Clean Technology Systems and Service, Inc.
150 Independence Drive
Menlo Park, CA 94025
Attn: Kevin Griffin, Chief Financial Officer
Re: First Amendment ("Amendment") to the Loan Agreement dated July 9, 2003 (all prior Amendments, this Amendment, and the Loan Agreement together called the "Agreement") and consent to prepayment under those certain Subordination Agreements between Union Bank of California, N.A. and Clarence L. Granger, FP-Ultra Clean L.L.C., and Kevin L. Griffin (collectively, "Creditors") dated July 9, 2003 (collectively, Subordination Agreements").
Dear Mr. Griffin:
I. In reference to the Agreement between Union Bank of California, N.A. ("Bank") and Ultra Clean Technology Systems and Service, Inc. ("Borrower"), the Bank and Borrower desire to amend the Agreement as set forth below. Capitalized terms used herein which are not otherwise defined herein shall have the meaning given them in the Agreement.
Amendments to the Agreement:
(a) Section 2.4 is changed in its entirety to "reserved".
(b) Section 6.4 is deleted and replaced with the following:
"6.4 The Guaranty shall be breached or become ineffective, or the Guarantor shall disavow or attempt to revoke or terminate such guaranty."
(c) Section 6.9 is changed in its entirety to "reserved".
Except as specifically amended hereby, the Agreement shall remain in full force and effect and is hereby ratified and confirmed. This Amendment shall not be a waiver of any existing or future default or breach of a condition or covenant unless specified herein.
This Amendment shall become effective when the Bank shall have received the acknowledgment copy of this Amendment executed by the Borrower and the Creditors which must be received by the Bank before March 17, 2004.
II. Bank hereby consents (notwithstanding anything to the contrary in Section 4 of each of the Subordination Agreements), pursuant to Section 5 of each of the Subordination Agreements, to full prepayment of the Creditor Obligations defined therein with the proceeds of the proposed initial public offering of the Guarantor (the "IPO"), and each of the parties hereto hereby agrees that each Subordination Agreement shall be terminated in its entirety concurrently with the consummation of the IPO without the requirement for any further action by any party thereto.
Ultra Clean Technology Systems and Service, Inc.
III. The parties may execute one or more counterparts to this Amendment, each of which shall be deemed an original, but all such counterparts when taken together, shall constitute one and the same amendment.
Very truly yours,
UNION BANK OF CALIFORNIA, N.A.
Agreed and Accepted on ______ day of March, 2004.
ULTRA CLEAN TECHNOLOGY SYSTEMS AND SERVICE, INC.
FP-ULTRA CLEAN, L.L.C.
EXHIBIT 23.1
CONSENT OF DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS
We consent to the use in this Amendment No. 3 to Registration Statement No. 333-111904 of Ultra Clean Holdings, Inc. on Form S-1 of our report dated February 13, 2004 (March 5, 2004 as to Note 11) appearing in the Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP San Jose, California March 5, 2004 |